Mary L. Forte
 
                              EMPLOYMENT AGREEMENT
 
 
     THIS AGREEMENT, dated as of September 21, 2005 (the "Effective Date") is by
and between Zale Corporation,  a Delaware corporation  ("Company"),  and Mary L.
Forte, a Texas resident ("Executive").
 
     WHEREAS, Executive and Company desire to enter into an employment agreement
which sets forth the terms and conditions for Executive's continued,  employment
with the Company;
 
     NOW, THEREFORE, in consideration of the foregoing recital and of the mutual
covenants  set forth  herein,  and other good and  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the parties agree as
follows:
 
1. Employment;  Term. Executive agrees to enter into the continued employment of
the  Company,  and the  Company  agrees  to employ  Executive,  on the terms and
conditions set forth in this Agreement. The term of Executive's employment under
this Agreement (the "Term") will commence on the Effective Date and,  subject to
its earlier termination as provided in Section 4, will continue through July 31,
2006;  provided,  however,  that the Term will  automatically  be  extended on a
day-by-day basis effective on the three hundred sixty fifth (365th) day prior to
the  expiration of the Term (so that the remaining  term will always be at least
three  hundred  sixty five (365)  days) until such date as either the Company or
Executive  delivers  written  notice  to the  other  party of the  Company's  or
Executive's, as the case may be, intention not to extend the Term.
 
2. Position; Duties.
 
     (a) During the Term (including as it may be extended hereunder),  Executive
     will serve as the President and Chief Executive Officer of the Company.  It
     is the intention of the parties that  throughout  the Term  Executive  will
     serve as a member of the Board of Directors  (the  "Board") of the Company.
     Executive will report directly to the Board and will have all  authorities,
     duties and responsibilities  customarily exercised by an individual serving
     in those  positions in a corporation  of the size and nature of the Company
     and will not be assigned any duties or responsibilities that are materially
     inconsistent with, or that materially impair her ability to discharge,  the
     foregoing  duties  and  responsibilities.  At the  request  of  the  Board,
     Executive will serve as an officer,  director or equivalent position of any
     subsidiary  or  affiliate  of the Company  provided  that (i)  Executive is
     indemnified  with  respect to such  service to the full extent  provided in
     Section 10 and (ii) such  service is not  inconsistent  with the duties set
     forth herein.
 
     (b)  During  the  Term,  Executive  will  devote  substantially  all of her
     business time, efforts,  skills and abilities and attention to the business
     of the Company;  provided,  however,  that  Executive  (i) may serve on one
     board of directors of a publicly traded corporation,  (ii) with the consent
     of the Board (which will not be unreasonably withheld),  may serve on other
     boards of directors of business  entities,  (iii) may engage in charitable,
     educational  or  community  affairs,  including  serving  on the  board  of
     directors of any charitable, educational or community organization and (iv)
     may manage her personal  investments,  provided that such activities do not
     materially interfere with the performance of her duties hereunder.
 
<PAGE>
 
3. Compensation.
 
     (a) Base  Salary.  During the Term,  the Company  will pay to  Executive an
     annual base salary of not less than $800,000 ("Base Salary"), which will be
     payable in accordance with the Company's normal payroll procedure for other
     senior  executives.  The Base Salary will be reviewed annually by the Board
     and will be  subject  to upward  adjustment,  but not  downward  adjustment
     unless the  downward  adjustment  is generally  applicable  to other senior
     executives,  at the discretion of the Board (or an authorized  Committee or
     representative thereof). After any such adjustment,  the term "Base Salary"
     as utilized in this Agreement will thereafter refer to the adjusted amount.
     Without   limiting  the  foregoing,   the  initial  Base  Salary  shall  be
     retroactive to August 1, 2005.
 
     (b) Incentive Bonus. During the Term, Executive will be eligible to receive
     an annual incentive bonus as determined under the Company's Executive Bonus
     Program,  established by the Board,  in its  discretion.  The annual target
     bonus  ("Target  Bonus") for  Executive  will be 125% of  Executive's  Base
     Salary and the  maximum  annual  bonus that  Executive  will be entitled to
     receive is 200% of her Base Salary. The annual incentive bonus will be paid
     to Executive in accordance  with the terms and  conditions of the Executive
     Bonus Program.
 
     (c) Equity and Long-Incentive  Awards. (i) For fiscal year 2006,  Executive
     will be granted the following equity awards:
 
               (A) As soon as practicable following the Company's annual meeting
               of   stockholders  in  November  2005,  the  Company  will  grant
               Executive  25,000  shares  of  restricted  stock,  or units  with
               respect  thereto,  pursuant to the Company's 2003 Stock Incentive
               Plan,  as amended  from time to time or any  successor  plan (the
               "Equity Plan"), with such grant vesting based upon the attainment
               of the performance  goals attached hereto as Annex 1 by September
               5, 2008.
 
               (B) As soon as practicable following the Company's annual meeting
               of   stockholders  in  November  2005,  the  Company  will  grant
               Executive  25,000  shares  of  restricted  stock,  or units  with
               respect  thereto,  pursuant to the Equity  Plan,  with such grant
               vesting,  except as otherwise  provided  herein,  on September 5,
               2008, provided that Executive is on such vesting date, and at all
               times  between the date hereof and the vesting  date, a full-time
               employee of the Company.
 
               (C) As of September 6, 2005, or such other date proximate thereto
               as may be  selected  by  the  Company,  the  Company  will  grant
               Executive  pursuant  to the  Equity  Plan a  ten-year  option  to
               purchase  125,000  shares  of the  Company's  common  stock.  The
               exercise  price will be the Fair Market  Value (as defined in the
               Equity Plan) of the common stock on the date of grant and, except
               as  otherwise  provided  in Section 5, the option  will vest over
               four years,  with one-fourth  (1/4) of the shares  underlying the
               option   vesting   on  the  first,   second,   third  and  fourth
               anniversaries of the date of grant.
 
                                        2
 
<PAGE>
 
          (ii) For fiscal years 2007 and thereafter,  Executive will be entitled
     to participate in equity and other  long-term  incentive  award programs of
     the Company,  including,  without  limitation,  the Equity Plan, on a basis
     generally consistent with that of other senior-level executives.
 
     (d) Vacation.  Executive  will be entitled to a reasonable  vacation of not
     less than four paid weeks each year of the term of this Agreement.
 
     (e) Executive Perquisites; Benefit; Expenses.
 
          (i) Executive will be entitled to receive  executive  perquisites  and
     fringe and other  benefits on a basis which is no less  favorable  than the
     basis on which such  perquisites  and  benefits  are  provided to any other
     senior  executive  (including for this purpose,  to the extent  applicable,
     executive's   family)   under  any  of  the  Company's   plans,   policies,
     arrangements  or programs in effect from time to time.  Such  benefits will
     include  comprehensive  healthcare,  dentalcare,  life  insurance and other
     welfare benefit plans that are no less favorable than the plans in force on
     the Effective Date.
 
          (ii) The Company will  reimburse  Executive  for such  reasonable  and
     necessary  out-of-pocket business expenses as may be incurred by her in the
     performance  of her  duties  hereunder.  The  Company  will also  reimburse
     Executive  for,  or at  Executive's  request pay  directly  on  Executive's
     behalf,  all of the  legal  fees  and  other  expenses  incurred  by her in
     connection with the negotiation and drafting of this Agreement, such amount
     not to exceed $40,000
 
     (f) Supplemental Retirement Plan. Executive will be eligible to participate
     in the Company's  supplemental  retirement  plan on terms no less favorable
     than those available to other senior executives.
 
     (g) Tax  Withholding.  The  Company  has  the  right  to  deduct  from  any
     compensation  payable to Executive  under this  Agreement  social  security
     (FICA) taxes and all  Federal,  state and local income taxes and charges as
     are required by applicable law and regulations.
 
4. Termination.  Notwithstanding the provisions of Section 1 hereof, but subject
to the  provisions  of  Section 5 hereof,  the Term and  Executive's  employment
hereunder will terminate upon expiration of the Term or, if earlier, as follows:
 
     (a)  Death  or  Disability.  The Term  will  terminate  upon  the  death or
     Disability of Executive. For purposes of this Agreement, "Disability" means
     Executive's  inability  to  perform  her  duties  and  responsibilities  as
     contemplated under this Agreement for a period of more than 120 consecutive
     days due to  physical,  mental or emotional  incapacity  or  impairment.  A
     determination of Disability will be made by a physician  acceptable to both
     Executive  and the  Company;  provided  that if  Executive  and the Company
     cannot  agree as to a physician,  each will select a physician  and the two
     physicians  will  select  a  third  physician,  whose  determination  as to
     Disability  will be binding on Executive  and the Company.  Executive,  her
     legal  representative or any adult member of her immediate family will have
     the right to present to the Company and such physician such information and
     arguments on her behalf as Executive  or they deem  appropriate,  including
     the opinion of her personal physician.  Executive's  employment will not be
     terminated  due to  Disability  until the physician has delivered a written
     opinion  certifying such Disability and a written notice of termination for
     Disability has been delivered by the Company or Executive, as the case may,
     to the other party.
 
                                        3
 
<PAGE>
 
     (b) Termination  for Cause.  The Company may terminate the Term at any time
     for  "Cause."  For  purposes of this  Agreement,  "Cause"  means any of the
     following:
 
          (i)  Executive's  conviction  of (A) a felony within the meaning of US
     Federal or state law or (B) a crime  involving  moral  turpitude under U.S.
     Federal or state law;
 
          (ii) Executive's  commission of an act constituting fraud,  deceit, or
     material misrepresentation with respect to the Company;
 
          (iii) Executive's  becoming  addicted to any alcoholic,  controlled or
     illegal substance or drug, which addiction  materially  interferes with the
     performance of her duties hereunder;
 
          (iv) Executive's embezzlement of Company assets or funds; or
 
          (v) in carrying out her duties for the Company,  Executive  engages in
     conduct that constitutes  willful gross neglect or willful gross misconduct
     resulting, in either case, in material economic harm to the Company, unless
     Executive  believed in good faith that such action or non-action was in, or
     not opposed to, the best interests of the Company.
 
     Anything  herein  to the  contrary  notwithstanding,  Executive  may not be
     terminated  for Cause  within the meaning of clauses  (b)(v)  above  unless
     written notice  stating the basis for  termination is provided to Executive
     and she is given at least ten days  notice to cure the  neglect  or conduct
     that is the  basis of such  claim  and,  if  Executive  fails to cure  such
     neglect or conduct (or such neglect or conduct is incurable),  Executive is
     afforded  an  opportunity  to be heard  before  the full  Board  (at  which
     Executive may be accompanied by counsel) and, after such hearing,  there is
     a majority  vote of all  members of the Board  (other  than  Executive)  to
     terminate her employment for Cause which vote is  communicated to Executive
     in writing.
 
     (c)  Termination  Without Cause.  The Company may terminate the Term at any
     time by delivering a written termination notice to Executive.
 
     (d) Termination by Executive.  Executive may terminate the Term at any time
     by  delivering  a  written  termination  notice to the  Company;  provided,
     however,  that Executive  will be deemed to have  terminated her employment
     for Good  Reason if  Executive  terminates  her  employment  for any of the
     following reasons:
 
                                        4
 
<PAGE>
 
          (i) a reduction by the Company in Executive's  Base Salary unless such
     reduction  is  generally  applicable  to  other  senior  executives  or the
     Company's  failure  to  increase  (within  12  months of  Executive's  last
     increase in Base Salary) Executive's then current Base Salary,  unless such
     failure is the  result of (A) a salary  freeze  uniformly  applied to other
     senior  executives or (B) Executive's  failure to meet  preestablished  and
     objective performance criteria;
 
          (ii) a reduction  in the annual  Target  Bonus,  equity award or other
     short-term or long-term compensation  opportunities that are made available
     to  Executive  or a  modification  of one or  more of  such  programs  that
     substantially   diminishes  the  value  of  Executive's  awards  under  the
     Company's  short-term or long-term incentive plans unless such reduction or
     modification  is generally  applicable  to other senior  executives  of the
     Company;
 
          (iii)  the  Company's  principal  executive  offices  are  moved  to a
     location more than fifty (50) miles from its current  location or Executive
     is  required  to be  based  anywhere  other  than the  Company's  principal
     executive offices;
 
          (iv) the  assignment  to Executive of duties  materially  inconsistent
     with her position as Chief  Executive  Officer and President of the Company
     or the material  diminution in her  positions,  duties or authorities as in
     effect  immediately prior to such diminution,  or any interference with her
     carrying  out her  duties so that she is unable to carry out her  duties as
     contemplated on the Effective Date;
 
          (v) the failure of the Company to  reappoint  or reelect  Executive to
     the  positions of Chief  Executive  Officer and President or the removal of
     Executive from any such position;
 
          (vi) a change in the Company's  reporting  structure so that Executive
     no longer  reports  directly to the Board or an  executive  who  previously
     reported  directly or indirectly to Executive no longer reports directly or
     indirectly to her or her designee,  other than the internal  audit function
     or as otherwise  required by law or stock exchange rules;
 
          (vii) a  Change  in  Control  (as  defined  herein)  (which  will be a
     termination  event  whether or not  Executive  consented  to such Change of
     Control), provided that Executive's employment is terminated by the Company
     without  cause  or by the  Executive  for  Good  Reason  within  two  years
     following a Change of Control;
 
          (viii) a failure  of the  Company  to  require  any  successor  to the
     Company or to all or  substantially  all of the  business  or assets of the
     Company to  expressly  assume the  obligations  of the  Company  under this
     Agreement; or
 
          (ix) a breach by the Company of a material provision of this Agreement
     or any other material plan or program covering Executive.
 
                                        5
 
<PAGE>
 
5. Termination Benefits.
 
     (a)  General.  In the  event  that the Term is  terminated  for any  reason
     (including expiration),  in addition to any other payments or benefits owed
     to Executive  under this Section 5, the Company will pay to Executive,  her
     estate or her representatives,  as the case may be, any accrued, but unpaid
     salary, bonuses, expenses or benefits as of the date of termination. In the
     event  that the  Company  terminates  Executive's  employment  for Cause or
     Executive  terminates  her employment  without Good Reason,  then Executive
     will not be entitled  to any  additional  payments  or benefits  under this
     Section 5 other than those  described in this Section 5(a). In the event of
     the  expiration  of the Term,  the only benefits  that  Executive  shall be
     entitled to under this  Agreement in  connection  with the  expiration  are
     those provided in this Section 5(a).
 
     (b) Death or Disability.  If Executive's  employment terminates as a result
     of death or Disability, the Company will (i) continue to pay (in accordance
     with it's normal payroll procedures) Executive's Base Salary at the time of
     termination of her  employment due to Disability or death,  as the case may
     be, to Executive (or her estate or representatives, as the case may be) for
     a period of twelve (12) months following  Executive's  death or Disability,
     (ii)  provide  healthcare,  dental and  welfare  benefits to  Executive  or
     Executive's  family, as the case may be, for a period of twelve (12) months
     following  Executive's  death  on the  same  basis  as such  benefits  were
     provided during Executive's employment hereunder,  (iii) any unvested stock
     options, equity awards or other long-term incentive awards will immediately
     vest and such stock options and awards will continue to be exercisable  for
     the remainder of their  respective  terms and (iv) the Company will pay the
     amounts set forth in Section 5(a).
 
     (c) Termination Without Cause or for Good Reason. In the event that (x) the
     Company  terminates  Executive's  employment without Cause or (y) Executive
     terminates  her  employment  for Good Reason,  then,  except as provided in
     Section 5(d), Executive will be entitled to the following benefits:
 
          (i)  Severance  Payments.  The Company will pay to Executive an amount
     equal to two times the sum of (v) the then  current Base Salary and (w) the
     greater of (I) the  Target  Bonus for the year of  termination  or (II) the
     average of the immediately  preceding two years' annual  incentive  bonuses
     received by Executive;
 
          (ii) Benefits.  During the greater of (x) the  twenty-four  (24) month
     period  following  the date of  termination  or (y) the  number of  months,
     including  fractional  months,  remaining  in the Term,  the  Company  will
     continue to provide  Executive  (and, as  applicable,  her family) with the
     benefits,  including  but  not  limited  to  healthcare,  dental  and  life
     insurance, set forth in Section 3(e);
 
          (iii)  Equity and  Long-Term  Incentive  Awards.  All  unvested  stock
     options and other equity and long-term  incentive  awards will  immediately
     vest and all such vested  options and awards  involving  exercise of rights
     will  continue to be  exercisable  for the  remainder  of their  respective
     terms;
 
                                        6
 
<PAGE>
 
          (iv)  SERP.  Executive  will  receive an  additional  two (2) years of
     service and age credit for purposes of determining the benefits  payable to
     Executive under the SERP; and
 
          (v) Other  Amounts.  Executive  will receive the payments set forth in
     Section 5(a).
 
     (d)  Change of  Control.  If (x)  within  two years  following  a Change of
     Control or (y)  following a Potential  Change of Control  which is followed
     within  one (1) year by a  Change  of  Control,  Executive  terminates  her
     employment with the Company for Good Reason (as hereinafter defined) or the
     Company  terminates  Executive's  employment  for any reason other than for
     Cause, the Company will pay to, and provide for, Executive the payments and
     benefits as set forth in Section 5(c), except that:
 
          (i) for purposes of determining  the amount that Executive is entitled
     to under Section 5(c)(i), the Base Salary and bonus will be the greatest of
     each such  amount  determined  on (x) the date of the  Potential  Change of
     Control,  (y)  the  date  of the  Change  of  Control  or (z)  the  date of
     Executive's  termination  of  employment  and  the  sum of (v)  and  (w) as
     provided for therein will be multiplied by three rather than two;
 
          (ii) the Company will pay to Executive the actuarial value of the SERP
     as of the date of termination  (determined in accordance with the actuarial
     assumptions then applicable to the SERP as certified by the actuary for the
     Company)  together  with  interest  at  the  Applicable  Federal  Rate  for
     short-term  debt for the period from the date of termination to the date of
     payment  which  will be  immediately  following  the  date of  termination,
     subject to the provisions of Section 5(g); and
 
          (iii) Executive will be entitled to the tax-gross up payment  provided
     for in Section 6.
 
     In addition, upon the occurrence of a Change of Control, all unvested stock
     options and other equity and long-term  incentive  awards will  immediately
     vest and all such vested  options and awards  involving  exercise of rights
     will  continue to be  exercisable  for the  remainder  of their  respective
     terms.
 
     (e) Change of Control. For purposes of this Agreement,  "Change of Control"
     means the earliest to occur of the following:
 
          (i) any  "person," as such term is used in Sections  3(a)(9) and 13(d)
     of the Securities  Exchange Act of 1934,  becomes a "beneficial  owner," as
     such term is used in Rule 13d-3  promulgated under that act, of 20% or more
     of the Voting Stock of the Company;
 
          (ii) the  majority  of the Board  consists of  individuals  other than
     incumbent  directors,  which  term  means the  members  of the Board on the
     Effective Date;  provided that any person becoming a director subsequent to
     such date whose  election or  nomination  for  election  was  supported  by
     two-thirds of the directors who then comprised the incumbent directors will
     be considered to be an incumbent director;
 
                                        7
 
<PAGE>
 
          (iii) the Company  adopts any plan of  liquidation  providing  for the
     distribution of all or substantially all of its assets;
 
          (iv) all or substantially all of the assets or business of the Company
     is disposed of pursuant  to a merger,  consolidation  or other  transaction
     (unless the stockholders of the Company  immediately  prior to such merger,
     consolidation  or  other   transaction   beneficially   own,   directly  or
     indirectly,  in substantially the same proportion as they owned. the Voting
     Stock of the Company,  all of the Voting Stock or other ownership interests
     of the entity or  entities,  if any,  that  succeed to the  business of the
     Company); or
 
          (v) the Company  combines  with another  company and is the  surviving
     corporation but, immediately after the combination, the stockholders of the
     Company  immediately prior to the combination hold, directly or indirectly,
     50% or less of the  Voting  Stock  of the  combined  company  (there  being
     excluded from the number of shares held by such stockholders,  but not from
     the Voting Stock of the combined company, any shares received by affiliates
     of such, other company in exchange for stock of such other company).
 
For purposes of the Change of Control definition, "the Company" will include any
entity that succeeds to all or substantially all, of the business of the Company
and "Voting  Stock" will mean  securities of any class or classes having general
voting power under ordinary circumstances,  in the absence of contingencies,  to
elect the directors of a corporation.
 
     (f) Potential  Change of Control.  "Potential  Change of Control" means the
     earliest to occur of the following  events:  (i) the Company enters into an
     agreement the  consummation  of which,  or the approval by  stockholders of
     which, would constitute a Change of Control;  (ii) proxies for the election
     of members of the Board are solicited by any Person other than the Company;
     (iii) any Person  publicly  announces  an  intention to take or to consider
     taking actions which, if consummated, would constitute a Change of Control;
     or (iv) any other event occurs which is deemed to be a Potential  Change of
     Control by the Board and the Board adopts a resolution to the effect that a
     Potential Change of Control has occurred.
 
     (g) Section  409A.  It is expressly  contemplated  by the parties that this
     Agreement will conform to, and be interpreted to comply with,  Section 409A
     of the Code. Unless expressly provided  otherwise,  all of the payments due
     to Executive  under this Section 5 will,  be made within  fifteen (15) days
     following  the date of  termination;  provided,  however,  that  if,  under
     Section 409A of the Code, such payments must be delayed to conform with the
     applicable  tax rules,  the Company  will defer any such  payment  until no
     later than one day  following the first date upon which such payment may be
     made without incurring the tax imposed thereunder;  provided, further, that
     if Executive incurs any additional tax, interest or penalties under Section
     409A,  the Company will pay Executive an additional  amount so that,  after
     all taxes on such amount,  Executive has an amount equal to such additional
     tax.
 
                                        8
 
<PAGE>
 
     (h) Payment in Lieu of  Benefits.  In the event that  Executive  and/or her
     family is entitled to benefits,  such as healthcare,  under this Section 5,
     to the extent that the Company's  plans,  programs and  arrangements do not
     permit a continuation of Executive's and/or her family's participation in a
     benefit  plan,   program  or  arrangement   following  her  termination  of
     employment,  the Company will pay  Executive  (and/or her family),  no less
     frequently  than  quarterly in advance an amount which,  after all taxes on
     such amount, is sufficient for her and/or her family to purchase equivalent
     benefits.
 
     (i) No  Offset.  In the event of  termination  of  Executive's  employment,
     Executive  will be under no obligation to seek other  employment  and there
     will be no offset against amounts due to her on account of any remuneration
     or  benefits  from  any  subsequent  employment  that she may  obtain.  The
     Company's obligations to make any payment pursuant to, or otherwise perform
     its obligations  under,  this Agreement will not be affected by any offset,
     counterclaim  or other right that the Company may have  against her for any
     reason. If, following her termination of employment,  Executive obtains, or
     is  entitled  to  obtain,  healthcare,   welfare  or  similar  benefits  in
     connection with any other  employment that provide  comparable  coverage to
     Executive  as the one or more of the  benefits  then being  provided by the
     Company  pursuant  to  Section  5,  the  Company  will be  relieved  of the
     responsibility  to provide or pay for duplicate  benefits  commencing  when
     such alternative benefits are commenced by another employer to Executive.
 
     (j) Release.  As a condition of receiving  any amounts  pursuant to Section
     5(c) or 5(d), or of accelerated  vesting of any  equity-based or cash-based
     award  in  connection  with  the  termination  of  Executive's  employment,
     Executive  agrees to execute a release  of claims  that she has or may have
     against  the  Company  relating  to,  or  arising  out  of  her  employment
     (including the termination of such employment) with the Company;  provided,
     however, Executive will not release:
 
          (i)  claims  that   Executive   may  have   against  the  Company  for
     reimbursement of ordinary and necessary  business  expenses incurred by her
     during the course of her employment;
 
          (ii) claims that arise after the effective date of the release;
 
          (iii) any rights Executive may have to enforce this Agreement;
 
          (iv)  any  rights  or  entitlements   that  Executive  has  under  any
     applicable  plan,  policy,  program,  or arrangement of, or other agreement
     with, the Company; and
 
          (v) claims for which Executive is entitled to be indemnified under the
     Company's  Certificate of  Incorporation or By-laws or under applicable law
     or pursuant to the Company's  directors' and officer's  liability insurance
     policies.
 
                                        9
 
<PAGE>
 
     In  exchange  for such  release,  the  Company  will  provide a release  to
     Executive  releasing  claims the Company and any affiliate have or may have
     against Executive  relating to, or arising out of,  Executive's  employment
     (including the termination of such employment) with the Company;  provided,
     however, that the Company will not release claims that arise after the date
     the  release  is  executed  including  any  right  it has to  enforce  this
     Agreement for any breach following the date of such release.
 
6. Gross-Up Payment.
 
     (a) In the event it is  determined  (pursuant  to Section  6(b)) or finally
     determined  (as defined in Section  6(c)) that any  payment,  distribution,
     transfer,  or benefit by the Company, or a direct or indirect subsidiary or
     affiliate  of'  the  Company,  to  or  for  the  benefit  of  Executive  or
     Executive's  dependents,  heirs or  beneficiaries  (whether  such  payment,
     distribution, transfer, benefit or other event occurs pursuant to the terms
     of this  Agreement  or  otherwise,  but  determined  without  regard to any
     additional  payments  required  under this Section 6) (each a "Payment" and
     collectively  the  "Payments")  is subject  to the  excise  tax  imposed by
     Section 4999 of the Code,  and any  successor  provision or any  comparable
     provision of state or local income tax law (collectively,  "Section 4999"),
     or any interest,  penalty or addition to tax is incurred by Executive  with
     respect  to such  excise  tax (such  excise  tax,  together  with a by such
     interest,  penalty, and addition to tax, hereinafter  collectively referred
     to  as  the  "Excise  Tax"),   then,   within  ten  (10)  days  after  such
     determination or final determination,  as the case may be, the Company will
     pay to Executive  (or to the  applicable  taxing  authority on  Executive's
     behalf)  an  additional  cash  payment  (hereinafter  referred  to  as  the
     "Gross-Up Payment") equal to an amount such that after payment by Executive
     of all taxes,  interest,  penalties,  additions to tax and costs imposed or
     incurred  with  respect  to  the  Gross-Up  Payment   (including,   without
     limitation, any income and excise taxes imposed upon the Gross-Up Payment),
     Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
     imposed upon such Payment or  Payments.  This  provision is intended to put
     Executive in the same  position as Executive  would have been had no Excise
     Tax been imposed upon or incurred as a result of any Payment.
 
     (b) Determination of Gross-Up.
 
          (i) Except as  provided  in Section  6(c),  the  determination  that a
     Payment is subject to an Excise Tax will be made in writing by a nationally
     recognized  public  accounting  firm mutually  agreeable to the Company and
     Executive (the  "Accounting  Firm").  Such  determination  will include the
     amount of the Gross-Up Payment and detailed computations thereof, including
     any  assumptions  used  in  such  computations.  Any  determination  by the
     Accounting Firm will be binding on the Company and Executive.
 
          (ii) For purposes of determining  the amount of the Gross-Up  Payment,
     Executive  will be  deemed  to pay  Federal  income  taxes  at the  highest
     marginal rate of Federal individual income taxation in the calendar year in
     which the Gross-Up  Payment is to be made. Such highest  marginal rate will
     take into account the loss of itemized  deductions  by  Executive  and will
     also include  Executive's  share of the hospital  insurance portion of FICA
     and state and local income taxes at the highest marginal rate of individual
     income  taxation in the state and locality of Executive's  residence on the
     date that the  Payment is made,  net of the  maximum  reduction  in Federal
     income  taxes that could be obtained  from the  deduction of such state and
     local taxes.
 
                                       10
 
<PAGE>
 
     (c) IRS Audit.
 
          (i)  Executive  will notify the Company in writing of any claim by the
     Internal  Revenue Service (or any successor  thereof) or any state or local
     taxing authority  (individually or  collectively,  the "Taxing  Authority")
     that, if successful  would require the payment by the Company of a Gross-Up
     Payment.  Such  notification  will be given as soon as  practicable  but no
     later than thirty (30) days after Executive receives written notice of such
     claim and will apprise the Company of the nature of such claim and the date
     on which  such  claim is  requested  to be paid;  provided,  however,  that
     failure by Executive to give such notice within such 30-day period will not
     result in a waiver or  forfeiture of any of  Executive's  rights under this
     Section 6 except to the extent of actual damages suffered by the Company as
     a result of such  failure.  Executive  will not pay such claim prior to the
     expiration of the 15-day period following the date on which Executive gives
     such notice to the Company (or such shorter  period ending on the date that
     any payment of taxes, interest,  penalties or additions to tax with respect
     to such claim is due). If the Company  notifies  Executive in writing prior
     to the  expiration of such 15-day period  (regardless of whether such claim
     was earlier paid as  contemplated by the preceding  parenthetical)  that it
     desires to contest such claim, Executive will:
 
          (1) provide the Company any  information  reasonably  requested by the
          Company relating to such claim;
 
          (2) take such action in connection  with  contesting such claim as the
          Company reasonably  requests in writing from time to time,  including,
          without  limitation,  accepting legal  representation  with respect to
          such claim by an attorney selected by the Company;
 
          (3) cooperate  with the Company in good faith in order  effectively to
          contest such claim; and
 
          (4) permit the Company to participate in any  proceedings  relating to
          such claim;
 
     provided,  however,  that  the  Company  will  bear  and pay  directly  all
     attorneys  fees,  costs  and  expenses  (including   additional   interest,
     penalties and  additions to tax)  incurred in connection  with such contest
     and will indemnify and hold Executive harmless,  on an after-tax basis, for
     all  taxes  (including,  without  limitation,  income  and  excise  taxes),
     interest,  penalties and additions to tax imposed in relation to such claim
     and  in   relation   to  the   payment  of  such  costs  and   expenses  or
     indemnification.
 
                                       11
 
<PAGE>
 
          (ii) Without  limitation on the  foregoing  provisions of this Section
     6(c), and to the extent its actions do not  unreasonably  interfere with or
     prejudice  Executive's  disputes  with  the  Taxing  Authority  as to other
     issues,  the Company will control all proceedings  taken in connection with
     such  contest  as it  relates  to the  Excise  Tax being  asserted  against
     Executive and, in its reasonable  discretion,  may pursue or forego any and
     all administrative appeals, proceedings,  hearings and conferences with the
     Taxing  Authority in respect of such claim and may, at its or in their sole
     option,  either  direct  Executive  to pay the tax,  interest or  penalties
     claimed  and sue for a refund  or  contest  the  claim  in any  permissible
     manner,  and Executive  agrees to prosecute such contest to a determination
     before any administrative  tribunal, in a court of initial jurisdiction and
     in one or more appellate courts,  as the Company will determine;  provided,
     however,  that if the Company  directs  Executive to pay such claim and sue
     for a refund,  the Company  will advance an amount equal to such payment to
     Executive, on an interest-free basis, and will indemnify and hold Executive
     harmless, on an after basis, from all taxes (including, without limitation,
     income and excise taxes), interest,  penalties and additions to tax imposed
     with  respect to such  advance or with  respect to any imputed  income with
     respect to such advance,  as any such amounts are incurred;  and,  further,
     provided,  that any  extension  of the statute of  limitations  relating to
     payment of taxes,  interest,  penalties or additions to tax for the taxable
     year of Executive with respect to which such contested amount is claimed to
     be due is limited solely to such contested amount; and, provided,  further,
     that  any  settlement  of  any  claim  will  be  reasonably  acceptable  to
     Executive,  and the  Company's  control of the  contest  will be limited to
     issues  with  respect  to  which a  Gross-  Up  Payment  would  be  payable
     hereunder, and Executive will be entitled to settle or contest, as the case
     may be, any other issue.
 
          (iii) If,  after  receipt by  Executive  of an amount  advanced by the
     Company  pursuant  to Section  6(c),  Executive  receives  any refund  with
     respect to such claim,  Executive will (subject to the Company's compliance
     with the  requirements  of this  Section 6) promptly  pay to the Company an
     amount equal to such refund  (together  with any interest  paid or credited
     thereof  after  taxes  applicable  thereto),  net of any taxes  (including,
     without  limitation,  any income or excise taxes),  interest,  penalties or
     additions to tax and any other costs  incurred by  Executive in  connection
     with such  advance,  after giving effect to such  repayment.  If, after the
     receipt by  Executive  of an amount  advanced  by the  Company  pursuant to
     Section 6(c), it is finally  determined  that  Executive is not entitled to
     any refund with  respect to such claim,  then such advance will be forgiven
     and will not be required to be repaid and the amount of such  advance  will
     be treated as a Gross-Up  Payment and will offset,  to the extent  thereof,
     the amount of any  Gross-Up  Payment  otherwise  required to be paid by the
     Company.
 
          (iv) For  purposes  of this  Section  6,  whether  the  Excise  Tax is
     applicable to a Payment will be deemed to be "finally  determined" upon the
     earliest of: (1) the  expiration of the 15-day  period  referred to in this
     Section 6(c) if the Company has not notified  Executive  that it intends to
     contest the underlying  claim,  (2) the expiration of any period  following
     which  no  right of  appeal  exists,  (3) the  date  upon  which a  closing
     agreement  or similar  agreement  with  respect to the claim is executed by
     Executive and the Taxing Authority (which agreement may be executed only in
     compliance  with this  section) or (4) the receipt by  Executive  of notice
     from the Company that it no longer seeks to pursue a contest (which will be
     deemed received if the Company does not,  within 15 days following  receipt
     of a written inquiry from Executive,  affirmatively  indicate in writing to
     Executive that the Company intends to continue to pursue such contest).
 
                                       12
 
<PAGE>
 
     (d) Underpayment  and Overpayment.  It is possible that no Gross-Up Payment
     will initially be made but that Gross-Up  Payment should have been made, or
     that a Gross- Up Payment  will  initially be made in an amount that is less
     than what should have been made (either of such events is referred to as an
     "Underpayment"). It is also possible that a Gross-Up Payment will initially
     be made in an amount  that is greater  than what  should have been made (an
     "Overpayment").  The  determination of any Underpayment or Overpayment will
     be made by the  Accounting  Firm in  accordance  with Section  6(b). In the
     event of an Underpayment,  the amount of any such Underpayment will be paid
     to  Executive  as an  additional  Gross-Up  Payment.  In  the  event  of an
     Overpayment,  Executive will promptly pay to the Company the amount of such
     Overpayment together with interest on such amount at the applicable Federal
     rate provided for in Section 1274(d) of the Code for the period  commencing
     on the date of the  Overpayment to the date of such payment by Executive to
     the  Company.  Executive  will make such  payment to the Company as soon as
     administratively practicable after the Company notifies Executive of(a) the
     Accounting  Firm's  determination  that an Overpayment was made and (b) the
     amount to be repaid.
 
7.  Non-Competition.  Executive  agrees that during the Term and for a period of
eighteen  (18)  months  following  the date of the  termination  of  Executive's
employment  with the Company  (except in the case of  termination  in connection
with a Change of  Control,  in which  event for a period of twelve  (12)  months
following  such date of  termination)  or  expiration  of the  Term,  Executive,
directly  or  indirectly,  will not  compete  with the  Company  as an  officer,
director,  employee, partner, consultant or otherwise by providing to any entity
that is engaged in a "Competing Business" services  substantially similar to the
services  currently  being  provided  by  Executive  to the  Company  under this
Agreement.  For these purposes,  a "Competing  Business" means any  corporation,
partnership  or other entity in which the wholesale or retail sale of jewelry in
the United States represents a significant  component of the business engaged in
by such corporation,  partnership or entity and Executive's position or function
with such business is  significantly  related to the wholesale or retail sale of
jewelry.  If the  Company  fails to pay or  provide  any  payments  or  benefits
required under Section 5 following the  termination  of  Executive's  employment
with the Company or  expiration  of the Term,  the  provisions of this Section 7
will  thereafter  be of no force  and  effect  and  Executive  will not be bound
thereby.  Notwithstanding the foregoing,  Executive may, directly or indirectly,
own, solely as an investment, securities of any person which are publicly traded
on a national or regional  stock  exchange or on an  over-the-counter  market if
Executive does not, directly or indirectly, beneficially own two percent (2%) or
more of any class of securities of such person.
 
8. Nonsolicitation of Employees.  For a period of eighteen (18) months following
the  termination of her  employment  with the Company or expiration of the Term,
Executive  will  not,  on her own  behalf  or on  behalf  of any  other  person,
partnership,  corporation or other entity,  knowingly solicit, cause anyone else
to  solicit  or induce  any  employee  of the  Company  or its  subsidiaries  or
affiliates  (the "Company  Group") to leave the employ of the Company Group or a
member of the Company  Group to be employed by Executive or an entity with which
she is  affiliated.  During such period,  Executive  will not  knowingly  use or
disclose  to any other  person  information  obtained  while an  employee of the
Company  concerning  the  names  and.  addresses  of  the  Company's  employees.
Notwithstanding the foregoing,  Executive may respond to unsolicited third-party
inquiries for references  regarding an employee of the Company and may provide a
reference on behalf of a former employee of the Company. If the Company fails to
pay or provide any payments or benefits  required  under Section 5 following the
termination  of  Executive's  employment  with the Company or  expiration of the
Term, the provisions of this Section 8 will thereafter be of no force and effect
and Executive will not be bound thereby.
 
                                       13
 
<PAGE>
 
9. Nondisclosure of Trade Secrets; Company Property.
 
     (a) During the Term, Executive will have access to and become familiar with
     various trade secrets and proprietary and  confidential  information of the
     Company Group, including, but not limited to, processes, computer programs,
     compilations   of  information,   records,   sales   procedures,   customer
     requirements, pricing techniques, customer lists, methods of doing business
     and other  confidential  information  (collectively,  referred to as "Trade
     Secrets")  which are owned by members of the  Company  Group and  regularly
     used in the  operation of their  business,  and as to which the Company and
     other  members of the Company  Group have taken  precautionary  measures to
     prevent  dissemination of such information to persons other than directors,
     officers and employees who require such  information in the  performance of
     their respective duties for the Company Group.  Executive  acknowledges and
     agrees that the Trade Secrets (1) are secret and not known in the industry;
     (2) give the Company and members of the  Company  Group an  advantage  over
     competitors who do not know or use the Trade Secrets; (3) are of such value
     and nature as to make it  reasonable  and necessary to protect and preserve
     the confidentiality and secrecy of the Trade Secrets; and (4) are valuable,
     special and unique  assets of the  Company  Group the  disclosure  of which
     could  cause  substantial  injury and loss of profits  and  goodwill to the
     Company or other  members of the Company  Group.  Executive  may not use or
     disclose any of the Trade Secrets,  directly or  indirectly,  either during
     the term of this  Agreement,  except in the course of performing her duties
     under this Agreement,  or thereafter.  Notwithstanding  the foregoing,  the
     provisions  of this Section  9(a) will not apply (i) if such Trade  Secrets
     have become  public  knowledge or known to the  relevant  trade or industry
     other than as a result of an unauthorized disclosure by Executive,  (ii) if
     disclosure  is  required  by law or by any court,  arbitrator,  mediator or
     administrative  or legislative body (including any committee  thereof) with
     apparent jurisdiction to order Executive to disclose or make available such
     information,  provided,  however that  Executive  will promptly  notify the
     Company in writing upon  receiving a request for such  information  and, if
     the  Company  requests,  reasonably  cooperate  with  the  Company  at  the
     Company's  expense  in  seeking  a  protective  order or other  appropriate
     protection  of  such  information  or  (iii)  with  respect  to  any  other
     litigation,  arbitration or mediation  involving this Agreement,  including
     but not limited to enforcement of this Agreement.
 
     (b) All files,  records,  documents,  information,  data and similar  items
     relating to the business of the Company,  whether  prepared by Executive or
     otherwise received by her in connection with her employment by the Company,
     will remain the exclusive  property of the Company.  Executive will deliver
     such material  promptly to the Company upon  termination  of her employment
     with the Company or expiration of the Term; provided, however, that nothing
     in this Section 9(b) will prevent  Executive from retaining a personal home
     computer  and papers and other  materials of a personal  nature,  including
     personal diaries,  calendars and personal rolodexes,  personal  information
     relating to her compensation or relating to the  reimbursement of expenses,
     personal  information  that  she  reasonably  believes  is  needed  for tax
     purposes  and copies of the  Company's  compensatory  plans,  programs  and
     agreements relating to her compensation as an employee.
 
                                       14
 
<PAGE>
 
10. Indemnification.
 
     (a) The Company  agrees that if Executive is made a party to, is threatened
     to be made a party to,  receives  any legal  process  in, or  receives  any
     discovery  request or request  for  information  in  connection  with,  any
     action,  suit or proceeding,  whether civil,  criminal,  administrative  or
     investigative (a "Proceeding"),  by reason of the fact that she is or was a
     director,  officer, employee,  consultant or agent of the Company, or is or
     was  serving at the  written  request of, or on behalf of, the Company as a
     director,  officer,  member,  employee,  consultant  or  agent  of  another
     corporation,  limited liability  corporation,  partnership,  joint venture,
     trust or other entity,  including  service with respect to employee benefit
     plans,  whether or not the basis of such Proceeding is Executive's  alleged
     action in an  official  capacity  while  serving  as a  director,  officer,
     member,  employee,  consultant  or agent of the  Company  or other  entity,
     Executive  will be  indemnified  and held  harmless  by the  Company to the
     fullest  extent  permitted or authorized by the  Company's  certificate  of
     incorporation or by-laws or, if greater, by applicable law, against any and
     all costs, expenses, liabilities and losses (including, without limitation,
     attorneys' fees reasonably incurred,  judgments,  fines, ERISA excise taxes
     or  penalties  and  amounts  paid  or to be  paid  in  settlement  and  any
     reasonable   cost  and  fees   incurred   in   enforcing   her   rights  to
     indemnification  or  contribution)  incurred or suffered  by  Executive  in
     connection  therewith,   and  such  indemnification  will  continue  as  to
     Executive  even  though she has ceased to be a director,  officer,  member,
     employee, consultant or agent of the Company or other entity and will inure
     to the benefit of  Executive's  heirs,  executors and  administrators.  The
     Company will  reimburse  Executive  for all costs and expenses  (including,
     without  limitation,   reasonable  attorneys'  fees)  incurred  by  her  in
     connection  with any  Proceeding  within  twenty (20)  business  days after
     receipt by the  Company of a written  request  for such  reimbursement  and
     appropriate documentation associated with these expenses. Such request will
     include an  undertaking by Executive to repay the amount of such advance if
     it will ultimately be determined that she is not entitled to be indemnified
     against  such  costs  and  expenses;  provided  that  the  amount  of  such
     obligation to repay, to the extent permitted by law, will be limited to the
     after-tax  amount of such  advance  except to the extent that  Executive is
     able to offset the taxes  incurred on the advance by tax benefits,  if any,
     attributable to a deduction for repayment.
 
     (b) Neither the failure of the Company  (including  its Board,  independent
     legal counsel or  stockholders)  to have made a determination  prior to the
     commencement  of any proceeding  concerning  payment of amounts  claimed by
     Executive  under Section 10(a) above that  indemnification  of Executive is
     proper  because  she has met the  applicable  standard  of  conduct,  nor a
     determination  by the  Company  (including  its  Board,  independent  legal
     counsel  or  stockholders)  that  Executive  has  not met  such  applicable
     standard of conduct,  will create a presumption or inference that Executive
     has not met the applicable standard of conduct.
 
                                       15
 
<PAGE>
 
     (c) The Company  agrees to continue and maintain a directors' and officers'
     liability  insurance policy covering Executive at a level, and on terms and
     conditions, no less favorable to her than the coverage the Company provides
     other  similarly-situated  executives  until  such  time as  suits  against
     Executive are no longer permitted by law.
 
     (d) Nothing in this Section 10 will be construed as reducing or waiving any
     right to  indemnification,  or  advancement  of expenses,  Executive  would
     otherwise have under the Company's  certificate of incorporation or by-laws
     or under applicable law.
 
11. Arbitration - Exclusive Remedy.
 
     (a) Any  controversy,  dispute or claim  arising out of or relating to this
     Agreement,  any other  agreement or arrangement  between  Executive and the
     Company,  Executive's  employment  with  the  Company,  or the  termination
     thereof  (collectively,  the "Covered  claims") will be resolved by binding
     arbitration,  to be held in Dallas,  Texas.  The  arbitration  will be held
     before three  arbitrators,  one to be appointed by the Company, a second to
     be  appointed  by  Executive,  and a third to be  appointed  by  those  two
     arbitrators. The third arbitrator will act as chairman. Any arbitration may
     be initiated by either party by written  notice  ("Arbitration  Notice") to
     the other party  specifying  the subject of the requested  arbitration  and
     appointing that party's arbitrator.
 
     (b) If (i) the  non-initiating  party  fails to  appoint an  arbitrator  by
     written  notice  to  the  initiating   party  within  ten  days  after  the
     Arbitration  Notice,  or (ii) the two arbitrators  appointed by the parties
     fail to  appoint a third  arbitrator  within ten days after the date of the
     appointment  of  the  second  arbitrator,  then  the  American  Arbitration
     Association,  upon  application  of the initiating  party,  will appoint an
     arbitrator to fill that position.
 
     (c) The  arbitration  proceeding  will be conducted in accordance  with the
     Commercial Arbitration Rules (and not the National Rules for the Resolution
     of  Employment  Disputes)  of  the  American  Arbitration  Association.   A
     determination  or award made or approved by at least two of the arbitrators
     will be the valid and binding action of the arbitrators.  Judgment upon any
     arbitration  award may be entered and  enforced  in any court of  competent
     jurisdiction.
 
     (d) The costs of arbitration  (including without limitation attorneys' fees
     and  other  charges  of  counsel)  will be  borne  by the  Company  and the
     Executive  (or  any  of  her  beneficiaries)  in  such  proportion  as  the
     arbitrators  may deem  reasonable.  Pending the  resolution  of any Covered
     Claim,  Executive  (and her  beneficiaries)  will  continue  to receive all
     payments and benefits due under this Agreement or otherwise.
 
     (e)  Without   limiting   the   remedies   available  to  the  parties  and
     notwithstanding the foregoing  provisions of this Section 11, Executive and
     the  Company  acknowledge  that  any  breach  of any of  the  covenants  or
     provisions  contained in Sections 7 through 9 could  result in  irreparable
     injury to either of the parties hereto for which there might be no adequate
     remedy at law, and that,  in the event of such a breach or threat  thereof,
     the non-breaching party will be entitled to obtain a temporary  restraining
     order, a preliminary  injunction or a permanent injunction  restraining the
     other  party  hereto  from  engaging in any  activities  prohibited  by any
     covenant  or  provision  in  Sections 7 through 9 or such  other  equitable
     relief as may be required to enforce  specifically  any of the covenants or
     provisions of Sections 7 through 9.
 
                                       16
 
<PAGE>
 
12. Interpretation of Restrictive Covenant; Severability.
 
     (a) The parties  hereto intend that the  provisions of Sections 7, 8, and 9
     hereof to be enforced to the fullest extent permitted by law.  Accordingly,
     should a court of competent  jurisdiction  determine  that the scope of any
     provision  of  Section  7, 8 or 9 hereof  is too  broad to be  enforced  as
     written, the parties intend that a court of competent  jurisdiction will be
     entitled to reform the provision to such narrower scope as it determines to
     be reasonable and enforceable.
 
     (b) If any provision of this Agreement or the  application  thereof is held
     invalid, the invalidity will not affect other provisions or applications of
     this Agreement which can be given effect without the invalid  provisions or
     applications  and to this end the provisions of this Agreement are declared
     to be severable.
 
13.  Assignment.  This  Agreement is personal in its nature and.  neither of the
parties hereto will,  without the consent of the other,  assign or transfer this
Agreement or any rights or obligations hereunder; provided, however, that in the
event of a merger,  consolidation,  or transfer or sale of all or  substantially
all of the assets of the Company with or to any other  individual(s)  or entity,
this Agreement will, subject to the provisions hereof, be binding upon and inure
to the benefit of such  successor and such  successor will discharge and perform
all the promises,  covenants,  duties, and obligations of the Company hereunder,
and such transferee or successor will be required to assume such  obligations by
contract (unless such assumption occurs by operation of law).
 
14. Number and Gender. Where the context requires, the singular will include the
plural,  the plural will include the  singular,  and any gender will include all
other genders.
 
15.  Section  Headings.  The section  headings of, and titles of paragraphs  and
subparagraphs  contained in, this  Agreement are for the purpose of  convenience
only,  and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation thereof.
 
16.  Entire  Agreement.  This  Agreement  embodies  the entire  agreement of the
parties  hereto   respecting  the  matters  within  its  scope.  This  Agreement
supersedes all prior and  contemporaneous  agreements of the parties hereto that
directly  or  indirectly  bear  upon  the  subject  matter  hereof.   Any  prior
negotiations,  correspondence,  agreements, proposals or understandings relating
to the  subject  matter  hereof  will be deemed to have  been  merged  into this
Agreement,   and  to  the  extent  inconsistent  herewith,   such  negotiations,
correspondence, agreements, proposals, or understandings will be deemed to be of
no force or effect,  There are no  representations,  warranties,  or agreements,
whether  express or  implied,  or oral or written,  with  respect to the subject
matter  hereof,  except  as  expressly  set  forth  herein.  In the event of any
inconsistency  between  the terms of this  Agreement  and the terms of any other
Company plan,  policy,  arrangement or agreement with Executive,  the provisions
most favorable to Executive will govern.
 
                                       17
 
<PAGE>
 
17.  Modifications.  This Agreement may not be amended,  modified or changed (in
whole or in part),  except by a formal,  definitive written agreement  expressly
referring to this Agreement,  which agreement is executed by both of the parties
hereto.
 
18. Waiver. Neither the failure nor any delay on the part of a party to exercise
any right,  remedy,  power or privilege  under this  Agreement will operate as a
waiver thereof,  nor will any single or partial  exercise of any right,  remedy,
power or privilege  preclude any other or further exercise of the same or of any
right,  remedy,  power or privilege,  nor will any waiver of any right,  remedy,
power or privilege  with respect to any  occurrence  be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence.  No
waiver  will be  effective  unless it is in  writing  and is signed by the party
asserted to have granted such waiver.
 
19.  Provision  that  Survive  Termination.  The terms of this  Agreement to the
extent  necessary to carry out the  intentions of the parties  underlying  their
respective rights and obligations will survive any termination of this Agreement
(including expiration of the Term) and Executive's employment with the Company.
 
20. Counterparts.  This Agreement may be executed in any number of counterparts,
each of which will be deemed an original  as against  any party whose  signature
appears  thereon,  and all of which  together will  constitute  one and the same
instrument.  This Agreement  will become  binding when one or more  counterparts
hereof,  individually or taken together,  will bear the signatures of all of the
parties reflected hereon as the signatories.  Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.
 
21. Company's Representations.  The Company represents and warrants that (i) the
execution,  delivery and  performance  of this Agreement by the Company has been
fully and validly authorized by all necessary corporate action, (ii) the officer
signing  this  Agreement on behalf of the Company is duly  authorized  to do so,
(iii) the execution, delivery and performance of this Agreement does not violate
any applicable law, regulation, order, judgment or decree or any agreement, plan
or corporate  governance document to which the Company is a party or by which it
is bound and (iv) upon  execution and delivery of this  agreement by the parties
hereto,  it will be a valid, and binding  obligation of the Company  enforceable
against  it  in   accordance   with  its  terms,   except  to  the  extent  that
enforceability  may be limited by applicable  bankruptcy,  insolvency or similar
laws affecting the enforcement of creditors' rights generally.
 
22.  Governing Law. This  Agreement and all questions  relating to its validity,
interpretation,  performance  and  enforcement,  as well as the legal  relations
hereby  created  between the parties  hereto,  will be governed by and construed
under, and interpreted and enforced in accordance with, the laws of the State of
Delaware, notwithstanding any Delaware or other conflict of law provision to the
contrary.
 
23.  Notices.  Any notices,  consents,  demands,  requests,  approvals and other
communications  to be given under this  Agreement  by either  party to the other
must be in writing and must be either (i) personally  delivered,  (ii) mailed by
registered or certified  mail,  postage  prepaid with return receipt  requested,
(iii) delivered by overnight  express delivery service or same-day local courier
service, or (iv) delivered by facsimile  transmission,  to the address set forth
below, or to such other address as may be designated by the parties from time to
time in accordance with this Section 23:
 
                                       18
 
<PAGE>
 
                  If to the Company:  Zale Corporation
                                      901 W. Walnut Hill Lane
                                      Irving, Texas  75038
                                      Attention: General Counsel
 
                  If to Executive:    Ms. Mary L. Forte
                                      3524 Dickason
                                      Dallas, Texas 75219
 
Notices  delivered  personally or by overnight  express  delivery  service or by
local courier service are deemed given as of actual receipt.  Mailed notices are
deemed given three business days after mailing.  Notices  delivered by facsimile
transmission  are deemed  given upon  receipt by the sender of the  transmission
confirmation.
 
24. Binding Effect. This Agreement is binding upon the parties hereto,  together
with  their   respective   executors,   administrators,   successors,   personal
representatives, heirs and permitted assigns.
 
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 
 
 
                                     By: /s/ Mary L. Forte
                                         ---------------------------------------
                                         Mary L. Forte
 
 
                                     ZALE CORPORATION
 
 
                                     By:  /s/ Mary Ann Doran
                                          -------------------------------------
                                          Mary Ann Doran
 
                                     Its: Senior Vice President, Human Resources
                                          --------------------------------------
 
                                       19
 
 
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