8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

Current Report

Dated November 11, 2005

of

ZALE CORPORATION

A Delaware Corporation
IRS Employer Identification No. 75-0675400
SEC File Number 001-04129

901 West Walnut Hill Lane
Irving, Texas  75038
(972) 580-4000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) 12 under the Securities Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) 12 under the Securities Act (17 CFR 240.13e-2(c))

Item 1.01Entry Into a Material Definitive Agreement

Approval of Zale Corporation Outside Directors’ 2005 Stock Incentive Plan

On November 11, 2005, at the Annual Meeting of Stockholders (the “Annual Meeting”) of Zale Corporation (the “Company”), the Company’s stockholders approved the Zale Corporation Outside Directors’ 2005 Stock Incentive Plan (the “Outside Directors’ Plan”).  The Board of Directors of the Company had previously approved the Outside Directors’ Plan, subject to approval by the Company’s stockholders at the Annual Meeting.

A summary of the material terms of the Outside Directors’ Plan is included on pages 36 through 40 of the Company’s Definitive Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on October 3, 2005 (the “Proxy Statement”).  The full text of the Outside Directors’ Plan is attached hereto as Exhibit 10.1 and is incorporated by reference herein.

Pursuant to the terms of the Outside Directors’ Plan, effective as of November 11, 2005, each of the Company’s non-employee directors received an annual grant of 3,800 options to purchase shares of the Company’s common stock and 1,500 shares of restricted stock.  The terms of each stock option and restricted stock award are governed by the Outside Directors’ Plan and the individual plan agreement entered into by the Company and the applicable non-employee director.  The form of stock option plan agreement and the form of restricted stock plan agreement are attached hereto as Exhibits 10.2 and 10.3, respectively, and are incorporated by reference herein.

Amendment to Zale Corporation 2003 Stock Incentive Plan

On November 11, 2005, at the Annual Meeting, the Company’s stockholders approved an amendment to the Zale Corporation 2003 Stock Incentive Plan (the “2003 Incentive Plan”) that authorized the Company to grant both time-vesting and performance-based restricted stock units under the 2003 Incentive Plan.  In addition, the amendment established categories of objective performance-based criteria that the Compensation Committee of the Company’s Board of Directors may establish in connection with the grant of performance-based restricted stock units or other incentive awards under the 2003 Incentive Plan.  The Board of Directors of the Company had previously approved the amendment to the 2003 Incentive Plan, subject to approval by the Company’s stockholders at the Annual Meeting.

A summary of the material terms of the 2003 Stock Incentive Plan, as amended, is included on pages 27 through 34 of the Proxy Statement.  The full text of the amendment to the 2003 Stock Incentive Plan is attached hereto as Exhibit 10.4 and is incorporated by reference herein.

In addition, as described on page 34 of the Proxy Statement under the heading “Additional Information Regarding New Plan Benefits,” the Compensation Committee of the Board of Directors approved awards of time-vesting and performance-based restricted stock units to the executive officers of the Company, with such grants to be made as soon as

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practicable following stockholder approval of the amendment to the 2003 Stock Incentive Plan at the Annual Meeting.  The terms of each time-vesting and performance-based restricted stock unit are governed by the 2003 Stock Incentive Plan and the individual plan agreement entered into by the Company and the applicable executive officer.  The form of time-vesting restricted stock unit plan agreement and the form of performance-based restricted stock unit plan agreement are attached hereto as Exhibits 10.5 and 10.6, respectively, and are incorporated by reference herein.

Item 9.01Financial Statements and Exhibits

(d)Exhibits.

10.1Zale Corporation Outside Directors’ 2005 Stock Incentive Plan.

10.2Form of Stock Option Plan Agreement under the Zale Corporation Outside Directors’ 2005 Stock Incentive Plan.

10.3Form of Restricted Stock Plan Agreement under the Zale Corporation Outside Directors’ Stock Incentive Plan.

10.4Amendment to Zale Corporation 2003 Stock Incentive Plan.

10.5Form of Time-Vesting Restricted Stock Unit Plan Agreement under the Zale Corporation 2003 Stock Incentive Plan

10.6Form of Performance-Based Restricted Stock Unit Plan Agreement under the Zale Corporation 2003 Stock Incentive Plan.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

		ZALE CORPORATION
		Registrant
Date:	November 17, 2005		By:	/s/ Mark R. Lenz
			Mark R. Lenz
			Group Senior Vice President,
			Chief Financial Officer
			(principal financial officer
			of the Registrant)

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EX-10.1

Exhibit 10.1

OUTSIDE DIRECTORS’ 2005 STOCK INCENTIVE PLAN

1.PREAMBLE

This Zale Corporation Outside Directors’ 2005 Stock Incentive Plan, as it may be amended from time to time (the “Plan”), is intended to promote the interests of Zale Corporation, a Delaware corporation (the “Company”), and its stockholders by providing directors of the Company who are not employees of the Company with appropriate incentives and rewards to serve on the board of directors of the Company and to acquire a proprietary interest in the long-term success of the Company.

2.DEFINITIONS

As used in the Plan, the following definitions apply to the terms indicated below:

(a)“Board of Directors” shall mean the Board of Directors of the Company.

(b)“Cause,” when used in connection with a Participant’s removal or resignation as a member of the Board of Directors, shall mean (i) the willful and continued failure by the Participant substantially to perform his or her duties and obligations to the Company (other than any such failure resulting from his or her incapacity due to physical or mental illness) or (ii) the willful engaging by the Participant in misconduct which is materially injurious to the Company.  For purposes of this Section 2(b), no act, or failure to act, on a Participant’s part shall be considered “willful” unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that his or her action or omission was in the best interests of the Company.  The Board of Directors shall determine whether a Participant’s removal or resignation as a member of the Board of Directors is for Cause.

(c)“Change in Control” shall mean the first to occur of the following:

(i)any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities;

(ii)during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this definition) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(iii)the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than (i) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no “person” (as hereinabove defined) acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or

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(iv)the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

(d)“Code” shall mean the Internal Revenue Code of 1986, as amended.

(e)“Company Stock” shall mean the common stock, par value $.01 per share, of the Company.

(f)“Disability” shall mean any physical or mental condition that would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to him or her.

(g)“Effective Date” shall mean November 11, 2005.

(h)“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(i)The “Fair Market Value” of a share of Company Stock with respect to any day shall be the closing price of Company Stock on the immediately preceding business day as reported on the New York Stock Exchange or on such other securities exchange or reporting system as may be designated by the Board of Directors.  In the event that the price of a share of Company Stock shall not be so reported, the Fair Market Value of a share of Company Stock shall be determined by the Board of Directors in its absolute discretion.

(j)“Incentive Award” shall mean an Option or a share of Restricted Stock granted pursuant to the terms of the Plan.

(k)“Issue Date” shall mean the date established by the Board of Directors on which certificates representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of Section 8(e).

(l)“Option” shall mean an option to purchase shares of Company Stock granted pursuant to Section 6(a) and as described in Section 7.

(m)“Participant” shall mean a member of the Board of Directors who is not an employee of the Company or a Subsidiary.

(n)A share of “Restricted Stock” shall mean a share of Company Stock which is granted pursuant to the terms of Section 6(b) and as described in Section 8.

(o)“Rule 16b-3” shall mean the rule thus designated as promulgated under the Exchange Act.

(p)“Subsidiary” shall mean any corporation or other entity in which, at the time of reference, the Company owns, directly or indirectly, stock or similar interests comprising more than 50 percent of the combined voting power of all outstanding securities of such entity.

(q)“Vesting Date” shall mean the date established by the Board of Directors on which a share of Restricted Stock may vest.

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3.STOCK SUBJECT TO THE PLAN

(a)Shares Available for Option or Restricted Stock Awards

The total number of shares of Company Stock with respect to which Incentive Awards may be granted shall not exceed 250,000 shares, with not more than 100,000 shares to be granted as Restricted Stock awards.  Such shares may be authorized but unissued Company Stock or authorized and issued Company Stock held in the Company’s treasury or acquired by the Company for the purposes of the Plan.  The Board of Directors may direct that any stock certificate evidencing shares of Company Stock issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan.

(b)Adjustment for Change in Capitalization

If there is any change in the outstanding shares of Company Stock by reason of a stock dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or by reason of any merger, consolidation, spin-off or other corporate reorganization in which the Company is the surviving corporation, the number of shares available for issuance both in the aggregate and with respect to each outstanding Incentive Award, and the price per share under each outstanding Option, shall be proportionately adjusted by the Board of Directors, whose determination shall be final and binding.  After any adjustment made pursuant to this Section 3(b), the number of shares subject to each outstanding Incentive Award shall be rounded to the nearest whole number.

(c)Re-use of Shares

Any shares subject to an Incentive Award that remain unissued upon the cancellation or termination of such Incentive Award for any reason whatsoever shall again become available for Incentive Awards under the Plan.

(d)No Repricing

Absent stockholder approval, the Board of Directors shall not have any authority, with or without the consent of the affected holders of Options, to “reprice” an Option after the date of its initial grant with a lower exercise price in substitution for the original exercise price.  This paragraph may not be amended, altered or repealed by the Board of Directors without approval of the stockholders of the Company.

4.ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Board of Directors.  The Board of Directors shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Incentive Awards issued under it and to adopt such rules and regulations for administering the Plan as it may deem necessary or appropriate.  Decisions of the Board of Directors shall be final and binding on all parties.  Unless determined otherwise by the Board of Directors, the authority of the Board of Directors to administer the Plan is delegated to the Compensation Committee of the Board of Directors.

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No member of the Board of Directors shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify and hold harmless each member of the Board of Directors and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board of Directors) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company.

5.ELIGIBILITY

The persons who shall be eligible to receive Options or Restricted Stock awards pursuant to the Plan shall be such members of the Board of Directors who are not employees of the Company or a Subsidiary.

6.INCENTIVE AWARDS UNDER THE PLAN

Incentive Awards granted under the Plan shall be subject to the terms and conditions set forth in the Plan, and shall be evidenced by an Incentive Award Agreement which shall not be inconsistent with the provisions of the Plan.  The Board of Directors shall be entitled to increase or decrease the number of Incentive Awards Participants receive.

(a)Annual Awards.  Annually, Participants shall receive the following Incentive Awards:

(i)3,800 Options; and

(ii)1,500 shares of Restricted Stock.

(b)Other Awards

Upon the initial election to the Board of Directors of any person who is a Participant (other than through an initial election by the Company’s stockholders at an annual meeting of stockholders), such person shall be granted:

(i)Options to purchase such number of shares of Company Stock as shall be determined by multiplying (1) 300 by (2) the number of full calendar months remaining before the next annual meeting of stockholders of the Company at which directors will be elected (if no date has been set for the next annual meeting of stockholders such date shall be presumed to be November 1); and

(ii)Restricted Stock in such number of shares as shall be determined by multiplying (1) 100 by (2) the number of full calendar months remaining before the next annual meeting of stockholders of the Company at which directors will be elected (if no date has been set for the next annual meeting of stockholders such date shall be presumed to be November 1).

The Board of Directors shall be entitled to increase or decrease these pro rata amounts in order to reflect any adjustment on the annual awards.

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7.OPTIONS

(a)Exercise Price

The exercise price per share of an Option shall be the Fair Market Value of a share of Company Stock on the date the Option is granted.

(b)Term and Exercise of Options

(i)Unless the Board, in its discretion, determines otherwise, each Option shall become cumulatively exercisable as to 25% of the shares covered thereby on each of the first, second, third and fourth anniversaries of the date of grant.  The expiration date of each Option shall be ten years after the date of grant; provided, however, that if the expiration date would occur during a period in which the Participant is prohibited from trading in the Company Stock pursuant to the provisions of the Company’s insider trading policy, then the expiration date shall be extended and such Option shall expire on the 30th day after the prohibition against trading under the Company’s insider trading policy has ceased to be in effect.

(ii)An Option may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no partial exercise of an Option shall be for an aggregate exercise price of less than $1,000.  The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof.

(iii)An Option shall be exercised by delivering notice to the Company’s principal office, to the attention of its Secretary (or the Secretary’s designee), no less than one business day in advance of the effective date of the proposed exercise.  Such notice shall specify the number of shares of Company Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option.  Such notice may be withdrawn at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise.  Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means: (i) in cash, by certified check, bank cashier’s check or wire transfer; (ii) subject to the approval of the Board of Directors, in shares of Company Stock owned by the Participant for at least six months prior to the date of exercise and valued at their Fair Market Value on the effective date of such exercise; or (iii) subject to the approval of the Board of Directors, by such other provision as the Board of Directors may from time to time authorize.  Any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary (or the Secretary’s designee) of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary (or the Secretary’s designee) of the Company shall require.

(iv)Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised.

(c)Effect of Termination of Directorship

(i)Unless the Board of Directors shall determine otherwise, in the event of a Participant’s removal or resignation as a member of the Board of Directors for any reason other

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than Cause, Disability or death: (i) Options granted to such Participant, to the extent that they were exercisable at the time of such removal or resignation, shall remain exercisable until the date that is three months after such removal or resignation, on which date they shall expire; and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such removal or resignation, shall expire at the close of business on the date of such removal or resignation.  The three-month period described in this Section 7(c)(i) shall be extended to one year in the event of the Participant’s death during such three-month period.  Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.

(ii)Unless the Board of Directors shall determine otherwise, in the event of a Participant’s removal or resignation as a member of the Board of Directors on account of the Disability or death of the Participant: (i) Options granted to such Participant, to the extent that they were exercisable at the time of such removal or resignation, shall remain exercisable until the first anniversary of such removal or resignation, on which date they shall expire; and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such removal or resignation, shall expire at the close of business on the date of such removal or resignation.  Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.

(iii)In the event of a Participant’s removal or resignation as a member of the Board of Directors for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such removal or resignation.

(d)Acceleration of Exercise Date Upon Change in Control

Upon the occurrence of a Change in Control, each Option granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan.  In addition, in the event of a potential Change in Control, the Board of Directors may in its discretion, cancel any outstanding Options and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Options based upon the price per share of Company Stock to be received by shareholders of the Company in the transaction giving rise to the Change in Control less the exercise price of each Option.

8.RESTRICTED STOCK

(a)Issue Date and Vesting Date

At the time of the grant of shares of Restricted Stock, the Board of Directors shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares.  Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 8(b) are satisfied, upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 8(b) shall cease to apply to such share.  Unless the Board of Directors determines otherwise, shares of Restricted Stock issued under the Plan shall vest on the first anniversary of the Issue Date.

(b)Conditions to Vesting

At the time of the grant of shares of Restricted Stock, the Board of Directors may impose such restrictions or conditions to the vesting of such shares as it, in its absolute discretion, deems appropriate.  By way of example and not by way of limitation, the Board of Directors may

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require, as a condition to the vesting of any class or classes of shares of Restricted Stock, that the Participant or the Company achieves such performance goals as the Board of Directors may specify.

(c)Restrictions on Transfer Prior to Vesting

Prior to the vesting of a share of Restricted Stock, no transfer of a Participant’s rights with respect to such share, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted.  Immediately upon any attempt to transfer such rights, such share, and all of the rights related thereto, shall be forfeited by the Participant.

(d)Dividends on Restricted Stock

The Board of Directors in its discretion may require that any dividends paid on shares of Restricted Stock shall be held in escrow until all restrictions on such shares have lapsed.

(e)Issuance of Certificates

Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided, that the Company shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such shares.  Each such stock certificate shall bear the following legend:

The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Zale Corporation Outside Directors’ 2005 Stock Incentive Plan, and such rules, regulations and interpretations as the Zale Corporation Board of Directors may adopt.  Copies of the Plan and, if any, rules, regulations and interpretations are on file in the office of the Secretary of Zale Corporation, 901 West Walnut Hill Lane, Irving, Texas 75038-1003.

Such legend shall not be removed until such shares vest pursuant to the terms hereof.

Each certificate issued pursuant to this Section 8(e), together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held by the Company unless the Board of Directors determines otherwise.

(f)Voting Rights of Restricted Stock

During the restricted period, Participants holding shares of Restricted Stock may exercise full voting rights with respect to the shares.

(g)Consequences of Vesting

Upon the vesting of a share of Restricted Stock pursuant to the terms of the Plan, the restrictions of Section 8(c) shall cease to apply to such share.  Reasonably promptly after a share of Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in

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Section 8(e).  Notwithstanding the foregoing, such share still may be subject to restrictions on transfer as a result of applicable securities laws.

(h)Effect of Termination of Directorship

(i)Unless the Board of Directors provides otherwise, during the 90 days following a Participant’s removal or resignation as a member of the Board of Directors for any reason other than Cause, the Company shall have the right to require the return of any shares to which restrictions on transferability apply, in exchange for which the Company shall repay to the Participant (or the Participant’s estate) any amount paid by the Participant for such shares.  In the event that the Company requires such a return of shares, it also shall have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held or otherwise.

(ii)In the event of a Participant’s removal or resignation as a member of the Board of Directors for Cause, all shares of Restricted Stock granted to such Participant which have not vested as of the date of such removal or resignation shall immediately be returned to the Company, together with any dividends paid on such shares, in return for which the Company shall repay to the Participant any amount paid for such shares.

(i)Effect of Change in Control

Upon the occurrence of a Change in Control, all outstanding shares of Restricted Stock which have not theretofore vested shall immediately vest.

9.RIGHTS AS A STOCKHOLDER

No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Option until the date of issuance of a stock certificate with respect to such shares of Company Stock.  Except as otherwise expressly provided in Section 3(b), no adjustment to any Option shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued.

10.NO RIGHT TO INCENTIVE AWARD

Other than as specifically provided in the Plan, no person shall have any claim or right to receive an Incentive Award hereunder.  The Board of Director’s granting of an Incentive Award to a Participant at any time shall neither require the Board of Directors to grant any other Incentive Award to such Participant or other person at any time nor preclude the Board of Directors from making subsequent grants to such Participant or any other person.

11.SECURITIES MATTERS

The Company shall be under no obligation to effect the registration pursuant to the Securities Act of 1933 of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws.  Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of the New York Stock Exchange and any other securities exchange on which shares of Company Stock are traded.  Certificates evidencing shares of Company Stock issued pursuant to the terms

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hereof, may bear such legends, as the Board of Directors, in its sole discretion, deems necessary or desirable to insure compliance with applicable securities laws.

The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of the New York Stock Exchange and any other securities exchange on which shares of Company Stock are traded.  The Board of Directors may, in its sole discretion, defer the effectiveness of any transfer of shares of Company stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws.  The Company shall inform the Participant in writing of the Board of Director’s decision to defer the effectiveness of a transfer.  During the period of such a deferral in connection with the exercise of an Option, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.

12.NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE

If any Participant shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Section 83(b) of the Code (i.e., an election to include in gross income in the year of transfer the amounts specified in Section 83(b)), such Participant shall notify the Company of such election within ten days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Code Section 83(b).

13.WITHHOLDING TAXES

Whenever cash is to be paid pursuant to an Option or share of Restricted Stock, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.

Whenever shares of Company Stock are to be delivered either pursuant to an Option or as Restricted Stock, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.  With the approval of the Board of Directors, which it shall have sole discretion to grant, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the amount of tax to be withheld.  Such shares shall be valued at their Fair Market Value on the date as of which the amount of tax to be withheld is determined (the “Tax Date”).  Fractional share amounts shall be settled in cash.  Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Option or as Restricted Stock.  To the extent required for such a withholding of stock to qualify for the exemption available under Rule 16b-3, such an election by a grantee whose transactions in Company Stock are subject to Section 16(b) of the Exchange Act shall be: (i) subject to the approval of the Board of Directors in its sole discretion; (ii) irrevocable; (iii) made no sooner than six months after the grant of the award with respect to which the election is made; and (iv) made at least six months prior to the Tax Date unless such withholding election is in connection with exercise of an Option and both the election and the exercise occur prior to the Tax Date in a “window period” of ten business days beginning on the third day following release of the Company’s quarterly or annual summary statement of sales and earnings.

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14.AMENDMENT OR TERMINATION OF THE PLAN

Except as provided in Section 3(d), the Board of Directors may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that stockholder approval shall be required if and to the extent required by Rule 16b-3 or the New York Stock Exchange or any other securities exchange on which shares of the Company Stock are traded.  Nothing herein shall restrict the Board of Director’s ability to exercise its discretionary authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan.  No action hereunder may, without the consent of a Participant, reduce the Participant’s rights under any outstanding Incentive Award.

15.NO OBLIGATION TO EXERCISE

The grant to a Participant of an Option shall impose no obligation upon such Participant to exercise such Option.

16.TRANSFERS UPON DEATH; NONASSIGNABILITY

Upon the death of a Participant outstanding Options granted to such Participant may be exercised only by the executor or administrator of the Participant’s estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution.  No transfer of an Incentive Award by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Board of Directors may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Incentive Award.

During a Participant’s lifetime, the Board of Directors may permit the transfer, assignment or other encumbrance of an outstanding Incentive Award unless the award is meant to qualify for the exemptions available under Rule 16b-3 and the Board of Directors and the Participant intend that it shall continue to so qualify.

17.EXPENSES AND RECEIPTS

The expenses of the Plan shall be paid by the Company.  Any proceeds received by the Company in connection with the exercise of any Option by a Participant will be used for general corporate purposes.

18.FAILURE TO COMPLY

In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan, unless such failure is remedied by such Participant (or beneficiary) within ten days after notice of such failure by the Board of Directors, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Board of Directors, in its sole discretion, may determine.

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19.EFFECTIVE DATE AND TERM OF PLAN

The Plan shall be effective as of the Effective Date.  Unless earlier terminated by the Board of Directors, the right to grant Options under the Plan will terminate on the tenth anniversary of the Effective Date.  Options outstanding at the termination of the Plan will remain in effect according to their terms and the provisions of the Plan.

20.APPLICABLE LAW

Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of Delaware, without reference to the principles of conflicts of laws thereunder.

11

EX-10.2

Exhibit 10.2

ZALE CORPORATION

2005 OUTSIDE DIRECTORS’ STOCK INCENTIVE PLAN

STOCK OPTION

PLAN AGREEMENT

			Social Security Number
Participant	Grant Date	Number of Options	Option Exercise Price

Grant	Zale Corporation (the “Company”) hereby grants to the Participant named above, as of the grant date above, the above number of Options to purchase common stock of the Company (“Company Stock”) at the above option exercise price subject to the terms and conditions set forth in this Plan Agreement and in the Zale Corporation 2005 Outside Directors’ Stock Incentive Plan (the “Plan”).
Vesting	Each Option shall become cumulatively exercisable as to 25 percent of the shares covered thereby on each of the first, second, third and fourth anniversaries of the date of grant.
Expiration	The expiration date of each Option shall be ten years after the date of grant; provided, however, that if the expiration date would occur during a period in which the Participant is prohibited from trading in the Company Stock pursuant to the provisions of the Company’s insider trading policy, then the expiration date shall be extended and such Option shall expire on the 30thday after the prohibition against trading under the Company’s insider trading policy has ceased to be in effect.
Exercise	An Option may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no partial exercise of an Option shall be for an aggregate exercise price of less than $1,000. An Option shall be exercised by delivering notice to Zale Corporation Investor Relations, MS 5A-8, P.O. Box 152777, Irving, Texas 75015-2777 no less than one business day in advance of the effective date of the proposed exercise (Please call Investor Relations for the proper form). Such notice shall be accompanied by this Plan Agreement, and may be withdrawn at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise. Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by cash, certified check, bank cashier’s check or wire transfer. Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant, or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the Option is exercised.

Resignation or Removal	Other than Cause, Disability or Death - In the event of Participant’s resignation or removal as a director of the Company for any reason other than Cause, Disability or death (i) Options granted to such Participant, to the extent that they were exercisable at the time of such resignation or removal, shall remain exercisable until the date that is three months after such resignation or removal, on which date they shall expire, and (ii) Options granted to such Participant, to the extent they were not exercisable at the time of such resignation or removal, shall expire at the close of business on the date of such resignation or removal. The three-month period described above shall be extended to one year in the event of the Participant’s death during such three-month period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
	Disability or Death - In the event of Participant’s resignation or removal as a director of the Company on account of the Disability or death of the Participant (i) Options granted to such Participant, to the extent they were exercisable at the time of such resignation or removal, shall remain exercisable until the first anniversary of such resignation or removal, on which date they shall expire, and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such resignation or removal, shall expire at the close of business on the date of such resignation or removal; provided, however, that no Option shall be exercisable after the expiration of its term. Cause - In the event of Participant’s resignation or removal as a director of the Company for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.
Miscellaneous	Upon the occurrence of a Change in Control, each Option granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Plan.
	Zale Corporation
	Authorized Officer
	I hereby agree to be bound by all the terms and  conditions of this Plan Agreement and the Plan.
	Participant

EX-10.3

Exhibit 10.3

ZALE CORPORATION

2005 OUTSIDE DIRECTORS’ STOCK INCENTIVE PLAN

RESTRICTED STOCK

PLAN AGREEMENT

Participant Issue Date Number of Shares Social Security Number

Grant	Zale Corporation (the “Company”) has issued to the Participant named above, as of the Issue Date, the above number of shares of common stock of the Company (the “Restricted Stock”) subject to the terms and conditions set forth in this Plan Agreement and in the Zale Corporation 2005 Outside Directors’ Stock Incentive Plan (the “Plan”).
Issue Date	The Issue Date for the shares of Restricted Stock granted to the Participant pursuant to this Plan Agreement (the “Restricted Shares,” or a “Restricted Share”) shall be the date set forth above.
Issuance of Certificates	Reasonably promptly after the Issue Date, the Company shall cause to be issued a stock certificate, registered in the name of the Participant, evidencing the Restricted Shares; provided, however, that the Company shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such Restricted Shares. Each such stock certificate shall bear the legend required by Section 8(e) of the Plan. Such legend shall not be removed until such Restricted shares vest pursuant to the terms of this Plan Agreement and the Plan.
	The stock certificate issued with respect to the Restricted Shares, together with the stock powers relating to such Restricted Shares, shall be held by the Company.
Vesting Date(s)	The Restricted Shares shall vest in full on the first anniversary of the Issue Date (the “Vesting Date”).
Consequences of Vesting	Upon the vesting of a Restricted Share pursuant to the terms of the Plan and this Plan Agreement, the restrictions set forth below relating to such Restricted Shares shall cease to apply to such Restricted Share. Reasonably promptly after a Restricted Share vests, the Company shall cause to be delivered to the Participant a certificate evidencing such Restricted Share, free of the legend required by Section 8(e) of the Plan. Notwithstanding the foregoing, the Restricted Share still may be subject to restrictions on transfer as a result of applicable securities laws.
Dividends	The Participant shall be entitled to receive dividend payments, if any, with respect to the Restricted Shares.
Restrictions	Prior to the vesting of a Restricted Share, no transfer of the Participant’s rights with respect to such Restricted Share, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Share, and all of the rights related thereto, shall be forfeited by the Participant.

Resignation or Removal	Other than Cause - During the 90 days following termination of a Participant’s resignation or removal as a director of the Company for any reason other than Cause, the Company shall have the right to require the return of any Restricted Shares to which restrictions on transferability apply, in exchange for which the Company shall repay to the Participant (or the Participant’s estate) any amount paid by the Participant for such Restricted Shares.
	Cause - In the event of Participant’s resignation or removal as a director of the Company for Cause, all Restricted Shares granted to the Participant which have not vested as of the date of such resignation or removal shall immediately be returned to the Company, together with any dividends paid on such Restricted Shares.
No Section 83(b) Elections	The Participant shall not file with the Internal Revenue Service an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (i.e., an election to include in gross income in the year of issuance of the Restricted Shares the amounts specified in such Section 83(b)).
Misc.	Upon the occurrence of a Change in Control, all outstanding Restricted Shares which have not theretofore vested shall immediately vest. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Plan.
	Zale Corporation
	Authorized Officer
	I hereby agree to be bound by all the terms and conditions of this Plan Agreement and the Plan.
	Participant

EX-10.4

Exhibit 10.4

AMENDMENT TO THE ZALE CORPORATION
2003 STOCK INCENTIVE PLAN

1.By deleting the existing Section 2(k) and substituting therefor the following:

“(k)‘Incentive Award’ shall mean an Option, Tandem SAR, Stand-Alone SAR, share of Restricted Stock, share of Phantom Stock, Stock Bonus, or a Restricted Stock Unit (each defined herein) granted pursuant to the terms of the Plan.”

2.By adding new Section 2(z), as follows:

“(z)‘Performance Goals’ means the measurable performance objectives, if any, established by the Committee for a Performance Period that are to be achieved with respect to an Incentive Award granted to a Participant under the Plan. Performance Goals may be described in terms of Company-wide objectives or in terms of objectives that are related to performance of the division, department or function within the Company in which the Participant receiving the Incentive Award is employed or on which the Participant’s efforts have the most influence.  The achievement of the Performance Goals established by the Committee for any Performance Period will be determined without regard to the effect on such Performance Goals of any acquisition or disposition by the Company of a trade or business, or of substantially all of the assets of a trade or business, during the Performance Period and without regard to any change in accounting standards by the Financial Accounting Standards Board or any successor entity. The Performance Goals established by the Committee for any Performance Period under the Plan will consist of one or more of the following:

(i)	earnings per share and/or growth in earnings per share in relation to target objectives;
(ii)	operating cash flow and/or growth in operating cash flow in relation to target objectives;
(iii)	cash available in relation to target objectives;
(iv)	net income and/or growth in net income in relation to target objectives;
(v)	revenue and/or growth in revenue in relation to target objectives;
(vi)	total shareholder return (measured as the total of the appreciation of and dividends declared on the Common Stock) in relation to target objectives;
(vii)	return on invested capital in relation to target objectives;
(viii)	return on shareholder equity in relation to target objectives;
(ix)	return on assets in relation to target objectives;
(x)	return on common book equity in relation to target objectives;
(xi)	economic value added (relative or absolute); and
(xiv)	working capital targets.

If the Committee determines that, as a result of a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or any other events or circumstances, the Performance Goals are no longer suitable, the Committee may in its discretion modify such Performance Goals or the related minimum acceptable level of achievement, in whole or in part, with respect to a period as the Committee deems appropriate and

equitable, except where such action would result in the loss of the otherwise available exemption of the Incentive Award under Section 162(m) of the Code.  In such case, the Committee will not make any modification of the Performance Goals or minimum acceptable level of achievement.”

3.By adding new Section 2(aa), as follows:

“(aa)‘Performance Period’ means, with respect to an Incentive Award, a period of time within which the Performance Goals relating to such Incentive Award are to be measured. The Performance Period will be established by the Committee at the time the Incentive Award is granted.”

4.By adding new Section 2(bb), as follows:

“(bb)‘Restricted Stock Unit’ refers to a restricted stock unit as described in Section 10A.”

5.By adding new Section 2(cc), as follows:

“(cc)‘Stock Incentive Program’ means a written program established by the Committee, pursuant to which Incentive Awards are awarded under the Plan under terms, conditions and restrictions set forth in such written program.”

6.By deleting Section 3(e) and substituting the following:

“(e)Total Grants for Awards Other than Options

The total number of shares of Common Stock with respect to which Tandem SARs, Stand Alone SARs, shares of Restricted Stock, Restricted Stock Units, shares of Phantom Stock and Stock Bonuses may collectively be granted shall not exceed 30% of the total number of shares of Common Stock with respect to which all Incentive Awards have been or may be granted under the Plan.”

7.By deleting the first paragraph of Section 6 and substituting therefor the following:

“The Committee may grant Options, Tandem SARS, Stand-Alone SARS, shares of Restricted Stock, shares of Phantom Stock, Stock Bonuses, and Restricted Stock Units in such amounts and with such terms and conditions as the Committee shall determine, subject to the provisions of the Plan.”

8.By adding new Section 10A, as follows:

“10A.Terms and Conditions of Restricted Stock Units

A Restricted Stock Unit shall entitle the Participant to receive, at a specified future date, a number of shares of Company Stock equal to a specified or determinable number of Restricted Stock Units granted by the Committee, or, in the Committee’s sole discretion at the time thereof, an amount equal to the then Fair Market Value of such shares.At the time of the grant, the Committee must determine the target number of

Restricted Stock Units subject to a Restricted Stock Units Incentive Award and (i) the period over which such Restricted Stock Unit shall vest and in what proportions or (ii) the Performance Period and the Performance Goals applicable to the determination of the ultimate settlement of the Restricted Stock Unit.

(a)Settlement.  Settlement with respect to Restricted Stock Units may be made by the Company in shares of Company Stock, or in cash, as provided in the applicable Plan Agreement or Stock Incentive Program or, in the absence of such provision, as the Committee may determine in its sole discretion.

(b)Conditions to Settlement.  Each Restricted Stock Unit granted under the Plan shall be settled at the end of the vesting period or Performance Period or upon the occurrence of an event, and in such number of shares or amount, as the Committee shall specify in the applicable Plan Agreement or Stock Incentive Program; provided, however, that in no event will payment occur later than two and one-half (2 ½) months after the later of (i) the end of the Participant’s first taxable year in which the amount is no longer subject to a substantial risk of forfeiture, or (ii) the end of the Company’s first taxable year in which the amount is no longer subject to a substantial risk of forfeiture.”

EX-10.5

Exhibit 10.5

ZALE CORPORATION

2003 STOCK INCENTIVE PLAN, AS AMENDED

TIME-VESTING RESTRICTED STOCK UNITS

PLAN AGREEMENT

Participant	Issue Date	Number of Units	Social Security Number
Grant	Zale Corporation (the “Company”), on behalf of Zale Delaware, Inc. (“Zale Delaware”), its wholly-owned subsidiary, has granted to the Participant named above, as of the Issue Date, the above number of Restricted Stock Units, subject to the terms and conditions set forth in this Plan Agreement and in the Zale Corporation 2003 Stock Incentive Plan, as amended (the “Plan”).
Issue Date	The Issue Date for the Restricted Stock Units granted to the Participant pursuant to this Plan Agreement shall be the date set forth above.
Vesting Date(s)	The Restricted Stock Units issued pursuant to this Plan Agreement shall vest in full on                             ,           (the “Vesting Date”).
Consequences of Vesting	Upon the Vesting Date, the Participant shall be entitled to receive one share of the Company’s common stock, par value $.01 per share (“Common Stock”), for each Restricted Stock Unit that vested on the Vesting Date or, in the sole discretion of the Committee, in lieu thereof, the Company shall pay to the Participant the Fair Market Value of such number of shares of Common Stock. Unless the Committee has elected to make a cash payment upon the vesting of the Restricted Stock Units reasonably promptly after the Vesting Date, the Company shall cause to be delivered to the Participant a certificate evidencing the shares of Common Stock issuable to the Participant upon the vesting of the Restricted Stock Units, free of any restrictive legend other than restrictions on transfer as a result of applicable securities laws.
No Dividends or Voting Rights	The Participant shall not be entitled to receive dividend payments with respect to the Restricted Stock Units and shall have no voting rights with respect to the Restricted Stock Units.
Restrictions on Transfer	No transfer of the Participant’s rights with respect to the Restricted Stock Units, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Stock Units, and all of the rights related thereto, shall be forfeited by the Participant.

Termination	Other than Cause - During the 90 days following termination of a Participant’s employment with Zale Delaware, Inc. for any reason other than Cause, the Company shall have the right to require the return of any Restricted Stock Units that had not vested as of the date of such Participant’s termination of employment and any such Restricted Stock Units required to be returned to the Company shall be void and of no further effect.
	Cause - In the event of the termination of a Participant’s employment with Zale Delaware, Inc. for Cause, the Restricted Stock Units granted to the Participant which have not vested as of the date of such termination shall immediately be returned to the Company and thereupon shall be void and of no further effect.
No Section 83(b) Elections	The Participant shall not file with the Internal Revenue Service an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (i.e., an election to include in gross income in the year of issuance of the Restricted Stock Units the amounts specified in such Section 83(b)).
Misc.	Upon the occurrence of a Change in Control, all outstanding Restricted Stock Units which have not theretofore vested shall immediately vest. Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Plan.
	Zale Corporation
	Authorized Officer
	I hereby agree to be bound by all the terms and conditions of this Plan Agreement and the Plan.
	Participant

EX-10.6

Exhibit 10.6

ZALE CORPORATION

2003 STOCK INCENTIVE PLAN, AS AMENDED

PERFORMANCE-BASED RESTRICTED STOCK UNITS

PLAN AGREEMENT

Participant	Issue Date	Number of Units	Social Security Number
Grant	Zale Corporation (the “Company”), on behalf of Zale Delaware, Inc. (“Zale Delaware”), its wholly-owned subsidiary, has granted to the Participant named above, as of the Issue Date, the above number of Restricted Stock Units, subject to the terms and conditions set forth in this Plan Agreement and in the Zale Corporation 2003 Stock Incentive Plan, as amended (the “Plan”).
Issue Date	The Issue Date for the Restricted Stock Units granted to the Participant pursuant to this Plan Agreement shall be the date set forth above.
Performance-Based Award	Each Restricted Stock Unit granted to the Participant pursuant to this Plan Agreement represents the Company’s unsecured obligation, upon the satisfaction of the Performance Goal(s) set forth on Exhibit A hereto, to issue to the Participant the applicable number of shares of the Company’s common stock, par value $.01 per share (“Common Stock”), as determined in accordance with the provisions of Exhibit A hereto or, in the sole discretion of the Plan Committee, to pay to the Participant, in lieu thereof, an amount equal to the Fair Market Value of such number of shares of Common Stock. Unless the Committee has elected to make a cash payment in satisfaction of the Restricted Stock Units reasonably promptly after the Committee has determined whether the Performance Goal(s) have been satisfied, the Company shall cause to be delivered to the Participant a certificate evidencing the shares of Common Stock issuable to the Participant, free of any restrictive legend other than restrictions on transfer as a result of applicable securities laws.
No Dividends or Voting Rights	The Participant shall not be entitled to receive dividend payments with respect to the Restricted Stock Units and shall have no voting rights with respect to the Restricted Stock Units.
Restrictions on Transfer	No transfer of the Participant’s rights with respect to the Restricted Stock Units, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Stock Units, and all of the rights related thereto, shall be forfeited by the Participant.
No Section 83(b) Elections	The Participant shall not file with the Internal Revenue Service an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (i.e., an election to include in gross income in the year of issuance of the Restricted Stock Units the amounts specified in such Section 83(b)).

Misc.	Capitalized terms used in this Plan Agreement or Exhibit A hereto that are not otherwise defined herein shall have the meanings assigned to them in the Plan.
	Zale Corporation
	Authorized Officer
	I hereby agree to be bound by all the terms and conditions of this Plan Agreement and the Plan.
	Participant

EXHIBIT A

Schedule of Shares of Common Stock to Be Issued

A.The number of shares of Common Stock to be issued to the Participant for each Restricted Stock Unit granted pursuant to this Plan Agreement shall be determined as follows:

Achieved Return on Invested Capital	Number of Shares of Common Stock to be Issued for each Restricted Stock Unit
%
%
%
%
%
%
%
%
%

For purposes of the above table, Achieved Return on Invested Capital shall be the average Return on Invested Capitalof the Company as determined by the Plan Committee in its sole discretion over the three year period beginning on August 1,         and ending on July 31,         (the “Performance Period”).  All determinations of the Plan Committee with respect to the level of achievement of the Performance Goal set forth in the table above shall be conclusive and binding upon the Company and the Participant.

B.Notwithstanding any other provision of this Exhibit A, and unless any agreement between the Participant and the Company or Zale Delaware expressly provides otherwise, if a Change in Control occurs before July 31,         and (1) the Participant remains an active full-time employee of the Company through July 31,        , the Participant shall be entitled to receive the greater of (w) one share of Common Stock for each Restricted Stock Unit granted pursuant to this Plan Agreement or (x) the number of shares of Common Stock that would be payable as determined pursuant to the schedule above, or (2) the Participant’s employment is terminated following a Change in Control and prior to the last day of the Performance Period, other than for Cause, the Participant shall be entitled to receive one share of Common Stock for each Restricted Stock Unit granted pursuant to this Plan Agreement.

C.Unless any agreement between the Participant and the Company or Zale Delaware expressly provides otherwise, if the Participant’s employment with the Company terminates prior to the last day of the Performance Period for any reason, other than as set forth in paragraph B above, the Restricted Stock Units granted pursuant to this Plan Agreement shall be forfeited and all of the Participant’s rights with respect thereto shall terminate.

ZALE CORPORATION

2003 STOCK INCENTIVE PLAN, AS AMENDED

PERFORMANCE-BASED RESTRICTED STOCK UNITS

PLAN AGREEMENT

Participant	Issue Date	Number of Units	Social Security Number
Grant	Zale Corporation (the “Company”), on behalf of Zale Delaware, Inc. (“Zale Delaware”), its wholly-owned subsidiary, has granted to the Participant named above, as of the Issue Date, the above number of Restricted Stock Units, subject to the terms and conditions set forth in this Plan Agreement and in the Zale Corporation 2003 Stock Incentive Plan, as amended (the “Plan”).
Issue Date	The Issue Date for the Restricted Stock Units granted to the Participant pursuant to this Plan Agreement shall be the date set forth above.
Performance-Based Award	Each Restricted Stock Unit granted to the Participant pursuant to this Plan Agreement represents the Company’s unsecured obligation, upon the satisfaction of the Performance Goal(s) set forth on Exhibit A hereto, to issue to the Participant the applicable number of shares of the Company’s common stock, par value $.01 per share (“Common Stock”), as determined in accordance with the provisions of Exhibit A hereto or, in the sole discretion of the Plan Committee, to pay to the Participant, in lieu thereof, an amount equal to the Fair Market Value of such number of shares of Common Stock. Unless the Committee has elected to make a cash payment in satisfaction of the Restricted Stock Units reasonably promptly after the Committee has determined whether the Performance Goal(s) have been satisfied, the Company shall cause to be delivered to the Participant a certificate evidencing the shares of Common Stock issuable to the Participant, free of any restrictive legend other than restrictions on transfer as a result of applicable securities laws.
No Dividends or Voting Rights	The Participant shall not be entitled to receive dividend payments with respect to the Restricted Stock Units and shall have no voting rights with respect to the Restricted Stock Units.
Restrictions on Transfer	No transfer of the Participant’s rights with respect to the Restricted Stock Units, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such Restricted Stock Units, and all of the rights related thereto, shall be forfeited by the Participant.
No Section 83(b) Elections	The Participant shall not file with the Internal Revenue Service an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (i.e., an election to include in gross income in the year of issuance of the Restricted Stock Units the amounts specified in such Section 83(b)).

Misc.	Capitalized terms used in this Plan Agreement or Exhibit A hereto that are not otherwise defined herein shall have the meanings assigned to them in the Plan.
	Zale Corporation
	Authorized Officer
	I hereby agree to be bound by all the terms and conditions of this Plan Agreement and the Plan.
	Participant

EXHIBIT A

Schedule of Shares of Common Stock to Be Issued

A.The number of shares of Common Stock to be issued to the Participant for each Restricted Stock Unit granted pursuant to this Plan Agreement shall be determined as follows:

Achieved Return on Assets of [            ]	Number of Shares of Common Stock to be Issued for each Restricted Stock Unit
%
%
%
%
%
%
%
%
%

For purposes of the above table, Achieved Return on Assets of [COMPANY OR BRAND] shall be the average Return on Assetsof [COMPANY OR BRAND] as determined by the Plan Committee in its sole discretion over the three year period beginning on August 1,         and ending on July 31,         (the “Performance Period”).  All determinations of the Plan Committee with respect to the level of achievement of the Performance Goal set forth in the table above shall be conclusive and binding upon the Company and the Participant.

B.Notwithstanding any other provision of this Exhibit A, and unless any agreement between the Participant and the Company or Zale Delaware expressly provides otherwise, if a Change in Control occurs before July 31,         and (1) the Participant remains an active full-time employee of the Company through July 31,        , the Participant shall be entitled to receive the greater of (w) one share of Common Stock for each Restricted Stock Unit granted pursuant to this Plan Agreement or (x) the number of shares of Common Stock that would be payable as determined pursuant to the schedule above, or (2) the Participant’s employment is terminated following a Change in Control and prior to the last day of the Performance Period, other than for Cause, the Participant shall be entitled to receive one share of Common Stock for each Restricted Stock Unit granted pursuant to this Plan Agreement.

C.Unless any agreement between the Participant and the Company or Zale Delaware expressly provides otherwise, if the Participant’s employment with the Company terminates prior to the last day of the Performance Period for any reason, other than as set forth in paragraph B above, the Restricted Stock Units granted pursuant to this Plan Agreement shall be forfeited and all of the Participant’s rights with respect thereto shall terminate.