EXHIBIT 10.2

EXECUTION VERSION

AMENDED AND RESTATED CREDIT AGREEMENT

dated as of
July 24, 2012,

among

ZALE DELAWARE, INC.,
ZALE CORPORATION,
ZGCO, LLC,
TXDC, L.P., and
ZALE PUERTO RICO, INC.,
as Borrowers,

The FACILITY GUARANTORS Named Herein,

The LENDERS Party Hereto, and

Z INVESTMENT HOLDINGS, LLC
as Administrative Agent

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AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 24, 2012 (this “Agreement”) among

ZALE DELAWARE, INC., a corporation organized under the laws of the State of Delaware having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale Delaware”); and

ZALE CORPORATION, a corporation organized under the laws of the State of Delaware having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale”); and

ZGCO, LLC, a limited liability company organized under the laws of the Commonwealth of Virginia having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZGCO”); and

TXDC, L.P., a limited partnership organized under the laws of the State of Texas, having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“TXDC”); and

ZALE PUERTO RICO, INC., a Puerto Rico corporation having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale PR”) and together with Zale Delaware, Zale, ZGCO, and TXDC, the “Initial Borrowers”); and

ZALE CANADA CO., an unlimited company organized under the laws of Nova Scotia having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale Canada”); and

ZALE CANADA DIAMOND SOURCING INC., a limited company organized under the laws of Nova Scotia having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZCDS”); and

ZAP, INC., a Delaware corporation having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zap”); and

ZCSC, LLC, a Delaware limited liability company having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZCSC”); and

ZALE INTERNATIONAL, INC., a Delaware corporation having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Zale International”); and

ZALE EMPLOYEES’ CHILD CARE ASSOCIATION, INC., a Texas corporation having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZECCA”); and

ZALE CANADA HOLDING LP, a limited partnership organized under the laws of New Brunswick having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZC Holding”); and

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ZALE CANADA FINCO 1, INC., a limited company organized under the laws of Nova Scotia having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Finco 1”); and

ZALE CANADA FINCO 2, INC., a limited company organized under the laws of Nova Scotia having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Finco 2”); and

FINCO HOLDING LP, a limited partnership organized under the laws of New Brunswick having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Finco Holding”); and

FINCO PARTNERSHIP LP, a limited partnership organized under the laws of New Brunswick having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“Finco Partnership”); and

ZALE CANADA FINCO, LLC, a limited liability company organized under the laws of the State of Delaware having a place of business at 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 (“ZC Finco”, and together with Zale Canada, ZCDS, Zap, ZCSC, Zale International, Zecca, ZC Holding, Finco 1, Finco 2, Finco Holding, and Finco Partnership, the “Initial Facility Guarantors”); and

the LENDERS party hereto; and

Z INVESTMENT HOLDINGS, LLC, a Delaware limited liability company (“ZIH, LLC”), as Administrative Agent.

W I T N E S S E T H:

WHEREAS, Zale, as borrower, has entered into a Credit Agreement, dated as of May 10, 2010 (as amended and in effect, the “Existing Credit Agreement”), among Zale, each lender from time to time party thereto (each, an “Existing Lender”), and ZIH, LLC, as administrative agent (in such capacity, the “Existing Administrative Agent”); and

WHEREAS, in accordance with SECTION 10.01 of the Existing Credit Agreement, Zale, as borrower, the Lenders, and the Administrative Agent desire to amend and restate the Existing Credit Agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree that the Existing Credit Agreement shall be amended and restated in its entirety (except to the extent that definitions from the Existing Credit Agreement are incorporated herein by reference) to read as follows (it being agreed that this Agreement shall not be deemed to evidence or result in a novation or repayment and reborrowing of the Obligations under (and as defined in) the Existing Credit Agreement):

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ARTICLE I
DEFINITIONS

SECTION 1.1             Defined Terms.  As used in this Agreement, the following terms have the meanings specified below:

“ABL Agent” means Bank of America, N.A., as administrative agent and collateral agent under the ABL Loan Documents or any future administrative agent or collateral agent under the ABL Loan Documents.

“ABL Credit Agreement” means that certain Second Amended and Restated Credit Agreement dated as of July 24, 2012, among the Borrowers, the Facility Guarantors, the “Lenders” as defined therein, Bank of America, N.A. as “Administrative Agent” and “Collateral Agent” and Bank of America, N.A. Wells Fargo Bank, National Association and General Electric Capital Corporation, as Co-Borrowing Base Agents, as amended, amended and restated, supplemented or otherwise modified from time to time or any Permitted Refinancing thereof, in each case, in accordance with the provisions of the Intercreditor Agreement.

“ABL Credit Extensions” means “Credit Extensions” (as defined in the ABL Credit Agreement in effect on the date hereof).

“ABL Lenders” means the “Lenders” (as defined in the ABL Credit Agreement in effect on the date hereof).

“ABL Line Cap” means the “Line Cap” (as defined in the ABL Credit Agreement in effect on the date hereof).

“ABL Loan Documents” means the “Loan Documents” (as defined in the ABL Credit Agreement in effect on the date hereof) as may be amended from time to time in accordance with the provisions of the Intercreditor Agreement.

“ABL Loans” means the “Loans” (as defined in the ABL Credit Agreement in effect on the date hereof).

“ABL Obligations” means the “Obligations” (as defined in the ABL Credit Agreement in effect on the date hereof).

“ABL Priority Collateral” has the meaning set forth in the Intercreditor Agreement.

“ABL Total Commitments” means the “Total Commitments” (as defined in the ABL Credit Agreement in effect on the date hereof).

“Account” means any right to payment for goods sold or leased or for services rendered, whether or not earned by performance, or any right to payment for credit extended for goods sold or leased or services rendered.

“ACH” means automated clearing house transfers.

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“Administrative Agent” means ZIH, LLC, in its capacity as administrative agent for the Lenders hereunder, or any successor administrative agent.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided that no Existing Lender (or any Affiliate of an Existing Lender) shall be deemed to be an Affiliate of the Loan Parties.

“Agent” means the Administrative Agent.

“Aggregate FILO Commitments” means the FILO Commitments of all the FILO Lenders, as reduced by the Borrowers pursuant to SECTION 2.15 of the ABL Credit Agreement.  As of the Effective Date, the Aggregate FILO Commitments are in the sum of $15,000,000.

“Agreement” has the meaning set forth in the preamble.

“Applicable Lenders” means the Required Lenders, the Required Supermajority Lenders, all affected Lenders, or all Lenders, as applicable.

“Appraised Intellectual Property Liquidation Value” means the net orderly liquidation value of the Borrowers’ Intellectual Property determined from the then most recent appraisal of the Borrowers’ Intellectual Property undertaken at the request of the Administrative Agent, to reflect the appraiser’s estimate of the net recovery on the Borrowers’ Intellectual Property in the event of an orderly liquidation of that Intellectual Property.

“Appraised Inventory Liquidation Value” has the meaning set forth in the ABL Credit Agreement in effect as of the date hereof.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of each party whose consent is required by SECTION 9.4), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form approved by the Administrative Agent.

“Bank of America” means Bank of America, N.A., a national banking association, and its Subsidiaries, Affiliates and branches.

“Bankruptcy Code” shall mean Title 11 of the United States Code, as now or hereafter in effect or any successor thereto.

“Blocked Account Agreements” has the meaning set forth in SECTION 2.21(b).

“Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Borrowers” means the Initial Borrowers and any other Subsidiary of Zale which becomes a Borrower under this Agreement pursuant to a joinder agreement to this

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Agreement and the Loan Documents, as applicable, with the other parties hereto and thereto, in form and substance satisfactory to the Administrative Agent.

“Borrowing” means the borrowing of the Loans on the Effective Date pursuant to SECTION 2.1.

“Borrowing Base” has the meaning set forth in the ABL Credit Agreement in effect as of the date hereof.

“Borrowing Base Certificate” has the meaning set forth in SECTION 5.1(f).

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Boston, Massachusetts, San Francisco, California, New York, New York or Dallas, Texas are authorized or required by law to remain closed.

“Canadian Loan Party” or “Canadian Loan Parties” means each Loan Party organized under organized under the laws of Canada or any province or territory thereof.

“Canadian Plan” means an employee pension benefit plan or pension plan that is covered by the Laws of any jurisdiction in Canada including the Pension Benefits Act (Ontario) and the Income Tax Act (Canada) or subject to minimum funding standards and that is either (a) maintained or sponsored by any Canadian Loan Party for its employees, (b) maintained pursuant to a collective bargaining agreement, or other arrangement under which more than one employer makes contributions and to which any Canadian Loan Party is making or accruing an obligation to make contributions or has within the preceding five years made or accrued such contributions or (c) any other plan with respect to which any Canadian Loan Party has incurred or may incur liability, including contingent liability either to such plan or to any Person, administration or Governmental Authority.

“Canadian Restructuring” means a series of transactions undertaken after the Effective Date to streamline Zale’s Canadian entity structure consisting of (a) the dissolution and liquidation of ZC Partnership, (b) the conversion of ZCDS into an unlimited company and (c) the merger, amalgamation, liquidation, dissolution and/or distribution and contribution of ZCDS, Finco 1, Finco 2, Finco Holding, Finco Partnership and ZC Finco, with and/or into Zale Canada as the owner of the assets of the entities so merged, amalgamated, liquidated, dissolved or distributed and contributed following the completion of the restructuring.

“Capital Expenditures” means, for any period, (a) the additions to property, plant and equipment and other capital expenditures of the Borrowers and their Subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of the Borrowers and their Subsidiaries for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrowers and their Subsidiaries during such period.

“Capital Lease Obligations” means of any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real (immovable) or personal (movable) property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance

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sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Cash Control Event” has the meaning set forth in the ABL Credit Agreement as in effect on the date hereof.

“CDN$” means Canadian Dollars.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq.

“CFC” means a controlled foreign corporation (as that term is defined in Section 957(a) of the Code).

“Change in Control” means, at any time, (a) occupation of a majority of the seats (other than vacant seats) on the board of directors of Zale by Persons who were neither (i) nominated by the board of directors of Zale or (ii) appointed by directors so nominated; or (b) the acquisition of fifty percent (50%) or more of the Stock of Zale by any Person or group of Persons, or (c) the failure of Zale or another Borrower to own directly 100% of the Stock or other ownership interest of Zale Delaware, ZGCO, TXDC, Zale PR and Zale Canada.

“Change in Law” means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of SECTION 2.23(b), by any lending office of such Lender or by such Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.

“Charges” has the meaning set forth in SECTION 9.13.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means any and all “Collateral” as defined in any applicable Security Document.

“Compliance Certificate” means a certificate substantially in the form of Exhibit E.

“Concentration Accounts” has the meaning set forth in SECTION 2.21(a).

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“Consolidated EBITDA” means Consolidated Net Income for any period plus (a) without duplication, the sum of the following expenses of Zale and its Subsidiaries for such period, in each case to the extent included in determining said Consolidated Net Income: (i) depreciation expense, (ii) amortization expense, excluding amortization expense attributable to a prepaid cash item, (iii)  interest expense, (iv) total United States and foreign federal, state, provincial and local income tax expense, (v) charges relating to the valuation of inventory by application of the LIFO (last in/first out) method of inventory valuation, (vi) non-cash compensation expense arising out of the grant or exercise of stock options or other equity based compensation, (vii) the effect of any non-cash impairment charges related to the write-off of goodwill, property or equipment resulting from the application of GAAP, (viii) non-cash restructuring charges, and (ix) all other non-cash charges less (b) without duplication, in each case to the extent included in determining Consolidated Net Income, the sum of (i) income earned during such period relating to the valuation of inventory by the application of the LIFO method of inventory valuation, (ii) interest income for such period, (iii) non-cash gains for such period and (iv) total United States and foreign federal, state, provincial and local income tax benefits provided during such period.

“Consolidated Net Income” means the consolidated net income (or loss) of Zale and its Subsidiaries, after eliminating therefrom all non-cash extraordinary items of income and all non-cash extraordinary items of loss, all determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be excluded from Consolidated Net Income (a) the income (or loss) of any Person in which Zale or any of its Subsidiaries has a joint interest except to the extent of any cash dividends actually paid to Zale or its Subsidiaries, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Zale or is merged into or consolidated with Zale or any of its Subsidiaries or that Person’s assets are acquired by Zale or any of its Subsidiaries and (c) the income of any direct or indirect Subsidiary of Zale that is not a Loan Party or a Zale Insurance Subsidiary to the extent that, on the date of determination, the declaration or payment of cash dividends or similar cash distributions by such Subsidiary is not permitted without any prior approval of any Governmental Authority that has not been obtained or is not permitted by the operation of the terms of its charter, by-laws or other organizational documents or any agreement or other instrument binding upon such Subsidiary or any law applicable to such Subsidiary, unless such restrictions with respect to the payment of cash dividends and other similar cash distributions have been legally and effectively waived.

“Consolidated Total Interest Expense” means for any period, the aggregate amount of interest required to be paid or payable in cash by Zale and its Subsidiaries in respect of such period on all Disqualified Stock and all Indebtedness of Zale and its Subsidiaries outstanding during all or any part of such period in accordance with GAAP (including payments consisting of interest in respect of Capital Lease Obligations or Synthetic Leases), but excluding all non-cash interest expense including, but not limited to: (i) the amortization of original issue discount associated with Indebtedness, (ii) the amortization of capitalized issuance costs associated with Indebtedness, (iii) the amortization of discount resulting from the valuation of any warrants issued in connection with any Indebtedness, (iv) interest expense resulting from remaining capitalized issuance costs associated with the Existing Credit Agreement and the Existing ABL Credit Agreement, and (v) interest paid in the form of additional Indebtedness.

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“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  The terms “Controlling” and “Controlled” have meanings correlative thereto.

“Cost” means the cost of Inventory as reported on the Loan Parties’ financial stock ledger using the retail method of accounting based on practices which are in effect on the date of this Agreement.

“Covenant Compliance Event” means that Excess Availability at any time is less than or equal to the greater of (i) ten percent (10%) of the ABL Line Cap, or (ii) $40,000,000. The termination of a Covenant Compliance Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Covenant Compliance Event in the event that the conditions set forth in this definition again arise.

“Credit Extensions” means as of any day the principal balance of all Loans then outstanding.

“Credit Party” or “Credit Parties” means (a) individually, (i) each Lender and its Affiliates, (ii) the Administrative Agent, (iii) GGC Administration, L.L.C., (iv) each beneficiary of each indemnification obligation undertaken by any Loan Party under any Loan Document, (v) any other Person to whom Obligations under this Agreement and other Loan Documents are owing, and (vi) the successors and assigns of each of the foregoing, and (b) collectively, all of the foregoing.

“DDAs” means any checking or other demand deposit account maintained by the Loan Parties.

“Debtor Relief Laws” means the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect, including, without limitation, the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act (Canada).

“Default” means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means, subject to SECTION 2.31(b), any Lender that (a) has failed to fund all or any portion of its Loans within two Business Days of the date such Loans were required to be funded hereunder, or (b) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a

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Defaulting Lender solely by virtue of the ownership or acquisition of any Stock in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.  Any determination by the Administrative Agent that a Lender is a Defaulting Lender (or if the Required Supermajority Lenders determine that the Administrative Agent, in its capacity as a Lender, is a Defaulting Lender) under any one or more of clauses (a) through (b) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to SECTION 2.31(b)) as of the date established therefor by the Administrative Agent (or the Required Supermajority Lenders, if applicable) in a written notice of such determination, which shall be delivered by the Administrative Agent (or the Required Supermajority Lenders, if applicable) to the Borrowers and each other Lender promptly following such determination.

“Discharge of ABL Obligations” has the meaning set forth in the Intercreditor Agreement.

“Disqualified Stock” means any Stock (other than the Warrants and any Stock issued in respect of the Warrants) that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable for cash, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Maturity Date; provided, however, that (i) only the portion of such Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock, (ii) with respect to any Stock issued to any employee or to any plan for the benefit of employees of Zale or its Subsidiaries or by any such plan to such employees, such Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by Zale or one of its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, resignation, death or disability and (iii) if any class of Stock of such Person by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Stock that is not Disqualified Stock, such Stock shall not be deemed to be Disqualified Stock. Notwithstanding the preceding sentence, any Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require a Loan Party to repurchase such Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Obligations. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that Zale and its Subsidiaries may become obligated to pay upon maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock or portion thereof, plus accrued dividends.

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“Dollars” or “$” means lawful money of the United States of America.

“Domestic Subsidiary” means any Subsidiary that is incorporated or formed under the laws of the United States or any State or other political subdivision thereof (including the District of Columbia).

“Effective Date” means the date on which the conditions specified in SECTION 4.1 are satisfied (or waived in accordance with SECTION 9.2).

“Effective Date Prepayment” means the prepayment on the Effective Date of Existing Loans plus accrued and unpaid interest thereon in an aggregate amount equal to $65,289,067.83 (it being understood that the Effective Date Prepayment amount is exclusive of any amounts paid under the Side Letter).

“Eligible Credit Card Receivables” has the meaning set forth in the ABL Credit Agreement in effect as of the date hereof.

“Eligible Inventory” has the meaning set forth in the ABL Credit Agreement in effect as of the date hereof.

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, handling, treatment, storage, disposal, Release or threatened Release of any Hazardous Material or to health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, natural resource damage, costs of environmental remediation, administrative oversight costs, fines, penalties or indemnities), of any Loan Party directly or indirectly resulting from or based upon a violation of any Environmental Law, including those resulting from (a) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (b) exposure to any Hazardous Materials, (c) the release or threatened release of any Hazardous Materials into the environment or (d) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equivalent Amount” means, on any date, the rate at which Canadian dollars may be exchanged into Dollars, determined by reference to the Bank of Canada noon rate as published on the Reuters Screen BOFC on the immediately preceding Business Day.  In the event that such rate does not appear on such Reuters page, “Equivalent Amount” shall mean, on any date, the amount of Dollars into which an amount of Canadian dollars may be converted or the amount of Canadian dollars into which an amount of Dollars may be converted, in either case, at Bank of America’s spot buying rate in New York as at approximately 12:00 noon (New York City time) on the immediately preceding Business Day (as reported to the Administrative Agent).

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Loan Parties, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of a Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, or a cessation of operations of such entity that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by a Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate a Pension Plan, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan or a Multiemployer Plan; (f) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (g) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

“Event of Default” has the meaning set forth in SECTION 7.1.

“Excess Availability” means, as of any date of determination, (a) as long as the Aggregate FILO Commitments have not been terminated or expired, the excess, if any, of (i) the lesser of (A) the ABL Total Commitments, or (B) the sum of the Borrowing Base and the Aggregate FILO Commitments, minus (ii) the outstanding ABL Credit Extensions, and (b) after termination or expiration of the Aggregate FILO Commitments, the excess, if any, of (i) the ABL Line Cap, minus (ii) the outstanding ABL Credit Extensions.

“Excluded Subsidiaries” means, collectively, Zale Life Insurance Company, an Arizona corporation, Zale Indemnity Company, a Texas corporation, Jewel Re-Insurance Ltd., a Barbados corporation, Zale Funding Trust, a Delaware trust, Zale Disaster Relief Fund, Inc. a Texas corporation, ZC Partnership LP, a New Brunswick limited partnership, and Dobbins Jewelers, Inc., a Guam corporation and any future Subsidiary which is either (a) not wholly-owned or (b) a Foreign Subsidiary.

“Excluded Taxes” means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a

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Loan pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan (other than pursuant to an assignment request by the Borrower under SECTION 2.28) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to SECTION 2.26(a)(ii) or SECTION 2.26(c), amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with SECTION 2.26(e), and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.

“Executive Order” has the meaning set forth in SECTION 3.19.

“Existing ABL Credit Agreement” means the “Existing Credit Agreement” (as defined in the ABL Credit Agreement in effect on the date hereof).

“Existing Administrative Agent” has the meaning set forth in the recitals.

“Existing Credit Agreement” has the meaning set forth in the recitals.

“Existing Lender” has the meaning set forth in the recitals.

“Existing Guarantees” has the meaning set forth in SECTION 9.24.

“Existing Loans” means the term loans outstanding under the Existing Credit Agreement immediately prior to the effectiveness of this Agreement.

“Existing Security Documents” has the meaning set forth in SECTION 9.24.

“Facility Guarantee” means each Guarantee executed by each of the Facility Guarantors in favor of the Administrative Agent for the benefit of the Credit Parties, as amended and in effect from time to time.

“Facility Guarantor” means the Initial Facility Guarantors and each other Subsidiary of any Loan Party that is required to from time to time to execute and deliver a Facility Guarantee pursuant to SECTION 5.13.

“Facility Guarantor Collateral Documents” means all security agreements, mortgages, pledge agreements, deeds of trust, and other instruments, documents or agreements executed and delivered by any Facility Guarantor to secure its obligations under a Facility Guarantee and repayment and performance of the Obligations.

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.

“Federal Funds Effective Rate” means, for any day, the rate per annum equal to the the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System

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arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by Bank of America from three Federal funds brokers of recognized standing selected by it.

“FILO Commitment” means, with respect to each FILO Lender, the commitment of such FILO Lender to make ABL Loans to the Borrowers in the amount set forth opposite its name on Schedule 1.1 of the ABL Credit Agreement or as may subsequently be set forth in the Register under the ABL Credit Agreement from time to time, as the same may be reduced from time to time pursuant to SECTION 2.15 of the ABL Credit Agreement.

“FILO Lender” means each ABL Lender having a FILO Commitment as set forth on Schedule 1.1 of the ABL Credit Agreement or in the assignment and acceptance by which it becomes a FILO Lender.

“FILO Loans” means all ABL Loans at any time made by a FILO Lender.

“Financial Officer” means, with respect to any Borrower, the chief financial officer, controller, treasurer or assistant treasurer of such Borrower. Any document delivered hereunder that is signed by any Person who the Administrative Agent reasonably believes (or has been notified by the Borrowers) is a Financial Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Financial Officer shall be conclusively presumed to have acted on behalf of such Loan Party unless and until the Borrowers furnish written notice to the Administrative Agent that such Person is no longer a Financial Officer.

“Finco 1” has the meaning set forth in the preamble.

“Finco 2” has the meaning set forth in the preamble.

“Finco Holding” has the meaning set forth in the preamble.

“Finco Partnership” has the meaning set forth in the preamble.

“Fixed Charge Coverage Ratio” means for any Reference Period the ratio of (a)(i) Consolidated EBITDA for such period less (ii) the sum of (A) Unfinanced Capital Expenditures for such period and (B) federal income tax (whether U.S., Canadian or Puerto Rican) paid in cash during such period to (b) the sum of (i) Consolidated Total Interest Expense for such period, (ii) the sum of all scheduled payments of principal on Indebtedness, and all payments with respect to Disqualified Stock, of Zale and its Subsidiaries (including without limitation, the principal component of amounts paid on account of Capital Lease Obligations) made or required to be made during such period, and (iii) Restricted Payments consisting of dividends made during such period.

“Foreign Assets Control Regulations” has the meaning set forth in SECTION 3.19.

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“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia.

“Foreign Subsidiary” means any Subsidiary that is (a) not a Domestic Subsidiary; (b) so long as Zale Puerto Rico is a Loan Party, not formed or incorporated under the laws of Puerto Rico; (c) so long as Zale Canada is a Loan Party, not formed or incorporated under the laws of Canada (or any political subdivision thereof); and (d) a CFC.

“FSCO” means the Financial Services Commission of Ontario and any Person succeeding to the functions thereof and includes the Superintendent under such statute and any other Governmental Authority empowered or created by the Supplemental Pensions Act (Québec) or the Pension Benefits Act (Ontario) or any Governmental Authority of any other Canadian jurisdiction exercising similar functions in respect of any Canadian Plan of the Canadian Loan Parties or any of their Subsidiaries or Affiliates and any Governmental Authority succeeding to the functions thereof.

“GAAP” means generally accepted accounting principles in the United States of America.

“Governmental Authority” means the government of the United States of America, Canada, any other nation or any political subdivision thereof, whether state, provincial, territorial, municipal, or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” means, of or by any Person (the “guarantor”), any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness, provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Guarantee shall be deemed to be an amount equal to the maximum stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof.  The term “Guarantee” as a verb has a corresponding meaning.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls,

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radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law, including any material listed as a hazardous substance under Section 101(14) of CERCLA.

“Hedging Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of Zale or its Subsidiaries shall be a Hedging Agreement.

“Incremental Availability” means two and one-half percent (2.50%) of the Appraised Inventory Liquidation Value.

“Incremental Reserve” means, at any time of calculation, the difference (but not less than zero) between the Aggregate FILO Commitments and Incremental Availability.

“Indebtedness” means, of any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding trade payables not more than 60 days past due or other current accounts payable incurred in the ordinary course of business, deferred compensation and any purchase-price adjustment or earn-out obligation), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others (including under any Synthetic Leases), (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances.  The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.  Notwithstanding clause (e) above, Indebtedness of any Excluded Subsidiary secured by a pledge of the Stock of such Excluded Subsidiary and otherwise without recourse to the pledgor shall not be deemed Indebtedness of the pledgor.

“Indemnified Taxes” means (a) Taxes other than Excluded Taxes imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.

“Indemnitee” has the meaning set forth in SECTION 9.3(b).

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“Initial Borrowers” has the meaning set forth in the preamble hereto.

“Insurance Restructuring” means the proposed sale or other transfer of Zale Life Insurance Company to Zale Indemnity Company, whether by means of a sale or other transfer of Stock or a sale or other transfer of assets as approved by the applicable regulatory authority.

“Initial Facility Guarantors” has the meaning set forth in the preamble hereto.

“Intellectual Property” has the meaning set forth in the Security Agreement.

“Intercompany Subordination Agreement” means the Intercompany Subordination Agreement, dated as of the date of the Existing Credit Agreement, by and among the obligors party thereto, in favor of the Administrative Agent for the benefit of the Credit Parties, as amended and in effect from time to time.

“Intercreditor Agreement” means that certain Amended and Restated Intercreditor Agreement dated as of the date hereof, by and between the Administrative Agent and the ABL Agent, and acknowledged by the Loan Parties, as amended from time to time in accordance with the terms thereof and in effect from time to time.

“Interest Payment Date” means the last Business Day of each Fiscal Quarter and on the Maturity Date.

“Inventory” has the meaning set forth in the Security Agreement.

“investment” has the meaning set forth in SECTION 6.4.

“Judgment Conversion Date” has the meaning set forth in SECTION 9.18.

“Judgment Currency” has the meaning set forth in SECTION 9.18.

“Lenders” means the Persons identified on Schedule 1.1 and each assignee that becomes a party to this Agreement as set forth in SECTION 9.4.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, statutory or deemed trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

“Loan” means the Existing Loans that are continued, amended and restated as of the Effective Date in the amounts set forth on Schedule 1.1.

“Loan Account” has the meaning set forth in SECTION 2.20(a).

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“Loan Agreement Obligations” means (a) the payment by the Loan Parties of (i) the principal of, and interest on the Loans (including all interest that accrues after the commencement of any case or proceeding by or against any Loan Party under the Bankruptcy Code or any state, federal, provincial or foreign bankruptcy, insolvency, receivership, reorganization or similar law, whether or not allowed or allowable in such case or proceeding), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations, including fees, costs, expenses, indemnities and other amounts, whether primary, secondary, direct, contingent, fixed or otherwise, of the Loan Parties to the Credit Parties under this Agreement and the other Loan Documents (in each case, including all such amounts that accrue after the commencement of any case or proceeding by or against any Loan Party under the Bankruptcy Code or any state, federal, provincial, or foreign bankruptcy, insolvency, receivership, organization or similar law, whether or not allowed or allowable in such case or proceeding), and (b) the payment and performance of all the covenants, agreements, obligations and liabilities of each Loan Party under or pursuant to this Agreement, and the other Loan Documents.

“Loan Documents” means this Agreement, the Notes, the Side Letter, all Borrowing Base Certificates, the Blocked Account Agreements, the Security Documents, the Facility Guarantee, the Facility Guarantor Collateral Documents, the Intercreditor Agreement, the Intercompany Subordination Agreement, the Side Letter, the Monitoring Agreement Letter, all Compliance Certificates and any other instrument, certificate or agreement executed and delivered in connection herewith or therewith.

“Loan Interest Rate” means 11.00% per annum, which is to be paid, in cash, as set forth in SECTION 2.9.

“Loan Party” or “Loan Parties” means each Borrower and each Facility Guarantor.

“Make Whole Amount” means, on any date of prepayment of all or any portion of the Obligations on or prior to the first anniversary of the Effective Date, an amount in cash equal to (a) the present value, as determined by Zale and certified by a Financial Officer of Zale to the Administrative Agent, of all required interest payments due on the Obligations that are prepaid from the date of prepayment through and including the first anniversary of the Effective Date (assuming that the interest rate applicable to all such interest is 11.00%) plus (b) the prepayment premium that would be due under SECTION 2.17 if such prepayment were made on the day after the first anniversary of the Effective Date, in each case, discounted to the date of prepayment on a quarterly basis (assuming a 360-day year and actual days elapsed) at a rate equal to the sum of the Treasury Rate plus 0.50%.

“Margin Stock” has the meaning set forth in Regulation U.

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, property, assets, or financial condition of the Loan Parties and their Subsidiaries taken as a whole, or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or any of the material rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder; provided, however, that no Material Adverse Effect

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shall be deemed to exist with respect to the Loan Parties solely as a result of (i) the loss by any Loan Party of its investment in an Excluded Subsidiary; (ii) the loss of that portion of the Loan Parties’ consolidated results of operations generated by any Excluded Subsidiary; or (iii) any liability of an Excluded Subsidiary that is not, on an unconsolidated basis, a liability of a Loan Party.

“Material Indebtedness” means (i) the ABL Obligations and other Indebtedness owed under the ABL Loan Documents (it being understood that the ABL Obligations and such other Indebtedness under the ABL Loan Documents shall be deemed to be “Material Indebtedness” so long as there has not been a Discharge of ABL Obligations), and (ii) any other Indebtedness (other than the Obligations and the ABL Obligations) of any one or more of the Loan Parties in an aggregate principal amount exceeding $25,000,000.

“Maturity Date” means July 24, 2017.

“Maximum Rate” has the meaning set forth in SECTION 9.13.

“Minority Lenders” has the meaning set forth in SECTION 9.2(e).

“Monitoring Agreement Letter” means the letter agreement, dated as of the date hereof, among the Borrowers, the Administrative Agent, the Existing Administrative Agent and GGC Administration, L.L.C.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which a Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or has any continuing liability.

“Multiple Employer Plan” means a Plan which has two or more contributing sponsors (including a Loan Party) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

“Net Proceeds” means:

(a)         with respect to any sale, transfer or other disposition by any Loan Party or any Subsidiary thereof, the excess, if any, of (i) the sum of cash and cash equivalents actually received in connection with such transaction (including any cash or cash equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) minus (ii) the sum of (A) the principal amount of (and accrued and unpaid interest on, and other amounts payable in connection with) any Indebtedness that is secured by a Lien on the applicable asset which Lien is permitted hereunder and which Lien is senior to the Administrative Agent’s Lien on such asset and that is required to be paid or repaid (or to establish an escrow for the future repayment thereof) in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by such Loan Party in connection with such transaction (including, without limitation, appraisals, brokerage, title and recording or transfer tax expenses and commissions, legal,

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accounting and other professional fees) paid or payable by such Loan Party to third parties (other than Affiliates)), (C) cash taxes paid or reasonably estimated to be actually payable in cash in connection therewith (provided that, to the extent and at the time any such amounts are determined to not be payable, such amounts shall constitute Net Proceeds), (D) amounts provided as a reserve against any liabilities under any indemnification obligations or purchase price adjustment associated with such asset disposition (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Proceeds), and (E) any liabilities relating to the property subject to such asset disposition that are retained by any Loan Party or its Subsidiaries, provided that, at all times such liabilities remain outstanding, the Loan Parties shall maintain an amount sufficient to satisfy such liabilities in a segregated account established with the Administrative Agent to be used by the Loan Parties solely to satisfy such liabilities as they become due; provided, however, the Net Proceeds shall not include any amounts described in this clause (a) to the extent such amounts are committed, within 180 days after the date of receipt thereof, to be reinvested in assets to be used in the business of the Loan Parties and are, within 365 days after the date of receipt thereof, actually reinvested in assets that are useful in the business of the Loan Parties;

(b)         with respect to the incurrence or issuance of any Indebtedness by any Loan Party or any of its Subsidiaries (other than Indebtedness permitted to be incurred or issued pursuant to Section 6.1), the result of (i) the sum of the cash and cash equivalents received in connection with such incurrence or issuance minus (ii) the underwriting discounts and commissions, and other reasonable out-of-pocket costs, fees, commissions, premiums and expenses incurred by the Loan Parties or their Subsidiaries in connection with such incurrence or issuance to the extent such amounts (A) were not deducted in determining the amount referred to in clause (i) above, (B) are, at the time of receipt of such cash or cash equivalents, actually paid or payable to a Person that is not an Affiliate of any Loan Party or any of its Subsidiaries, and (C) are properly attributable to such transaction; and

(c)          with respect to the sale or issuance of any Stock of Zale (or successor thereof), the result of (i) the sum of the cash and cash equivalents received in connection with such sale or issuance minus (ii) the underwriting discounts and commissions, and other reasonable out-of-pocket costs, fees, commissions, premiums and expenses, incurred by Zale in connection with such sale or issuance to the extent such amounts (A) were not deducted in determining the amount referred to in clause (i) above, (B) are, at the time of receipt of such cash or cash equivalents, actually paid or payable to a Person that is not an Affiliate of any Loan Party or any of its Subsidiaries, and (C) are properly attributable to such transaction.

“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.

“Notes” means the promissory notes of the Borrowers substantially in the form of Exhibit B, each payable to the order of a Lender, evidencing the Loans.

“Obligations” means the Loan Agreement Obligations.

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“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to SECTION 2.28).

“Payment Conditions” means, at the time of determination with respect to a specified transaction or payment, that (a) no Default or Event of Default then exists or would arise as a result of the entering into of such transaction or the making of such payment and (b) after giving effect to such transaction or payment, the Pro Forma Availability Condition has been satisfied and the Fixed Charge Coverage Ratio, on a pro-forma basis for the Reference Period immediately preceding such transaction or payment, will be equal to or greater than 1.0:1.0.  Prior to undertaking any transaction or payment which is subject to the Payment Conditions, the Loan Parties shall deliver to the Administrative Agent a certificate certifying as to the absence of any Default or any Event of Default and setting forth the calculations of the Pro Forma Availability Condition and the Fixed Charge Coverage Ratio which evidences satisfaction of the conditions contained in clause (b) above on a basis reasonably satisfactory to the Administrative Agent.

“Participant” has the meaning provided therefor in SECTION 9.4(g).

“Participation Register” has the meaning provided therefor in SECTION 9.4(h).

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Pension Act” means the Pension Protection Act of 2006.

“Pension Funding Rules” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

“Pension Plan” means any employee pension benefit plan within the meaning of Section 3(2) of ERISA (including a Multiple Employer Plan but excluding a Multiemployer Plan) that is maintained or is contributed to by any Loan Party and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.

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“Permitted Asset Sales” means sales and dispositions of assets that are deemed appropriate by the Loan Parties for fair market value not to exceed $30,000,000 in any fiscal year and for which not less than seventy-five percent (75%) of the aggregate purchase price is paid in cash.

“Permitted Encumbrances” means:

(a)                                 Liens imposed by law for taxes that are not yet delinquent or are being contested in compliance with SECTION 5.5;

(b)                                 carriers’, warehousemen’s, landlord’s, mechanics’, materialmen’s, repairmen’s, custom broker’s, and other like Liens, arising in the ordinary course of business and securing obligations that are not overdue by more than ninety (90) days or are being contested in compliance with SECTION 5.5;

(c)                                  Liens on assets (other than Inventory, Accounts and the proceeds thereof) incurred in the ordinary course of business in compliance with workers’ compensation, unemployment insurance, old-age pension and other social security laws or regulations, other than any Liens imposed by ERISA or applicable law relating to any Canadian Plans;

(d)                                 Liens on assets (other than Inventory, Accounts and the proceeds thereof) to secure the performance of bids, trade contracts, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e)                                  judgment Liens in respect of judgments that do not constitute an Event of Default under SECTION 7.1(k); and

(f)                                   easements, zoning restrictions, rights-of-way and similar encumbrances (and with respect to leasehold interests, mortgages, obligations, liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under or asserted by a landlord or owner of leased property, with or without the consent of the lessee) on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Loan Parties, and such other minor title defects or survey matters that are disclosed by current surveys that, in each case, do not materially interfere with the ordinary conduct of business of the Loan Parties.

provided, that except as provided in any one or more of clauses (a) through (f) above, the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.

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“Permitted Investments” means each of the following:

(a)                                 marketable direct or guaranteed obligations of the United States of America that mature within two (2) years from the date of purchase by such Loan Party or such Subsidiary;

(b)                                 demand deposits, certificates of deposit, Eurodollar deposits, time deposits and bankers acceptances issued by banking institutions provided, that such banks have a long-term credit rating of at least “AA” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system or “Aa” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.; provided, however, the Loan Parties’ investment in any one bank shall not exceed 5% of the primary capital of such bank;

(c)                                  securities commonly known as “commercial paper” issued by the Administrative Agent, or a corporation or any other financial institution that at the time of purchase have been rated and the ratings for which are not less than “P1” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system, or not less than “A1” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.; provided, however, the Loan Parties may invest up to 20% of their Permitted Investments measured at the time of investment made pursuant to paragraphs (a)-(i) hereof in commercial paper with a combined rating of “A-2/P-2” (or its then equivalent);

(d)                                 demand notes issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at that time of purchase have a rating of at least “AA” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system, or its equivalent by at least two (2) nationally recognized rating services, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc., and have a maturity date that does not exceed one (1) year beyond the date of purchase; provided, however, such investments will be limited to the greater of $20 million per obligor or 20% of investments made pursuant to paragraphs (a)-(i) hereof measured at the time of investment;

(e)                                  repurchase agreements, purchased through the Administrative Agent, or a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than “P1” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system, or not less than “A1” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc., which repurchase agreements are collateralized by securities of the United States of America or any agency thereof in an amount equal to at least 102% of the amount of such investment;

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(f)                                   shares of any so-called “money market fund” advised, serviced or sold by any of the Lenders or by any other financial institution provided, that such fund is registered under the Investment Company Act of 1940, has net assets of at least $250,000,000, has an investment portfolio with an average maturity of 365 days or less and is not considered to be a “high-yield” fund;

(g)                                  municipal fixed and variable rate short-term securities that mature within one (1) year from the date of purchase by any Loan Party or such Subsidiary that at the time of purchase have been rated and the ratings for which are not less than “MIG-1/VMIG-1” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system or not less than “SP-1+/A-1” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.;

(h)                                 municipal fixed and variable rate medium-term securities that mature between one (1) and two (2) years from the date of purchase by such Loan Party or such Subsidiary that at the time of purchase have been rated and the ratings for which are not less than “Aa” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system or not less than “AA” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system, or an equivalent rating from either Dominion Bond Rating Services Limited or CBRS, Inc.;

(i)                                     marketable direct obligations of the State of Texas or its agencies and instrumentalities that at the time of purchase have been rated and the ratings for which are not less than “P” (or its then equivalent) if rated by Moody’s or any successor service thereto having a substantially similar rating system or not less than “A” (or its then equivalent) if rated by S&P or any successor service thereto having a substantially similar rating system; and

(j)                                    in the case of Foreign Subsidiaries, short term investments comparable to the foregoing.

“Permitted Refinancing” means, with respect to any Person, any Indebtedness issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund (collectively, to “Refinance”), the Indebtedness being Refinanced (or previous refinancings thereof constituting a Permitted Refinancing); provided, that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so Refinanced (plus unpaid accrued interest and premiums thereon and underwriting discounts, defeasance costs, fees, commissions and expenses), (b) the weighted average life to maturity of such Permitted Refinancing is greater than or equal to the weighted average life to maturity of the Indebtedness being Refinanced, (c) such Permitted Refinancing shall not require any scheduled principal payments due prior to the Maturity Date in excess of, or prior to, the scheduled principal payments due prior to such Maturity Date for the Indebtedness being Refinanced, (d) if the Indebtedness being Refinanced is subordinated in

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right of payment to the Obligations under this Agreement, such Permitted Refinancing shall be subordinated in right of payment to such Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being Refinanced, (e) no Permitted Refinancing shall have different direct or indirect obligors, or greater guarantees or security, than the Indebtedness being Refinanced, (f) the interest rate applicable to any such Permitted Refinancing shall not exceed the then applicable market interest rate, (g) at the time thereof, both before and after giving effect to such Refinancing, no Default or Event of Default shall have occurred and be continuing and (h) if the Indebtedness being Refinanced is the ABL Obligations, such Refinancing shall comply with the applicable provisions of the Intercreditor Agreement.

“Person” means any natural person, corporation, limited liability company, unlimited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA maintained for employees of a Loan Party or any such Plan to which a Loan Party or any ERISA Affiliate is required to contribute on behalf of any of its employees.

“PPSA” means the Personal Property Security Act of Ontario (or any successor statute) or similar legislation of any other Canadian jurisdiction, including, without limitation, the Civil Code of Quebec, the laws of which are required by such legislation to be applied in connection with the issue, perfection, enforcement, opposability, validity or effect of security interests or hypothecs.

“Prepayment Event” means the occurrence of any of the following events:

(a)                                 Any sale, transfer or other disposition (including pursuant to a sale and leaseback transaction, other than (i) sales of Inventory or equipment in the ordinary course of business, (ii) sales or assignments of leasehold interests in real property, and (iii) dispositions of other property resulting in Net Proceeds of not more than $1,000,000 in any transaction or series of related transactions) of any asset of a Loan Party, unless the proceeds therefrom are required to be paid to the holder of a Lien on such property or asset having priority over the Lien of the Administrative Agent;

(b)                                 Any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation, expropriation or similar proceeding of, any asset of a Loan Party or any Subsidiary thereof resulting in Net Proceeds of $1,000,000 or more, unless the proceeds therefrom are (i) used to repair, restore or replace the assets that are subject to such casualty or other insured damage, taking under power of eminent domain, condemnation, expropriation or similar proceeding within 180 days of the receipt of such proceeds by such Loan Party or such Subsidiary or (ii) required to be paid to the holder of a Lien on such property or asset having priority over the Lien of the Administrative Agent; provided that any casualty or other damage to, or any taking under power of eminent domain or by condemnation, expropriation or similar proceeding of, any asset of a non-wholly owned Subsidiary that is not a Loan Party shall constitute a Prepayment Event only to the extent (i) the charter, by-laws or other organizational documents of

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such Subsidiary permit such payment and (ii) of the proceeds distributed to a Loan Party or a wholly-owned Subsidiary of a Loan Party;

(c)                                  Any incurrence of any Indebtedness by any Loan Party or any Subsidiary thereof (excluding Indebtedness permitted to be incurred under SECTION 6.1, other than clause (l) thereof); or

(d)                                 Any issuance by Zale (or successor thereof) of any Stock (other than Stock issued upon the exercise of options, warrants or other similar rights to purchase Stock (including, without limitation, under the Warrant Agreement)).

“Pro Forma Availability Condition” shall mean, for any date of calculation with respect to any transaction or payment, the Pro Forma Availability for each of the twelve months following, and after giving effect to, such transaction or payment, will be equal to or greater than fifteen percent (15%) of the ABL Line Cap.

“Pro Forma Availability” shall mean, for any date of calculation, the projected average monthly Excess Availability for each month during any projected twelve (12) months (and measured at the end of each such month).

“Pro Rata Share” means, with respect to a Lender’s obligation to make certain payments and right to receive payments of interest, fees, principal and other amounts with respect thereto, the percentage obtained by dividing (y) the principal amount of such Lender’s portion of the Loans by (z) the principal amount of the Loans.

“PRUCC” means the Puerto Rico Commercial Transactions act, Ley de Transacciones Comerciales, Act #214 of September 19, 1996, as amended from time to time.

“Ratification, Reaffirmation, Amendment and Confirmation Agreements” means (i) that certain Confirmation and Amendment of Ancillary Loan Documents (U.S.), dated as of the date hereof, by and among the Loan Parties and certain of their Subsidiaries and the Administrative Agent and (ii) certain Confirmation and Amendment of Ancillary Documents (Canada), dated as of the date hereof, by and among the Loan Parties and certain of their Subsidiaries and the Administrative Agent.

“Real Estate” means all land, together with the buildings, structures, fixtures, parking areas, and other improvements thereon, now or hereafter owned by any Loan Party, including all easements, rights-of-way, and similar rights relating thereto and all leases, tenancies, and occupancies thereof.

“Recipient” means the Administrative Agent, any Lender, any other Credit Party or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.

“Reference Period” means as of any date of determination, the period of twelve (12) consecutive fiscal months of Zale and its Subsidiaries ending on such date, or if such date is not a fiscal month end date, the period of twelve (12) consecutive fiscal months most recently ended (in each case treated as a single accounting period).

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“Register” has the meaning set forth in SECTION 9.4(e).

“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Reinsurance Agreement” means all policies, treaties, binders, slips, other agreements of reinsurance or retrocession and binding quotations or letters of intent to which a Zale Insurance Subsidiary is a party, as cedant, reinsurer, retrocedant or retrocessionaire (including all supplements, endorsements and riders thereto and all ancillary agreements in connection therewith).

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.  For the avoidance of doubt, for purposes of this Agreement, GGC Administration, L.L.C. shall be deemed a “Related Party”.

“Release” has the meaning set forth in Section 101(22) of CERCLA.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

“Required Lenders” means, at any time, Lenders whose percentage of the Credit Extensions aggregate not less than 51% of all such Credit Extensions, provided that the portion of the Credit Extensions held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Required Supermajority Lenders” means, at any time, Lenders whose percentage of the Credit Extensions aggregate not less than 66 2/3% of all such Credit Extensions, provided that the portion of the Credit Extensions held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Supermajority Lenders.

“Reserves” means “Reserves” (as defined in the ABL Credit Agreement in effect on the date hereof).

“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party or any of the other individuals designated in writing to the Administrative Agent by an existing Responsible Officer of a Loan Party as an authorized signatory of any certificate or other document to be delivered hereunder. Any document delivered hereunder that is signed by any Person who the Administrative Agent reasonably believes (or has been notified by the Borrowers) is a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of

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such Loan Party unless and until the Borrowers furnish written notice to the Administrative Agent that such Person is no longer a Responsible Officer.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of Stock of any Loan Party other than dividends payable solely in shares of common Stock of such Loan Party, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of Stock of any Loan Party or any option, warrant or other right to acquire any such shares of Stock of any Loan Party, other than any such payment made solely in shares of common Stock of such Loan Party.

“RP Conditions” means, at the time of determination with respect to a Restricted Payment, that (a) no Default or Event of Default then exists or would arise as a result of the making of such Restricted Payment and (b) after giving effect to such transaction or payment, the RP Pro Forma Availability Condition has been satisfied and the Fixed Charge Coverage Ratio, on a pro-forma basis for the Reference Period immediately preceding such Restricted Payment, will be equal to or greater than 1.1:1.0.  Prior to making any Restricted Payment, the Loan Parties shall deliver to the Administrative Agent a certificate certifying as to the absence of any Default and any Event of Default and setting forth the calculations of the RP Pro Forma Availability Condition and the Fixed Charge Coverage Ratio which evidences satisfaction of the conditions contained in clause (b) above on a basis reasonably satisfactory to the Administrative Agent.

“RP Pro Forma Availability Condition” means, for any date of calculation with respect to any Restricted Payment, the Pro Forma Availability for each of the twelve months following, and after giving effect to, such transaction or payment, will be equal to or greater than seventeen and one-half percent (17.5%) of the ABL Line Cap.

“S&P” means Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies, Inc.

“Security Agreement” means, collectively, the Security Agreement, in the form of Exhibit C-1 attached hereto and incorporated herein, among the Loan Parties and the Administrative Agent for the benefit of the Credit Parties, and the General Security Agreement, in the form of Exhibit C-2 attached hereto and incorporated herein, among each Canadian Loan Party and the Administrative Agent for the benefit of the Credit Parties, in each case as amended and in effect from time to time.

“Security Documents” means the Security Agreement, the Ratification, Reaffirmation, Amendment and Confirmation Agreements and each other security agreement or other instrument or document executed and delivered pursuant to SECTION 5.13 to secure any of the Obligations.

“Series A Preferred Stock” means the Series A Convertible Preferred Stock of Zale issued pursuant to the Warrant Agreement.

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“Side Letter” means the side letter agreement, dated as of the date hereof, among the Borrowers and ZIH, LLC, as Existing Administrative Agent and Administrative Agent, as such letter may from time to time be amended.

“Solvent” means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair saleable value of the properties and assets of such Person is not less than the amount that would be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged.

“Stock” means all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting.

“Store” means any retail store (including kiosk) leased, owned or operated, or to be leased, owned or operated, by any Loan Party or any of its Subsidiaries.

“Subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, unlimited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held.  Notwithstanding anything to the contrary, no Loan Party shall be deemed to be a Subsidiary of any Existing Lender.

“Synthetic Lease” means any lease or other agreement for the use or possession of property creating obligations which do not appear as Indebtedness on the balance sheet of the lessee thereunder but which, upon the insolvency or bankruptcy of such Person, would be characterized as Indebtedness of such lessee without regard to the accounting treatment.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

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“Term Loan Borrowing Base” means an amount equal to the sum of:

(i) 107.5% of the Appraised Inventory Liquidation Value; plus

(ii) 100% of the Loan Parties’ Eligible Credit Card Receivables; plus

(iii) 100% of the Appraised Intellectual Property Liquidation Value; provided, that the amount set forth in clause (iii) shall not exceed $40,000,000.

“Term Priority Collateral” has the meaning set forth in the Intercreditor Agreement.

“Termination Date” means the earliest to occur of (i) the Maturity Date, (ii) the date on which the maturity of the Obligations is accelerated in accordance with SECTION 7.1 or (iii) the date of the occurrence of any Event of Default pursuant to SECTION 7.1(h) or (i).

“Term Reserve” means a Reserve, calculated by reference to the most recent Borrowing Base Certificate, in the amount by which the outstanding principal amount of the Loan exceeds an amount equal to (a) the Term Loan Borrowing Base less (b) the sum of (x) the amount of the Borrowing Base (excluding any Reserves other than the Incremental Reserve) plus (y) the Aggregate FILO Commitments. The Term Reserve shall automatically be adjusted upon delivery of each Borrowing Base Certificate or otherwise only with the prior written consent of the Administrative Agent and the Borrowers.

“Trading With the Enemy Act” has the meaning set forth in SECTION 3.19.

“Treasury Rate” means, with respect to the Make Whole Amount, a rate equal to the then current yield to maturity on actively traded U.S. Treasury securities having a constant maturity and having a duration equal to (or the nearest available tenor) the period from the date that payment is received to the date that falls on the first anniversary of the Effective Date.

“TXDC” has the meaning set forth in the preamble.

“Unfinanced Capital Expenditures” means all Capital Expenditures other than those made with the proceeds of Indebtedness or Capital Lease Obligations permitted hereunder; provided that any Capital Expenditures made with the proceeds of the ABL Obligations shall constitute Unfinanced Capital Expenditures.

“United States” and “U.S.” mean the United States of America.

“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.

“U.S. Tax Compliance Certificate” has the meaning specified in SECTION 2.26(e)(ii)(B)(III).

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“Warrant Agreement” means the Warrant and Registration Rights Agreement, dated as of May 10, 2010, by and among Zale and ZIH, LLC, in its capacity as agent and the initial warrant holder thereunder.

“Warrants” means the warrants to purchase shares of common stock or Series A Preferred Stock of Zale arising under the Warrant Agreement.

“Zale” has the meaning set forth in the preamble.

“Zale Canada” has the meaning set forth in the preamble.

“Zale Delaware” has the meaning set forth in the preamble.

“Zale Insurance Subsidiaries” means Zale Life Insurance Company, an Arizona corporation, Zale Indemnity Company, a Texas corporation, and Jewel Re-Insurance Ltd., a Barbados corporation.

“Zale International” has the meaning set forth in the preamble.

“Zale PR” has the meaning set forth in the preamble.

“Zap” has the meaning set forth in the preamble.

“ZCDS” has the meaning set forth in the preamble.

“ZC Finco” has the meaning set forth in the preamble.

“ZC Holding” has the meaning set forth in the preamble.

“ZC Partnership” means ZC Partnership LP, a New Brunswick partnership.

“ZCSC” has the meaning set forth in the preamble.

“ZECCA” has the meaning set forth in the preamble.

“ZGCO” has the meaning set forth in the preamble.

“ZIH, LLC” has the meaning set forth in the preamble.

SECTION 1.2                                        Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to

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include such Person’s successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible (corporeal) and intangible (incorporeal) assets and properties, including cash, securities, accounts and contract rights, and (f) all references to “$” or “Dollars” or to amounts of money and all calculations of the Borrowing Base, Term Loan Borrowing Base, Term Loan Reserve, Incremental Availability, Excess Availability, permitted “baskets” and other similar matters shall be deemed to be references to the lawful currency of the United States of America or the Equivalent Amount.

Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that if any Borrower notifies the Administrative Agent that the Borrowers request an amendment to any provision hereof to reflect the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrowers that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such provision shall have been amended in accordance herewith.

Notwithstanding anything to the contrary contained herein, all financial statements delivered hereunder or pursuant to any other Loan Document shall be prepared, and all financial covenants contained herein shall be calculated, without giving effect to any election under the Statement of Financial Accounting Standards No. 159 (or any similar accounting principle) permitting a Person to value its financial liabilities or Indebtedness at the fair value thereof.

Any financial ratios shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

ARTICLE II
AMOUNT AND TERMS OF CREDIT

SECTION 2.1                                        Loans of the Lenders.  Subject to the terms and conditions hereof, each Lender severally agrees to continue such Lender’s Existing Loans as Loans on the Effective Date to the Borrowers in an amount equal to such Lender’s Existing Loans (it being understood and agreed that the aggregate principal amount of the Loans, as of the Effective Date, after giving effect to the Effective Date Prepayment, shall be $80,000,000).  Any principal amount of the Loans that is repaid or prepaid may not be reborrowed.  All principal of, interest on, and other amounts payable in respect of the Loans shall constitute Obligations hereunder.

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SECTION 2.2                                        [Intentionally Omitted].

SECTION 2.3                                        [Intentionally Omitted].

SECTION 2.4                                        [Intentionally Omitted].

SECTION 2.5                                        [Intentionally Omitted].

SECTION 2.6                                        [Intentionally Omitted].

SECTION 2.7                                        [Intentionally Omitted].

SECTION 2.8                                        Notes; Repayment of Loans.

(a)                                 The Loans made by each Lender shall, to the extent requested by such Lender, be evidenced by a Note duly executed by the Borrowers, dated the Effective Date, in substantially the form attached hereto as Exhibit B, payable to the order of each such Lender in an aggregate principal amount equal to the aggregate principal amount of Loans outstanding held by such Lender.

(b)                                 The outstanding principal balance of all Loan Agreement Obligations shall be payable on the Termination Date (subject to earlier repayment as provided below).  Each Note shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in this Article II.  Each Lender is hereby authorized by the Borrowers to endorse on a schedule attached to each Note delivered to such Lender (or on a continuation of such schedule attached to such Note and made a part thereof), or otherwise to record in such Lender’s internal records, an appropriate notation evidencing the date and amount of each Loan from such Lender, each payment and prepayment of principal of any such Loan, each payment of interest on any such Loan and the other information provided for on such schedule; provided, however, that the failure of any Lender to make such a notation or any error therein shall not affect the obligation of the Borrowers to repay the Loans made by such Lender in accordance with the terms of this Agreement and the applicable Notes.

SECTION 2.9                                        Interest on Loans.

(a)                                 Subject to SECTION 2.10, the Loans shall bear interest at a rate per annum equal to the Loan Interest Rate.

(b)                                 Accrued interest on all Loans shall be payable in arrears, in cash, on each Interest Payment Date and on the Termination Date.

(c)                                  All computations of interest shall be made on the basis of a 360-day year and actual days elapsed.  Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to SECTION 2.25(a), bear interest for one day.  Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

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(d)                                 For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever interest to be paid hereunder is to be calculated on the basis of a year of 360 days or any other period of time that is less than a calendar year, the yearly rate of interest to which the rate determined pursuant to such calculation is equivalent is the rate so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by either 360 or such other period of time, as the case may be. Calculations of interest shall be made using the nominal rate method of calculation, and will not be calculated using the effective rate method of calculation or any other basis that gives effect to the principle of deemed reinvestment of interest.

SECTION 2.10                                 Default Interest.  Effective upon the occurrence of any Event of Default and at all times thereafter while such Event of Default is continuing, at the option of the Administrative Agent or upon the direction of the Required Lenders, interest shall accrue on all outstanding Loans (after as well as before judgment, as and to the extent permitted by law) at a rate per annum equal to the rate in effect from time to time plus 2.00% per annum, and such interest shall be payable on demand.

SECTION 2.11                                 Certain Amounts.  The Borrowers shall pay the amounts set forth in the Side Letter, the Monitoring Agreement Letter and the other applicable Loan Documents on the dates specified for payment therein to the Persons specified therein.

SECTION 2.12                                 [Intentionally Omitted].

SECTION 2.13                                 [Intentionally Omitted].

SECTION 2.14                                 Nature of Payable Amounts.  All amounts shall be paid on the dates due, in immediately available funds, as provided herein, in the Side Letter, in the Monitoring Agreement Letter or in the other applicable Loan Document to the Person specified herein, in the Side Letter, in the Monitoring Agreement Letter or in the other applicable Loan Document.  Once paid, such amounts shall be fully earned and shall not be refundable under any circumstances.

SECTION 2.15                                 [Intentionally Omitted].

SECTION 2.16                                 [Intentionally Omitted].

SECTION 2.17                                 Prepayment Premium; Make Whole Amount.  Notwithstanding anything herein to the contrary, in the event all or any portion of the Obligations are prepaid or repaid for any reason (including, without limitation, prepayment or repayment following the Borrowers’ exercise of their rights under SECTION 2.28 or SECTION 9.2(e), an acceleration of the Loans, upon the occurrence of an Event of Default, an early acceleration due to a Change in Control, or any mandatory prepayment or optional prepayment) (1) on or before the first anniversary of the Effective Date, such prepayments or repayments shall be accompanied by the Make Whole Amount and (2) after the first anniversary but on or prior to the fourth anniversary of the Effective Date, such prepayments or repayments shall be accompanied by a repayment/prepayment fee equal to (a) 4.0% of the Loans so prepaid or repaid if such prepayment or repayment occurs at any time during the period commencing after the first anniversary of the Effective Date and ending on (and including) the second anniversary of the

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Effective Date, (b) 3.0% of the Loans so prepaid or repaid if such prepayment or repayment occurs at any time during the period commencing after the second anniversary of the Effective Date and ending on (and including) the third anniversary of the Effective Date and (c) 2.0% of the Loans so prepaid or repaid if such prepayment or repayment occurs at any time during the period commencing after the third anniversary of the Effective Date and ending on (and including) the fourth anniversary of the Effective Date.  The prepayment/repayment fee and the Make Whole Amount referred to in the first sentence of this SECTION 2.17 shall be paid by the Borrowers to the Administrative Agent for distribution to the Lenders in accordance with their Pro Rata Share (unless otherwise agreed by the Lenders).  The parties hereto acknowledge and agree that, in light of the impracticality and extreme difficulty of ascertaining actual damages, the repayment/prepayment fees and the Make Whole Amount referred to in the first sentence of this SECTION 2.17 are intended to be a reasonable calculation of the actual damages that would be suffered by the Lenders as a result of any such repayment/prepayment. The parties hereto further acknowledge and agree that the repayment/prepayment fees and the Make Whole Amount referred to in the first sentence of this SECTION 2.17 are not intended to act as a penalty or to punish the Borrowers for any such repayment/prepayment.

SECTION 2.18                                 Mandatory Prepayment.  The outstanding Obligations shall be subject to mandatory prepayment as follows:

(a)                                 [Intentionally omitted].

(b)                                 [Intentionally omitted].

(c)                                  Subject to the terms of the Intercreditor Agreement, any Net Proceeds received from a Prepayment Event, whether or not a Cash Control Event then exists, shall be paid over to the Administrative Agent on the date of receipt by the Borrowers and shall be utilized to prepay the Loans, together with the payment of any prepayment premium or Make Whole Amount required by SECTION 2.17, in the order of priority set forth in SECTION 7.4, as applicable.  The Administrative Agent shall not be obligated to release their Liens on any Collateral included in such Prepayment Event until such Net Proceeds have been so received.  If all Loans are paid in full (including any prepayment premium or Make Whole Amount required to be paid pursuant to SECTION 2.17), any excess Net Proceeds shall be remitted to the Borrowers.

(d)                                 In the event of any mandatory prepayment, other than as a result of an event described in clause (d) of the definition of Prepayment Event consisting of a public offering and sale of common stock of the Borrower for an amount per share equal to or greater than $10.00, any Lender may elect, by notice to the Administrative Agent by telephone (confirmed by hand or telecopier) at least one Business Day prior to such prepayment, to decline all or any portion of any such mandatory prepayment.

(e)                                  All amounts required to be applied to all Loans hereunder shall be applied ratably in accordance with each Lender’s Pro Rata Share (unless otherwise agreed by the Lenders).

(f)                                   Upon the Termination Date, the Borrowers shall pay, in full and in cash, all outstanding Loans and all other outstanding Obligations then owing by the Borrowers.

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SECTION 2.19           Optional Prepayment of Loans; Reimbursement of Lenders.

(a)           The Borrowers shall have the right at any time and from time to time, subject to any prepayment premium or Make Whole Amount required to be paid pursuant to SECTION 2.17, to prepay outstanding Loans in whole or in part, upon three Business Days prior written notice from the Borrowers to the Administrative Agent, which such notice shall be irrevocable unless such notice is conditioned on a refinancing, a Change in Control or asset sale transaction or other transaction of a similar nature, in which case such notice may be revoked on or prior to such date, in the event such transaction is not consummated on or prior to such date.  All prepayments of Loans are subject to the following limitations:

(i)            Each partial prepayment of Loans shall be in an integral multiple of $5,000,000.

(ii)           Each notice of prepayment shall specify the prepayment date and the amount of Loans to be prepaid.  The Administrative Agent shall, promptly after receiving notice from the Borrowers hereunder, notify each Lender of the principal amount of the Loans held by such Lender which are to be prepaid, the prepayment date and the manner of application of the prepayment.

(iii)          Prepayments made pursuant to this SECTION 2.19 shall be applied ratably to each Lender pursuant to their Pro Rata Share (unless otherwise agreed by the Lenders).

(b)           [Intentionally Omitted].

(c)           In the event the Borrowers fail to prepay any Loans on the date specified in any prepayment notice delivered pursuant to SECTION 2.19(a), the Borrowers on demand by any Lender shall pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any actual loss incurred by such Lender as a result of such failure to prepay, including, without limitation, any loss, cost or expenses incurred by reason of the acquisition of deposits or other funds by such Lender to fulfill deposit obligations incurred in anticipation of such prepayment.  Any Lender demanding such payment shall deliver to the Borrowers simultaneously with such demand one or more certificates setting forth the amount of such loss as determined by such Lender and setting forth in reasonable detail the manner in which such amount was determined.

SECTION 2.20           Maintenance of Loan Account; Statements of Account.

(a)           The Administrative Agent shall maintain an account on its books in the name of the Borrowers (the “Loan Account”) which will reflect (i) all Loans made by the Lenders to the Borrowers or for the Borrowers’ account, (ii) all fees, interest and other amounts that have become payable as herein or in the other Loan Documents set forth, and (iii) any and all other monetary Obligations that have become payable.

(b)           The Loan Account will be credited with all amounts received by the Administrative Agent from the Borrowers on the date such amounts are received.  After the end of each month, the Administrative Agent shall send to the Borrowers a statement accounting for

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the charges, loans, advances and other transactions occurring among and between the Administrative Agent, the Lenders and the Borrowers during that month.  The monthly statements shall, absent manifest error, be an account stated, which is final, conclusive and binding on the Loan Parties.

(c)           The Administrative Agent, without the consent or request of the Borrowers, may advance any interest, fee, service charge, cost, charge, expense, or other payment to which any Lender or the Administrative Agent is entitled from the Loan Parties pursuant to this Agreement or any other Loan Document and may charge the same to the Loan Account by adding such amount to the principal balance of the Loan Account.  The Administrative Agent shall advise the Borrowers of any such advance or charge promptly after the making thereof; provided, however, any failure of the Administrative Agent to so advise or notify the Borrowers of such advance or charge shall not limit or otherwise affect the obligation of the Borrowers hereunder to pay any such amount.  Such action on the part of the Administrative Agent shall not constitute a waiver of either the Administrative Agent’s or any Lender’s rights under, or the Loan Parties’ obligations to make any payment required pursuant to, this Agreement or any other Loan Document.

SECTION 2.21           Cash Management.

(a)           (i) Annexed hereto as Schedule 2.21(a)(i) is a list of all DDAs and accounts maintained by the Loan Parties into which more than one DDA deposits or transfers funds (the “Concentration Accounts”) as of the date hereof, which Schedule includes, with respect to each Concentration Account depository (1) the name of that depository and (2) the last four digits of the account number(s) maintained with such depository.

(ii) Annexed hereto as Schedule 2.21(a)(ii) is a list describing all arrangements to which any Loan Party or any of its Subsidiaries is a party as of the Effective Date with respect to the payment to any Loan Party or any of its Subsidiaries of the proceeds of all credit card charges for sales by any Loan Party or any of its Subsidiaries.

(b)           Within sixty (60) days after the Effective Date, to the extent not previously furnished to the Administrative Agent, the Loan Parties shall have entered into agency agreements with the banks maintaining the Concentration Accounts, which agreements (the “Blocked Account Agreements”) shall establish control (as defined in the Uniform Commercial Code) of such account by the Administrative Agent.

(c)           The Loan Parties may close Concentration Accounts and/or open new Concentration Accounts, subject to the execution and delivery to the Administrative Agent of appropriate Blocked Account Agreements consistent with the provisions of this SECTION 2.21. The Loan Parties may close DDAs and/or open new DDAs, subject to the Borrowers updating Schedule 2.21(a)(i) and otherwise complying with the terms of this Agreement.  The Loan Parties shall each cause each of their credit card processors to remit all proceeds of all credit card charges to a Concentration Account.

(d)           [Intentionally omitted].

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(e)           The Loan Parties shall cause the ACH or wire transfer to a Concentration Account, no less frequently then daily, of the then contents of each DDA, each such transfer to be net of any minimum balance, not to exceed $10,000, as may be required to be maintained in the subject DDA by the bank at which such DDA is maintained; provided, however, to the extent a DDA is maintained for the deposit of the receipts of a Store, such DDA is maintained with a bank that either does not provide daily balance information for such DDA or cannot accommodate daily ACH or wire transfers and there is not a suitable replacement bank reasonably available for such Store, then such DDA may be swept on a monthly, rather than daily basis; provided, further, that (x) the number of such DDAs swept on a monthly basis shall not exceed five percent (5%) of all of the Store DDAs and (y) the aggregate amounts maintained in such DDAs shall not exceed $5,000,000 at any time.

SECTION 2.22           [Intentionally Omitted].

SECTION 2.23           Increased Costs.

(a)           If any Change in Law shall:

(i)            impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender;

(ii)           subject any Recipient to any Taxes (other than (A) Indemnified Taxes and (B)  Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

(iii)          impose on any Lender any other condition, cost or expense affecting this Agreement;

and the result of any of the foregoing shall be to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrowers will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b)           If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c)           A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection

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(a) or (b) of this SECTION 2.23 and delivered to the Borrowers shall be conclusive absent manifest error.  The Borrowers shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d)           Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this SECTION 2.23 shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender pursuant to the foregoing provisions of this SECTION 2.23 for any increased costs incurred or reductions suffered more than six months prior to the date that such Lender, as the case may be, notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).

SECTION 2.24           [Intentionally Omitted].

SECTION 2.25           Payments; Sharing of Setoff.

(a)           The Borrowers shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or of amounts payable under SECTION 2.17, SECTION 2.23 or SECTION 2.26, or otherwise) prior to 12:00 noon on the date when due, in immediately available funds, without setoff or counterclaim.  Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon.  All such payments shall be made to the Administrative Agent at its offices at One Embarcadero Center, Suite 3900, San Francisco, CA 94111, except that payments pursuant to SECTION 2.17, SECTION 2.23, SECTION 2.26 and SECTION 9.3 shall be made directly to the Persons entitled thereto and payments pursuant to other Loan Documents shall be made to the Persons specified therein.  The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.  If any payment under any Loan Document shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.  All payments under each Loan Document shall be made in Dollars.

(b)           If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest, fees and other amounts then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees and other amounts due under the Side Letter and the Monitoring Agreement Letter then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and such other amounts then due to such parties, (ii) second, towards payment of principal on Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties and (iii) third, towards payment of any other Obligations then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of such other Obligations then due to such parties.

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(c)           Each of the Lenders, the Administrative Agent and the other Credit Parties agrees that if it shall, through payment, foreclosure, counterclaim, the exercise of a right of banker’s lien, setoff or counterclaim against the Loan Parties or otherwise, including, but not limited to, a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim and received by such Credit Party under any applicable bankruptcy, insolvency or other similar law, or otherwise, obtain payment in respect of the Obligations owed to it (an “excess payment”) as a result of which such Lender, the Administrative Agent or such other Credit Party receives payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender if all payments at any time applied to the Loans and other Obligations had been applied in the order of priority set forth in SECTION 7.4, as applicable, then the Lender, Administrative Agent or other Credit Party receiving such greater proportion shall purchase (for cash at par) without recourse or warranty, (and shall be deemed to have thereupon purchased) participations in the Loans of other Lenders in an amount determined by the Administrative Agent in good faith as the amount necessary to ensure that the economic benefit of such excess payment is reallocated in such manner as to cause such excess payment and all other payments at any time applied to the Loans and other Obligations to be effectively applied in the order of priority set forth in SECTION 7.4, as applicable, pro rata in proportion to its Pro Rata Share, provided, that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is set aside or recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrowers or any Affiliate thereof (as to which the provisions of this paragraph shall apply).  The Borrowers consent to the foregoing and agree, to the extent they may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrowers rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrowers in the amount of such participation.

(d)           Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if the Borrowers have not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

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SECTION 2.26           Taxes.

(a)           Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.

(i)            Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction, remittance, or withholding for any Taxes, except as required by applicable laws.  If any applicable laws require the deduction, remittance, or withholding of any Tax from any such payment by the Administrative Agent (as determined in the good faith discretion of the Administrative Agent) or a Loan Party, then the Administrative Agent or such Loan Party shall be entitled to make such deduction, remittance or withholding, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.

(ii)           If any Loan Party or the Administrative Agent shall be required by any applicable laws to withhold, remit, or deduct any Taxes from any payment, then (A) such Loan Party or the Administrative Agent, as required by such laws, shall withhold, remit, or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) such Loan Party or the Administrative Agent, to the extent required by such laws, shall timely pay the full amount withheld, remitted, or deducted to the relevant Governmental Authority in accordance with such laws, and (C) to the extent that the withholding, remittance, or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or remittance, or the making of all required deductions (including deductions applicable to additional sums payable under this SECTION 2.26) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding, remittance, or deduction been made.

(b)           Payment of Other Taxes by the Borrowers.  Without limiting the provisions of subsection (a) above, the Borrowers shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

(c)           Tax Indemnifications.

(i)            The Loan Parties shall, and each Loan Party does hereby, jointly and severally indemnify each Recipient, and shall make payment in respect thereof within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this SECTION 2.26) payable or paid by such Recipient or required to be

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withheld or deducted from a payment to such Recipient, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to Zale by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(ii)           Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within ten (10) days after demand therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (y) the Administrative Agent and the Loan Parties, as applicable, against any Taxes attributable to such Lender’s failure to comply with the provisions of SECTION 9.4(h) relating to the maintenance of a Participant Register and (z) the Administrative Agent and the Loan Parties, as applicable, against any Excluded Taxes attributable to such Lender  that are payable or paid by the Administrative Agent or a Loan Party in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.  Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii).

(d)           Evidence of Payments.  Upon request by Zale or the Administrative Agent, as the case may be, after any payment or remittance of Taxes by the Loan Parties or by the Administrative Agent to a Governmental Authority as provided in this SECTION 2.26, the Loan Parties shall deliver to the Administrative Agent or the Administrative Agent shall deliver to Zale, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to Zale or the Administrative Agent, as the case may be.

(e)           Status of Lenders; Tax Documentation.

(i)            Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to Zale and the Administrative Agent, at the time or times reasonably requested by Zale or the Administrative Agent, such properly completed and executed documentation reasonably requested by

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Zale or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if reasonably requested by Zale or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by Zale or the Administrative Agent as will enable Zale or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.  Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in SECTION 2.26(e)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii)           Without limiting the generality of the foregoing, in the event that Zale is a U.S. Person,

(A)          any Lender that is a U.S. Person shall deliver to Zale and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Zale or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B)          any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Zale and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Zale or the Administrative Agent), whichever of the following is applicable:

(I)            in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(II)          executed originals of IRS Form W-8ECI;

(III)        in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section

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881(c) of the Code, (x) a certificate substantially in the form of Exhibit F-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of any Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or

(IV)         to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-2 or Exhibit F-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-4 on behalf of each such direct and indirect partner;

(C)          any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Zale and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Zale or the Administrative Agent), executed originals of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit Zale or the Administrative Agent to determine the withholding or deduction required to be made; and

(D)          if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to Zale and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by Zale or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Zale or the Administrative Agent as may be necessary for Zale and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for

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purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(iii)          Each Lender agrees that if any form or certification it previously delivered pursuant to this SECTION 2.26 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify Zale and the Administrative Agent in writing of its legal inability to do so.

(f)            Treatment of Certain Refunds.  Unless required by applicable laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender, or have any obligation to pay to any Lender, any refund of Taxes withheld, remitted, or deducted from funds paid for the account of such Lender.  If any Recipient determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this SECTION 2.26, it shall pay to the Loan Party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by a Loan Party under this SECTION 2.26 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by such Recipient, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Loan Party, upon the request of the Recipient, agrees to repay the amount paid over to the Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Recipient in the event the Recipient is required to repay such refund to such Governmental Authority.  Notwithstanding anything to the contrary in this subsection, in no event will the applicable Recipient be required to pay any amount to the Loan Party pursuant to this subsection the payment of which would place the Recipient in a less favorable net after-Tax position than such Recipient would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid.  This subsection shall not be construed to require any Recipient to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Loan Party or any other Person.

(g)           Survival.  Each party’s obligations under this SECTION 2.26 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, and the repayment, satisfaction or discharge of all other Obligations.

SECTION 2.27           Security Interests in Collateral.  To secure their Obligations under this Agreement and the other Loan Documents, the Loan Parties have granted, and shall grant, to the Administrative Agent, for its benefit and the ratable benefit of the other Credit Parties, a first-priority Lien on all of the Collateral pursuant hereto and to the Security Documents, subject to the terms of the Intercreditor Agreement with respect to the ABL Priority Collateral.

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SECTION 2.28           Mitigation Obligations; Replacement of Lenders.

(a)           If any Lender requests compensation under SECTION 2.23 or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.26, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to SECTION 2.23 or SECTION 2.26, as the case may be, in the future and (ii) would not subject such Lender to any material unreimbursed cost or expense and would not otherwise be materially disadvantageous to such Lender.  The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment; provided, however, that the Borrowers shall not be liable for such costs and expenses of a Lender requesting compensation if (i) such Lender becomes a party to this Agreement on a date after the Effective Date and (ii) the relevant Change in Law occurs on a date prior to the date such Lender becomes a party hereto.

(b)           If any Lender requests compensation under SECTION 2.23, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to SECTION 2.26, or if any Lender is a Defaulting Lender, then the Borrowers may upon notice to such Lender and the Administrative Agent require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in SECTION 9.4), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided, that (A) except in the case of an assignment to another Lender, the Borrowers shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (B) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (excluding any prepayment fee or Make Whole Amount due pursuant to SECTION 2.17), from the assignee (to the extent of such outstanding principal and accrued interest, fees and other amounts) or the Borrowers (in the case of all other amounts) and (C) in the case of any such assignment resulting from a claim for compensation under SECTION 2.23 or payments required to be made pursuant to SECTION 2.26, such assignment will result in a reduction in such compensation or payments.  A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

SECTION 2.29           [Intentionally Omitted].

SECTION 2.30           Zale Puerto Rico; Canadian Loan Parties.  Zale may, upon not less than 30 days’ notice to the Administrative Agent (or such shorter period as may be agreed by the Administrative Agent in its sole discretion), request that Zale PR’s and/or each Canadian Loan Party’s status as a Borrower or as Facility Guarantor and a Loan Party hereunder be terminated, provided that, any such termination shall be conditioned upon, among other terms, the satisfaction of the following: (a) a Lien in 100% of the Stock of Zale PR and each Canadian

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Loan Party shall have been granted to the Administrative Agent; provided that, to the extent Zale PR or a Canadian Loan Party is a CFC, the Lien granted to the Administrative Agent on the voting Stock of such CFC shall be limited to 65% of the voting Stock of such CFC that is held by Zale or a Domestic Subsidiary (which pledge, shall be governed by and documented under the laws of the jurisdiction of organization of such CFC), (b) all outstanding ABL Loans made to Zale PR or based upon the assets of Zale PR or the Canadian Loan Parties included in the Borrowing Base, as applicable, shall have been repaid in full in cash, (c) after giving effect to such termination and to the release and discharge of the Liens held by the Administrative Agent on the assets of Zale PR or the Canadian Loan Parties, as applicable, and the removal of all assets of Zale PR and the Canadian Loan Parties, as applicable, from the Borrowing Base, Term Loan Borrowing Base and Incremental Availability and all component definitions thereof, the Payment Conditions shall be satisfied, (d) the Borrowers and the Administrative Agent shall have entered into a technical amendment to this Agreement and the other Loan Documents to effectuate the foregoing; and (e) all Liens on, and security interests in, the assets of Zale PR or the Canadian Loan Parties, as applicable, to secure the ABL Obligations have been terminated, discharged, and released to the reasonable satisfaction of the Administrative Agent and neither Zale PR nor any Canadian Loan Party shall Guarantee the ABL Obligations. The Administrative Agent will promptly notify the Lenders of any such termination of Zale PR and/or the Canadian Loan Parties status as a Borrower or as Facility Guarantors and Loan Parties hereunder. Upon such termination, Zale PR or each Canadian Loan Party, as applicable, shall be released from its obligations hereunder and under the Loan Documents and the Administrative Agent shall, subject to SECTION 9.6, release and discharge all Liens on, and security interests held by them in, the assets of Zale PR or the Canadian Loan Parties, as applicable.

SECTION 2.31           Defaulting Lenders.

(a)           Adjustments.  Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:

(i)            Waivers and Amendments.  Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definitions of “Required Lenders” and “Required Supermajority Lenders” and SECTION 9.2.

(ii)           Defaulting Lender Waterfall.  Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to SECTION 9.9 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender’s

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breach of its obligations under this Agreement; third, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrowers as a result of any judgment of a court of competent jurisdiction obtained by the Borrowers against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and fourth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction.  Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this SECTION 2.31(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(b)           Defaulting Lender Cure.  If Zale and the Administrative Agent agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Pro Rata Share), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees or other amounts accrued or payments made by or on behalf of the Borrowers while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

Each Loan Party, represents and warrants to the Administrative Agent, the Lenders and the other Credit Parties that:

SECTION 3.1             Organization; Powers.  Each Loan Party, and each of its Subsidiaries, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and each such Person has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.

SECTION 3.2             Authorization; Enforceability.  The transactions contemplated hereby, by the other Loan Documents entered into by each Loan Party are within such Loan Party’s corporate or partnership powers and have been duly authorized by all necessary corporate or partnership, and, if required, stockholder action.  This Agreement has been duly executed and delivered by each Loan Party that is a party hereto and constitutes, and each other Loan Document to which any Loan Party is a party, when executed and delivered by such Loan Party

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will constitute, a legal, valid and binding obligation of such Loan Party (as the case may be), enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.3             Governmental Approvals; No Conflicts.  The transactions to be entered into contemplated by the Loan Documents (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) for such as have been obtained or made and are in full force and effect, (ii) for those which could not reasonably be expected to have a Material Adverse Effect, and (iii) for  filings and recordings necessary to perfect Liens created under the Loan Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of any Loan Party or any order of any Governmental Authority, except for such violation which could not reasonably be expected to have a Material Adverse Effect, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or their respective assets, except for such violation or default which could not reasonably be expected to have a Material Adverse Effect, or give rise to a right thereunder to require any payment to be made by any Loan Party, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party, except Liens created under the Loan Documents or otherwise permitted hereby or thereby.

SECTION 3.4             Financial Condition. (a) There have been furnished to each of the Lenders (i) consolidated balance sheets of Zale and its Subsidiaries as of July 31, 2011, and a consolidated statement of operations and consolidated statement of cash flow of Zale and its Subsidiaries for the fiscal year then ended, certified by Ernst & Young and (ii) an unaudited consolidated and consolidating balance sheet of Zale and its Subsidiaries as of April 30, 2012, and an unaudited consolidated statement of operations and consolidated statement of cash flow of Zale and its Subsidiaries for the period then ended.  Such balance sheets, statements of operations and statements of cash flow have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of Zale and its Subsidiaries as at the close of business on the dates thereof and the results of operations for the periods then ended, subject, in the case of such unaudited consolidated balance sheet, unaudited consolidated statement of operations and unaudited consolidated statement of cash flow, to year-end adjustments, and except that there are no notes to such financial statements.  There are no contingent liabilities that are likely to become fixed obligations of Zale or any of its Subsidiaries as of such dates involving material amounts, known to the Financial Officers of the Loan Parties, which were not disclosed in such balance sheets and the notes related thereto.

(b)           The projected consolidated balance sheets and cash flow statements of Zale and its Subsidiaries have been prepared in good faith, are based upon estimates and assumptions which the Borrowers deem reasonable as of the date hereof, have been prepared on the basis of the assumptions stated therein and reflect the reasonable estimates of Zale and its Subsidiaries of the results of operations and other information projected therein.

(c)           From July 31, 2011, there has been no event or occurrence which has had a Material Adverse Effect.

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SECTION 3.5             Properties.

(a)           As of the date hereof, the Loan Parties and their Subsidiaries own all of the material assets reflected in the consolidated balance sheet of Zale and its Subsidiaries as of July 31, 2011 or acquired since that date (except property or assets sold or otherwise disposed of in the ordinary course of business and other property sold as permitted by SECTION 6.5 hereof since that date), subject to no Liens except Liens permitted by SECTION 6.2.

(b)           Each Loan Party owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by such Person does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.  Schedule 3.5(b) sets forth, as of the Effective Date, a listing of all such Intellectual Property which has been registered with any Governmental Authority including, in each case, the name of the Loan Party that is the owner or licensee thereof.

SECTION 3.6             Litigation and Environmental Matters.

(a)           There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party or any of its Subsidiaries, threatened against or affecting any such Person (i)  as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than those set forth on Schedule 3.6) or (ii) that involve any of the Loan Documents.

(b)           Except for the matters set forth on Schedule 3.6, and except as could not reasonably be expected to have a Material Adverse Effect, no Loan Party or any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

(c)           Since the date of this Agreement, there has been no change in the status of the matters set forth on Schedule 3.6 that, individually or in the aggregate, has resulted in, or could reasonably be expected to result in, a Material Adverse Effect.

SECTION 3.7             Compliance with Laws and Agreements.  Each Loan Party, and each of its Subsidiaries, is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, material agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.  No Default or Event of Default has occurred and is continuing.

SECTION 3.8             Investment Company Status.  None of the Loan Parties or any of their Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

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SECTION 3.9             Taxes.  Each Loan Party, and each of its Subsidiaries, has timely filed or caused to be filed all tax returns and reports required to have been filed by it and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings, for which such Person has set aside on its books adequate reserves, and as to which no Lien has arisen, or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.10           ERISA; No Canadian Plans.

(a)           Each Plan has been administered in compliance with the applicable provisions of ERISA, the Code and other Federal or state laws, except where such non-compliance would not reasonably be expected to have a Material Adverse Effect.  Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (or may rely upon a favorable opinion letter from the Internal Revenue Service issued with respect to a prototype plan) to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service or the time for requesting such a letter has not passed.  To the best knowledge of the Loan Parties, nothing has occurred that would prevent or cause the loss of such tax-qualified status.

(b)           There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)           (i) No ERISA Event has occurred, and neither the Loan Parties nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan and which could reasonably be expected to have a Material Adverse Effect; (ii) the Loan Parties and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan except where such failure could not reasonably be expected to have a Material Adverse Effect, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) neither the Loan Parties nor any ERISA Affiliate has incurred any liability or expects to incur any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect; (iv) neither the Loan Parties nor, to the best knowledge of the Loan Parties, any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (v) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan, in each case which could reasonably be expected to have a Material Adverse Effect.

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(d)           (i)            None of the Loan Parties has any Canadian Plan.  Furthermore, no Canadian Plan has been terminated or partially terminated by any such Person, nor is it insolvent or in reorganization, nor have any proceedings been instituted to terminate, in whole or in part, or reorganize any Canadian Plan.

(ii)           None of the Loan Parties nor any of their Subsidiaries has ceased to participate (in whole or in part) as a participating employer in any Canadian Plan which is a pension plan or has withdrawn from any Canadian Plan which is a pension plan in a complete or partial withdrawal, nor has a condition occurred which if continued would result in a complete or partial withdrawal.

(iii)          None of the Loan Parties nor any of their Subsidiaries has any unfunded liability on windup or withdrawal liability, including contingent withdrawal or windup liability, to any Canadian Plan or any solvency deficiency in respect of any Canadian Plan.

(iv)          None of the Loan Parties nor any of their Subsidiaries has any unfunded liability on windup or any liability in respect of any Canadian Plan (including to the FSCO) other than for required insurance premiums or contributions or remittances which have been paid, contributed and remitted when due.

(v)           The Loan Parties and their Subsidiaries have made all contributions to any Canadian Plan required by law or the terms thereof to be made by it when due, and it is not in arrears in the payment of any contribution, payment, remittance or assessment or in default in filing any reports, returns, statements, and similar documents in respect of such Canadian Plan required to be made or paid by it pursuant to said Canadian Plan, any law, act, regulation, directive or order or any employment, union, pension, deferred profit sharing, benefit, bonus or other similar agreement or arrangement.

(vi)          None of the Loan Parties nor any of their Subsidiaries is liable or, to the best of the Loan Parties’ knowledge, alleged to be liable, to any employee or former employee, director or former director, officer or former officer or other Person resulting from any violation or alleged violation of any Canadian Plan, any fiduciary duty, any law or agreement in relation to any Canadian Plan or has any unfunded pension or like obligations or solvency deficiency (including any past service or experience deficiency funding liabilities), other than accrued obligations not yet due, for which it has made full provision in its books and records.

(vii)         All vacation pay, bonuses, salaries and wages, to the extent accruing due, are properly reflected in the Loan Parties’ and their Subsidiaries’ books and records in accordance with GAAP.

(viii)        None of the Loan Parties nor any of their Subsidiaries has made any application for a funding waiver or extension of any amortization period in respect of any Canadian Plan.

(ix)          There has been no prohibited transaction or violation of any fiduciary responsibilities with respect to any Canadian Plan.

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(x)           There are no outstanding or pending or threatened investigations, claims, suits or proceedings in respect of any Canadian Plans (including to assert rights or claims to benefits) that could give rise to a Material Adverse Effect.

SECTION 3.11           Disclosure.  The Loan Parties have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which any Loan Party or any of its Subsidiaries is subject, and all other matters known to any of them, that, in each case, could reasonably be expected to result in a Material Adverse Effect.  None of the reports, financial statements, certificates or other information furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (other than projections), taken as a whole, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading.

SECTION 3.12           Subsidiaries.  Schedule 3.12 (as the same may be supplemented from time to time pursuant to the provisions of this Agreement) sets forth the name of, and the ownership interest of each Loan Party in each Subsidiary as of the Effective Date and designates those Subsidiaries which are Excluded Subsidiaries.  As of the Effective Date, no other Subsidiaries of Zale own Inventory generally consisting of watches, gemstones, jewelry, and giftware other than the Subsidiaries which are Loan Parties hereunder and under the other Loan Documents. Except as set forth on Schedule 3.12 (as the same may be supplemented from time to time pursuant to the provisions of this Agreement), as of the Effective Date, the Loan Parties are not and each of their respective Subsidiaries is not party to any joint venture, general or limited partnership, or limited liability company, agreements or any other business ventures or entities.

SECTION 3.13           Insurance.  Schedule 3.13 sets forth a description of all policies of insurance which covers the Collateral maintained by or on behalf of the Loan Parties and their Subsidiaries as of the Effective Date.  As of the Effective Date, all premiums in respect of such insurance that are due and payable have been paid.

SECTION 3.14           Accounts; Credit Cards.

(a)           Schedule 2.21(a)(i) lists all DDAs and Concentration Accounts maintained by any of the Loan Parties as of the Effective Date, and such Schedule correctly identifies the name of each depository and the last four digits of the account number(s) maintained with such depository.

(b)           Schedule 2.21(a)(ii) lists all arrangements to which any Loan Party or any Subsidiary thereof is a party with respect to the payment to any Loan Party of the proceeds of all credit card charges for sales by any Loan Party or any Subsidiary thereof, as of the Effective Date.

SECTION 3.15           Labor Matters.  As of the Effective Date, there are no strikes, lockouts or slowdowns against any Loan Party or any Subsidiary thereof pending or, to the knowledge of the Loan Parties, threatened that would reasonably be expected to have a Material Adverse

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Effect.  The hours worked by and payments made to employees of the Loan Parties and their Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, provincial, municipal, local or foreign law dealing with such matters to the extent that any such violation could reasonably be expected to have a Material Adverse Effect.  All material payments due from any Loan Party or any Subsidiary thereof, or for which any claim may be made against any such Person, on account of wages and employee health and welfare insurance and other benefits, have been paid or, to the extent required by GAAP, accrued as a liability on the books of such member.  The consummation of the transactions contemplated by the Loan Documents will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any Subsidiary thereof is bound.

SECTION 3.16           Security Documents.  The Security Documents create in favor of the Administrative Agent, for the ratable benefit of the Credit Parties, a legal, valid and enforceable security interest in the Collateral, and the Security Documents constitute, or, to the extent not previously filed or obtained, will upon the filing of Uniform Commercial Code, PPSA and PRUCC financing statements or equivalent forms and the obtaining of “control”, in each case with respect to the relevant Collateral as required under the applicable Uniform Commercial Code, PPSA and PRUCC, the creation of a fully perfected first priority Lien on, and security interest in, all right, title and interest of the Loan Parties thereunder in such Collateral, in each case prior and superior in right to any other Person, except as permitted hereunder, the Intercreditor Agreement or under any other Loan Document or as provided by applicable law and except for Liens on Collateral which the Administrative Agent has determined does not have sufficient value to justify the cost and expense of perfection.

SECTION 3.17           Federal Reserve Regulations.  Neither the Loan Parties nor any of their respective Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.  No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately for any purpose that entails a violation of the provisions of the Regulations of the Board, including Regulation U or X.

SECTION 3.18           Solvency.  Before and after giving effect to each Loan and the ABL Credit Extensions, the Loan Parties and their Subsidiaries on a consolidated basis are, and will be, Solvent.  No transfer of property is being made by any Loan Party or by any of its Subsidiaries and no obligation is being incurred by any Loan Party or any of its Subsidiaries in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Loan Party or any of its Subsidiaries.

SECTION 3.19           Foreign Assets Control Regulations, Etc..  None of the requesting or borrowing of the Loans or the use of the proceeds of the Loans will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and

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Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)).  Furthermore, none of the Loan Parties nor any of their respective Subsidiaries or other Affiliates (a) is or will become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person”.

SECTION 3.20           Excluded Subsidiaries.  No wholly-owned Subsidiary which is an Excluded Subsidiary (other than Foreign Subsidiaries) owns or has rights in any credit card receivables, Inventory generally consisting of watches, gemstones, jewelry and giftware or other Eligible Inventory, or the proceeds of any of the foregoing.

SECTION 3.21           Insurance Subsidiaries.  None of the Zale Insurance Subsidiaries has made any Restricted Payments in excess of its retained earnings.

ARTICLE IV
CONDITIONS

SECTION 4.1             Effective Date.  The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent:

(a)           The Administrative Agent (or its counsel) shall have received from each Loan Party and the Lenders either (i) a counterpart of this Agreement and all other Loan Documents signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy or other electronic image scan transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and all other Loan Documents.

(b)           The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent, the Lenders and the other Credit Parties on the Effective Date and dated the Effective Date) of (i) Troutman Sanders LLP, U.S. counsel to the Loan Parties, (ii) Stikeman Elliott LLP, Canadian counsel to the Loan Parties and (iii) Goldman Antonetti & Cordova, PSC, Puerto Rican counsel to the Loan Parties, in each case, in form and covering such matters as the Administrative Agent may reasonably request.  The Loan Parties hereby request such counsel to deliver such opinion.

(c)           The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of the transactions contemplated by the Loan Documents and any other legal matters relating to the Loan Parties, the Loan Documents or the transactions contemplated thereby, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.

(d)           After giving effect to the continuation of the Loans and any ABL Credit Extensions to be made on, or immediately subsequent to, the Effective Date, Excess Availability shall be not less than $100,000,000.  The Administrative Agent shall have received a Borrowing

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Base Certificate dated the Effective Date, relating to the month ended on June 30, 2012 (but the amount of ABL Obligations and the Obligations shall be as of the Effective Date), and executed by a Financial Officer of Zale.

(e)           The Administrative Agent shall have received a certificate from a Financial Officer of Zale, reasonably satisfactory in form and substance to the Administrative Agent, with respect to Zale and its Subsidiaries on a consolidated basis being Solvent, as of the Effective Date.

(f)            All necessary consents and approvals to the transactions contemplated hereby shall have been obtained and shall be reasonably satisfactory to the Administrative Agent.

(g)           The Administrative Agent shall have received a Borrowing Base Certificate dated the Effective Date duly executed by a Financial Officer of Zale, relating to the month ended June 30, 2012 evidencing a Term Loan Borrowing Base as of the Effective Date of at least $80,000,000.

(h)           (i) (y) the Existing ABL Credit Agreement shall have been amended and restated in form and substance satisfactory to the Administrative Agent and the Lenders, which shall, among other things, consent to the transactions contemplated by the Loan Documents and provide a secured revolving credit facility with Tranche A Commitments (as defined in the ABL Credit Agreement as in effect on the date hereof) in an amount not less than $650,000,000 and FILO Commitments in an amount not less than $15,000,000, and (z) a Responsible Officer of Zale shall have delivered a certificate to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, which certificate shall attach the ABL Credit Agreement and all other ABL Loan Documents and certify that such documents are true, correct and complete copies of all ABL Loan Documents; (ii) the ABL Credit Agreement shall be in full force and effect and no default or event of default shall exist under the ABL Credit Agreement or the other ABL Loan Documents, or would result from the making of the ABL Loans or the consummation of the other transactions contemplated to be made on the Effective Date thereunder or from the application of the proceeds thereof; and (iii) the ABL Agent and the Administrative Agent shall have entered into the Intercreditor Agreement, and the Loan Parties shall have acknowledged such Intercreditor Agreement, on terms reasonably acceptable to the Administrative Agent.

(i)            The Administrative Agent shall be reasonably satisfied that any financial statements delivered to it fairly present the business and financial condition of Zale and its Subsidiaries, and that there has been no material adverse change in the assets, business, financial condition, or income of Zale and its Subsidiaries since the date of the most recent financial information delivered to the Administrative Agent.

(j)            The organizational structure of Zale and its Subsidiaries shall be reasonably satisfactory to the Administrative Agent.  The Administrative Agent shall have received and be satisfied with detailed financial projections and business assumptions for Zale and its Subsidiaries (x) a monthly basis for the twelve month period following the Effective Date, and (y) on an annual basis for each fiscal year thereafter through the Maturity Date, including, in each case, a consolidated income statement, balance sheet, statement of cash flows and the

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Borrowing Base, the Term Loan Borrowing Base, Term Reserve and Incremental Availability analysis.

(k)           No event shall have occurred after July 31, 2011 that could reasonably be expected to have a Material Adverse Effect.

(l)            The Administrative Agent shall have received results of searches or other evidence reasonably satisfactory to the Administrative Agent (in each case dated as of a date reasonably satisfactory to the Administrative Agent) indicating the absence of Liens on the Collateral, except for Liens permitted by SECTION 6.2 and Liens which termination statements, discharges, and releases reasonably satisfactory to the Administrative Agent are being tendered concurrently with such extension of credit.

(m)          The Administrative Agent shall have received all documents and instruments, including Uniform Commercial Code, PPSA and PRUCC financing statements and Blocked Account Agreements or Assignment of Bank Account with respect to the Concentration Accounts required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the first priority Liens intended to be created under the Loan Documents (except with respect to the ABL Priority Collateral, as to which the Administrative Agent’s Lien shall be a second priority Lien to the extent set forth in the Intercreditor Agreement) and all such financing statements shall have been so filed, registered or recorded to the satisfaction of the Administrative Agent.

(n)           All fees and other amounts due at or immediately after the Effective Date, and all reasonable costs and expenses payable hereunder, under the Side Letter, the Monitoring Agreement Letter and under the other Loan Documents (including the reasonable fees and expenses of appraisers, auditors and counsel), shall have been paid in full.

(o)           The consummation of the transactions contemplated hereby shall not (a) violate any applicable law, statute, rule or regulation, or (b) conflict with, or result in a default or event of default under, any material agreement of any Loan Party (and the Administrative Agent and the Lenders shall receive a satisfactory opinion of Loan Parties’ counsel to that effect).

(p)           No material changes in governmental regulations or policies affecting the Loan Parties, the Administrative Agent or any Lender involved in this transaction shall have occurred prior to the Effective Date which could, individually or in the aggregate, materially adversely affect the transaction contemplated by this Agreement.

(q)           The Administrative Agent shall have received an executed certificate from a Responsible Officer of Zale stating that (1) the conditions set forth in this SECTION 4.1 have been satisfied and (2) the representations and warranties made by the Loan Parties to the Administrative Agent and the Lenders in the Loan Documents are true and correct in all material respects as of the date of such Certificate (other than representations and warranties that (i) relate solely to an earlier date, which shall be true and correct as of such earlier date, or (ii) are qualified by materiality, which shall be true and correct in all respects), and that no event has occurred which is or which, solely with the giving of notice or passage of time (or both) would be an Event of Default.

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(r)            There shall be no Default or Event of Default on the Effective Date or immediately after giving effect to the Loan continuations hereunder and the Effective Date Prepayment and the making of the ABL Credit Extensions.

(s)            The Administrative Agent shall have received a notice with respect to such Borrowing as required by Article II.

(t)            All representations and warranties contained in this Agreement and the other Loan Documents or otherwise made in writing in connection herewith or therewith shall be true and correct in all material respects on and as of the date of each Borrowing hereunder with the same effect as if made on and as of such date, other than representations and warranties that (i) relate solely to an earlier date, which shall be true and correct as of such earlier date, or (ii) are qualified by materiality, which shall be true and correct in all respects, and except for changes thereto which are not prohibited by the other terms of this Agreement or the other Loan Documents.

(u)           The Administrative Agent shall have received a certificate, in form and substance reasonably satisfactory to the Administrative Agent, signed by a Responsible Officer of Zale certifying that the conditions specified in this SECTION 4.01 have been satisfied.

(v)           The Administrative Agent shall have received evidence reasonably satisfactory to to the Administrative Agent that the Effective Date Prepayment has been made.

The Administrative Agent shall notify the Borrowers and the Lenders of the Effective Date, and such notice shall be conclusive and binding.

ARTICLE V
AFFIRMATIVE COVENANTS

So long as any Lender any Loan or any other Obligation shall remain unpaid or unsatisfied (other than contingent indemnification claims for which a claim has not then been asserted), each Loan Party covenants and agrees with the Administrative Agent, the Lenders and the other Credit Parties that:

SECTION 5.1             Financial Statements and Other Information.  The Loan Parties will, and will cause their Subsidiaries to, furnish to the Administrative Agent:

(a)           as soon as practicable, but in any event not later than ninety-five (95) days after the end of each fiscal year of Zale, (i) the consolidated balance sheet of Zale and its Subsidiaries as at the end of such year, and the related consolidated statements of operations, stockholders’ equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all audited and reported on by Ernst & Young LLP or by another independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without a qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of Zale and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, and (ii) the annual 10-K reports of Zale filed with the Securities and Exchange Commission;

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(b)           as soon as practicable, but in any event not later than fifty (50) days after the end of each of the first three fiscal quarters of each fiscal year of Zale, (i) copies of the unaudited consolidated balance sheet of Zale and its Subsidiaries as at the end of such quarter, and the related consolidated statement of operations for such quarter and for the portion of Zale’s fiscal year then elapsed, and the related consolidated statement of cash flow for the portion of Zale’s fiscal year then elapsed, all in reasonable detail and prepared in accordance with GAAP (subject to year-end adjustments and except for the absence of notes), and (ii) the quarterly 10-Q reports of Zale filed with the Securities and Exchange Commission;

(c)           as soon as practicable, but in any event not later than thirty (30) days after the end of each month (which is not a fiscal quarter end), copies of the unaudited consolidated balance sheet of Zale and its Subsidiaries as at the end of such month, and the related consolidated statement of operations for such month and for the Reference Period then ended, and the related consolidated statement of cash flow for the Reference Period then ended, all in reasonable detail and prepared in accordance with GAAP (subject to year-end adjustments and except for the absence of notes);

(d)           (i) concurrently with any delivery of financial statements under clause (a), (b) or (c) above a Compliance Certificate of a Financial Officer of Zale (A) certifying as to whether a Default or Event of Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (B) stating whether any change in GAAP or in the application thereof has occurred since the date of Zale’s audited financial statements referred to in SECTION 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate and (C) setting forth in reasonable detail the computation of the Fixed Charge Coverage Ratio (even if compliance with SECTION 6.8 is not then required), based upon the most recent monthly financial statements delivered in accordance with clause (c) above.

(e)           on the last day of each fiscal year of Zale, (i) a detailed consolidated budget by quarter for the immediately following fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flow as of the end of and for such fiscal year) and (ii) a monthly detail of projected Inventory levels and Credit Extensions and the projected Borrowing Base, the Term Loan Borrowing Base, Term Reserve and Excess Availability for such fiscal year; and, promptly when available, any significant revisions to the budget and the projections; provided that, the Borrowers shall, by no later than February 28th of each calendar year, reforecast and update the projections delivered pursuant to the foregoing clauses (i) and (ii) for the remaining period of each such fiscal year;

(f)            except as provided below, within fifteen (15) days after the end of each month, a certificate in the form of Exhibit D (a “Borrowing Base Certificate”) showing the Borrowing Base (including a detailed calculation of the Term Reserve), the Term Loan Borrowing Base and Incremental Availability as of the close of business on the last day of the immediately preceding month, together with appropriate exhibits, schedules, supporting documentation, and additional reports as reasonably requested by the Administrative Agent, each such Certificate to be certified as complete and correct on behalf of the Borrowers by a Financial Officer of Zale, provided, however, if, (i) Excess Availability is less than $75,000,000 for three (3) consecutive Business Days, or (ii) Excess Availability is less than $65,000,000 at any time, or (iii) an Event of Default

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exists, such Borrowing Base Certificate (showing the Borrowing Base (including a detailed calculation of the Term Reserve), the Term Loan Borrowing Base and Incremental Availability as of the close of business on the last day of the immediately preceding week) shall be furnished weekly on Wednesday of each week; and (iii) if the Borrowers notify the Administrative Agent in writing that the Borrowers have elected, during any period of any year other than the periods set forth in clauses (i), (ii) and (iii) above, to furnish Borrowing Base Certificates on a weekly basis, such Borrowing Base Certificate (showing the Borrowing Base (including a detailed calculation of the Term Reserve), the Term Loan Borrowing Base and Incremental Availability as of the close of business on the last day of the immediately preceding week) shall be furnished weekly on Wednesday of each week from the date of such notice and continuing during the entire sixty (60) day period thereafter;

(g)           [intentionally omitted];

(h)           within seven (7) Business Days after the end of the month of December of each calendar year, a modified Borrowing Base Certificate evidencing a roll-forward of Inventory from the preceding month’s end;

(i)            weekly, on Wednesday of each week, a rolling 13 week cash flow, reflecting actual results from the prior week period compared to the immediately preceding rolling 13 week cash flow delivered to the Administrative Agent and to the budget delivered to the Administrative Agent pursuant to SECTION 5.1(e) hereof, and projected results for the subsequent 13 week period, together with management’s discussion of any variances from the prior cash flow or the budget, provided that such weekly cash flow report shall not be required as long as (i) no Default or Event of Default exists and (ii) Excess Availability is greater than (A) $75,000,000, or (B) if and so long as the Fixed Charge Coverage Ratio for the most recent Reference Period is greater than 1.1:1.0, $60,000,000;

(j)            promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Zale or any of its Subsidiaries with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, as the case may be;

(k)           promptly upon receipt thereof, copies of all reports submitted to Zale or any of its Subsidiaries by independent certified public accountants in connection with each annual, interim or special audit of the books of Zale and its Subsidiaries made by such accountants, including any management letter commenting on the Borrowers’ and their Subsidiaries’ internal controls submitted by such accountants to management in connection with their annual audit;

(l)            the financial and collateral reports described on Schedule 5.1(l), at the times set forth in such Schedule;

(m)          prior written notice of any intended acquisition permitted under SECTION 6.4(n) and if the total consideration for the subject acquisition is greater than or equal to $10,000,000, when available, copies of the acquisition documents, a summary of any due diligence undertaken by the Loan Parties in connection with such acquisition, appropriate financial statements of the

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Person which is the subject of such acquisition, pro forma projected financial statements for the twelve (12) month period following such acquisition after giving effect to such acquisition (including balance sheets, cash flows and income statements by month for the acquired Person, individually, and on a consolidated basis with all Loan Parties), and such other information as the Administrative Agent may reasonably require with respect to such acquisition; and

(n)           promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of any Loan Party, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.

Any document required to be furnished pursuant to this SECTION 5.1 shall be deemed to have been furnished if such document shall have timely been made available on the SEC’s Electronic Data Gathering Analysis and Retrieval System, or its successor (in each case, provided that each Lender and the Administrative Agent has access thereto) and shall be deemed to have been delivered on the date when so made available; provided that, the Borrowers shall deliver paper or electronic copies of such documents to the Administrative Agent if the Administrative Agent or a Lender so requests.

SECTION 5.2             Notices of Material Events.  The Loan Parties will, and will cause their Subsidiaries to, furnish to the Administrative Agent and each Lender written notice of the following promptly following a Responsible Officer’s obtaining knowledge thereof:

(a)           the occurrence of any Default or Event of Default;

(b)           any development that alone or together with any other developments results in, or could reasonably be expected to result in, a Material Adverse Effect;

(c)           the discharge by any Loan Party of its present independent accountants or any withdrawal or resignation by such independent accountants;

(d)           any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof, which affects or changes the calculation of the Borrowing Base;

(e)           the filing of any Lien for unpaid Taxes against any Loan Party in excess of $25,000,000;

(f)            any breach or non-performance of, any default under, or termination of, a contract or agreement evidencing Material Indebtedness of any Loan Party or any Subsidiary thereof; (including, but not limited to, notice of any “Default” or “Event of Default” under (and as defined in) the ABL Loan Documents); and

(g)           (i) notice of any amendment, supplement, modification, waiver or consent to the ABL Loan Documents (including any reduction of the commitments or any prepayment thereunder) and (ii) any notice or other writing that relates to the ABL Loan Documents, in each case, received from or delivered to any party to the ABL Loan Documents and copies thereof.

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The Borrowers will also furnish to the Administrative Agent and each Lender written notice of any change in a Loan Party’s Responsible Officers or Financial Officers at or prior to the time that any Borrowing Base Certificate, financial statement or other report to be certified by such Person is delivered (or is required to be delivered) to the Administrative Agent.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other Responsible Officer of Zale setting forth the details of the event or development requiring such notice and, if applicable, any action taken or proposed to be taken with respect thereto.

SECTION 5.3             Information Regarding Collateral.  The Loan Parties will, and will cause their Subsidiaries to, furnish to the Administrative Agent (a) prompt written notice of any change in (i) any Loan Party’s trade name used to identify it in the conduct of its business or in the ownership of its properties or (ii) any office in which it maintains books or records relating to Collateral owned by it and having a value in excess of $10,000,000 or any office or facility at which Collateral owned by it and having a value in excess of $10,000,000 is located (including the establishment of any such new office or facility); and (b) prior written notice of any change in (i) any Loan Party’s corporate name or the location of any Loan Party’s chief executive office or its principal place of business, (ii) any Loan Party’s identity or corporate structure or (iii) any Loan Party’s jurisdiction of incorporation, Federal Taxpayer Identification Number or state organizational number or similar taxation or organizational number; provided, however, that if any of the occurrences referred to in clauses (a) and (b) shall occur with respect to any Canadian Loan Party or any of its assets, the Loan Parties shall furnish the Administrative Agent with thirty (30) days’ prior written notice thereof; provided further that any notices regarding the consummation of any portion of the Canadian Restructuring shall be furnished promptly following the consummation thereof.  The Loan Parties also agree, and agree to cause their Subsidiaries to, promptly to notify the Administrative Agent if any material portion of the Collateral is damaged, destroyed, or lost, stolen or otherwise unaccounted for.

SECTION 5.4             Existence; Conduct of Business.

(a)           Except as otherwise permitted by this Agreement (including pursuant to SECTION 6.4), each Loan Party will do or cause to be done, and will cause each of its Subsidiaries to do or cause to be done, all things necessary to comply with its respective charter, certificate of incorporation, articles of organization, and/or other organizational documents, as applicable; and by-laws and/or other instruments which deal with corporate governance, and to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names the loss of which would reasonably be expected to have a Material Adverse Effect.

(b)           The Loan Parties shall cause the Zale Insurance Subsidiaries to conduct their business in accordance with applicable law, and, except as the Zale Insurance Subsidiaries, or any of them, may reasonably determine from time to time with respect to new business lines or opportunities deemed lawful and appropriate for conduct by an insurance company licensed as are the Zale Insurance Subsidiaries, in the ordinary course consistent with past practice in all material respects and to use their commercially reasonable efforts to preserve intact the Zale

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Insurance Subsidiaries and their relationships with customers, suppliers, creditors and employees (it being understood that this covenant shall not prohibit the Insurance Restructuring).

(c)           Except in connection with a lawful expansion in business as set forth in clause (b) above, the Loan Parties shall cause the Zale Insurance Subsidiaries not to change any of the material policies, practices, principles or standards or change any of the material procedures or systems of the Zale Insurance Subsidiaries, in each case with respect to their accounting, actuarial determinations, underwriting, retrocession or reserving methodology (provided that the foregoing shall not limit the ability to adjust individual case reserves as necessary in accordance with practices and methodologies in effect as of the date hereof) other than any such changes as are required by SAP, applicable law or regulations or applicable actuarial or accounting standards and practices.

SECTION 5.5             Payment of Obligations.  Each Loan Party will, and will cause each of its Subsidiaries to, pay its Material Indebtedness, obligations in connection with Hedging Agreements and Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation, (d) no Lien in excess of $25,000,000 (other than a Lien permitted by SECTION 6.2) secures such obligation and (e) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect; provided that any payment made by a Loan Party in good faith with respect to any of its Tax liabilities which is subsequently determined by a Governmental Authority to be less than the payment deemed to be owed by such Governmental Authority shall not constitute a breach of this SECTION 5.5, provided such Governmental Authority has not levied any Lien (other than a Permitted Encumbrance) to secure such obligation.

SECTION 5.6             Maintenance of Properties.  Each Loan Party will, and will cause each of its Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted and with the exception of asset dispositions permitted hereunder.

SECTION 5.7             Insurance.

(a)           Each Loan Party will, and will cause its Subsidiaries to, maintain the following insurance under this Agreement (or, to the extent consistent with prudent business practice, a program of self insurance): (i) worker’s compensation and employer’s liability insurance affording (A) protection under the workers’ compensation laws of the state(s) or province(s) in which the service is to be provided and (B) employers’ liability protection subject to a limit of not less than $500,000; (ii) comprehensive automobile liability insurance providing limits of not less than $1,000,000 each occurrence for bodily injury and property damage combined; (iii) commercial general liability insurance providing not less than $1,000,000 each occurrence for bodily injury and property damage combined; and (iv) umbrella liability insurance in amounts not less than $3,000,000 in excess of primary liability coverage.  All such insurance policies required to be maintained under this Agreement shall be procured from insurance companies rated at least A-VIII or better by the then current edition of Best’s Insurance Reports

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published by A.M. Best Co.  The Loan Parties shall provide Administrative Agent with certificates of insurance evidencing the required coverage concurrently with the execution of this Agreement and upon each renewal of such policies thereafter, and, in addition to the notices required under SECTION 5.7(b), the Loan Parties shall furnish prompt written notice of any material change or cancellation of such policies.  Each of the Loan Parties will, and will cause each of its Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to the Collateral and its other properties against such casualties as shall be consistent with past practices and in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent.

(b)           The Loan Parties shall maintain for themselves and their Subsidiaries, a Directors and Officers insurance policy, and a “Blanket Crime” policy including employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, property, and computer fraud coverage with responsible companies in such amounts as are customarily carried by business entities engaged in similar businesses similarly situated, and will upon request by the Administrative Agent furnish the Administrative Agent certificates evidencing renewal of each such policy.

(c)           Fire and extended coverage policies maintained with respect to any Collateral shall be endorsed or otherwise amended to include (i) a provision to the effect that none of the Loan Parties, the Administrative Agent or any other party shall be a coinsurer and (ii) such other provisions as the Administrative Agent may reasonably require from time to time to protect the interests of the Lenders. Each such policy referred to in this paragraph also shall provide that it shall not be canceled or not renewed (i) by reason of nonpayment of premium except upon not less than ten (10) days’ prior written notice thereof by the insurer to the Administrative Agent (giving the Administrative Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason except upon not less than thirty (30) days’ prior written notice thereof by the insurer to the Administrative Agent. The Loan Parties shall deliver to the Administrative Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent) together with evidence satisfactory to the Administrative Agent of payment of the premium therefor.

(d)           Each insurance policy shall include an endorsement (in form and substance reasonably satisfactory to the Administrative Agent) naming the Administrative Agent as “loss payee”, “mortgagee” or “additional insured” as the Administrative Agent may reasonably request and providing that the insurer shall pay all proceeds otherwise payable to the Loan Party under the policies directly to the Administrative Agent, subject to the terms of the Intercreditor Agreement.

SECTION 5.8             Casualty and Condemnation.  Each Loan Party will, and will cause its Subsidiaries to, furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any material portion of the Collateral having a value in excess of $10,000,000 or the commencement of any action or proceeding for the taking of any material portion of the Collateral having a value in excess of $10,000,000 under power of eminent domain or by condemnation, expropriation, or similar proceeding.

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SECTION 5.9             Books and Records; Inspection and Audit Rights; Appraisals; Consultants for the Administrative Agent and Lenders.

(a)           Each Loan Party will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested; provided, however, that (i) so long as no Default or Event of Default shall have occurred and be continuing, the Loan Parties shall not be obligated for expenses in connection with more than one (1) visit per fiscal year of Zale, and (ii) when a Default or an Event of Default has occurred and is continuing, the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Loan Parties at any time and without advance notice. At any time that a Default or Event of Default exists, the Loan Parties will, and will cause each of its Subsidiaries to, permit the Administrative Agent or their professionals (including investment bankers, consultants, accountants, and lawyers) retained by them to conduct evaluations of the Loan Parties’ business plan, forecasts and cash flows

(b)           The Loan Parties shall promptly following receipt thereof, provide to the Administrative Agent, at the Loan Parties’ cost, copies of all appraisals (including, without limitation, Inventory and Intellectual Property appraisals), commercial finance examinations and other evaluations provided to or commissioned on behalf of the lenders party to the ABL Credit Agreement, including of (i) the Loan Parties’ practices in the computation of the Borrowing Base, Term Reserve and the Term Loan Borrowing Base and (ii) the assets included in the Borrowing Base and the Term Loan Borrowing Base.  Without limiting the foregoing, the Loan Parties agree to deliver at least one (1) appraisal of their Intellectual Property (it being understood that (i) such appraiser shall be approved by the Administrative Agent and (ii) such appraiser shall use a methodology that is reasonably acceptable to the Administrative Agent) not less frequently than once during any twelve month period. In addition to the foregoing, the Administrative Agent, acting on its own behalf, (A) may, at any time, undertake additional Intellectual Property appraisals at the sole expense of the Lenders, (B) after the occurrence and during the continuance of any Default or Event of Default, may cause such additional Intellectual Property appraisals to be taken as the Administrative Agent determines, all at the expense of the Loan Parties and (C) after the occurrence and during the continuance of any Default or Event of Default, if the Administrative Agent requests that the ABL Agent undertake additional appraisals (including, without limitation, Inventory appraisals, but excluding Intellectual Property appraisals) or commercial finance examinations, and the ABL Agent does not promptly (or, in any event within fifteen (15) days) schedule such additional appraisal or commercial finance examination or expressly rejects such request, then the Administrative Agent may cause such additional appraisals or commercial finance examinations to be taken, all at the expense of the Loan Parties.

SECTION 5.10           Compliance with Laws.  Each Loan Party will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations, and orders of any Governmental

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Authority applicable to it or its property except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.11                                 Employee Benefit Plans.  The Loan Parties will, and will cause each of its Subsidiaries to, (a) promptly upon any request of the Administrative Agent therefor, furnish to the Administrative Agent a copy of the most recent actuarial statement required to be submitted under §103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Pension Plan, (b) within ten (10) days of receipt or dispatch, furnish to the Administrative Agent any notice, report or demand sent to, or received from, any Governmental Authority in respect of a Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or sent to, or received from, any plan administrator in respect of a Multiemployer Plan under Sections 4041A, 4202, 4219, 4242 or 4245 of ERISA.

SECTION 5.12                                 Use of Proceeds and Letters of Credit.  The proceeds of Loans made hereunder will be used only (a) to finance the acquisition of working capital assets of the Borrowers and their respective Subsidiaries, including the purchase of inventory and equipment, in each case in the ordinary course of business, (c) to finance Capital Expenditures of the Borrowers and their respective Subsidiaries and (d) for general corporate purposes, all to the extent permitted herein. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of the Regulations of the Board, including Regulations U and X.

SECTION 5.13                                 New Subsidiaries.  The Loan Parties shall each cause any Subsidiary of the Loan Parties (other than an Excluded Subsidiary) to immediately become a Loan Party hereunder by the execution and delivery of a Facility Guarantee and all other Facility Guarantor Collateral Documents and a joinder agreement to this Agreement (in the case of a Subsidiary which shall be a Borrower hereunder (as determined by the Administrative Agent)) and, in each case, a joinder to the other Loan Documents, as applicable, with the other parties hereto and thereto, in form and substance satisfactory to the Administrative Agent.

SECTION 5.14                                 Further Assurances.  Each Loan Party will execute any and all further documents, agreements and instruments, and take all such further actions (including the filing and recording of financing statements and other documents), that may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. The Loan Parties also agree to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.  The Loan Parties will execute and deliver to the Administrative Agent with respect to each parcel of real property that has a fair market value equal to or more than $1,000,000 and that is owned in fee (or the equivalent) by a Loan Party and any newly acquired or newly formed Subsidiary, mortgages and, upon the request of the Administrative Agent, title reports, surveys and engineering, soils and other reports, environmental assessment reports, and favorable opinions of local counsel to the Loan Parties in states or other jurisdictions in which the mortgaged property is located, in scope, form and substance reasonably satisfactory to the Administrative Agent; provided, however, that no

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such mortgage shall be required to the extent it would conflict or result in a default or event of default under any Indebtedness secured by a Lien permitted by SECTION 6.2 (including, without limitation, SECTION 6.2(d)).

SECTION 5.15                                 Physical Inventories.

(i)                                     The Loan Parties shall cause physical inventories to be undertaken, at the expense of the Loan Parties, as required by GAAP (but in no event less than one each Fiscal Year).  The Loan Parties, promptly following the completion of each such physical inventory, shall post such results to the Loan Parties’ stock ledgers and general ledgers, as applicable and shall deliver an updated Borrowing Base Certificate to the Administrative Agent if and to the extent that the results of any such physical inventory materially reduce the amounts reported under the most recent Borrowing Base Certificate.

(ii)                                  The Loan Parties shall permit the Administrative Agent, in its discretion, if any Default or Event of Default exists, to cause additional such inventories to be taken as the Administrative Agent may determine (each, at the expense of the Loan Parties).

SECTION 5.16                                 Compliance with Terms of Leaseholds.  Except as otherwise expressly permitted hereunder and except where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect, the Loan Parties shall, and shall cause their Subsidiaries to, (a) make all payments and otherwise perform all obligations in respect of all Leases to which any Loan Party or any of its Subsidiaries is a party (except for bona fide disputes with lessors) and keep such Leases in full force and effect, except upon the expiry of the term thereof or for negotiated terminations in the ordinary course of business, and (b) notify the Administrative Agent of any notices of default received by any Loan Party or any Subsidiary of a Loan Party with respect to any such Leases.

SECTION 5.17                                 Post-Closing.  Execute and deliver the documents and complete the tasks set forth on Schedule 5.17, in each case, within the time limits specified on such schedule (with any such time frame permitted to be extended by the Administrative Agent in its sole discretion).

ARTICLE VI
NEGATIVE COVENANTS

So long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification claims for which a claim has not then been asserted), each Loan Party covenants and agrees with the Administrative Agent, the Lenders and the other Credit Parties that:

SECTION 6.1                                        Indebtedness and Other Obligations.  The Loan Parties will, and will cause their Subsidiaries to, not create, incur, assume or permit to exist any Indebtedness, except:

(a)                                 Indebtedness created under the Loan Documents;

(b)                                 Indebtedness set forth in Schedule 6.1 and any Permitted Refinancing thereof;

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(c)                                  Indebtedness of any Loan Party to any other Loan Party, and any guarantee by a Loan Party of Indebtedness of another Loan Party, in each case to the extent otherwise permitted hereunder, provided that the parties thereto are party to the Intercompany Subordination Agreement;

(d)                                 Indebtedness of any of the Borrowers to any Excluded Subsidiary in an aggregate amount of all such Indebtedness for all Excluded Subsidiaries not to exceed $25,000,000;

(e)                                  To the extent the Intercreditor Agreement is in full force and effect, Indebtedness (including for purposes of this clause (e) commitments to make ABL Loans) incurred under the ABL Credit Agreement in an aggregate principal amount not to exceed $815,000,000 minus any permanent reductions of the commitments thereunder, and any Permitted Refinancing thereof permitted pursuant to the Intercreditor Agreement;

(f)                                   Indebtedness of any Loan Party to finance the acquisition of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and any Permitted Refinancing thereof, provided, that the aggregate principal amount of Indebtedness permitted by this clause (f) shall not exceed $50,000,000 at any time outstanding;

(g)                                  Indebtedness consisting of Capital Lease Obligations and guaranties thereof by the Loan Parties, or any of them;

(h)                                 Indebtedness incurred to purchase or refinance any Real Estate owned or being acquired by any Loan Party;

(i)                                     Indebtedness in respect of performance bonds, bid bonds, customs and appeal bonds, surety bonds, performance and completion guarantees and similar obligations related thereto, or, to the extent incurred in connection with purchases from suppliers, Indebtedness in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case provided in the ordinary course of business;

(j)                                    Indebtedness in respect of cash management services, netting services, automatic clearinghouse arrangements, overdraft protections and similar arrangements, in each case in connection with deposit accounts and incurred in the ordinary course or business;

(k)                                 Indebtedness in respect of letters of credit, bank guarantees, bankers’ acceptances or similar instruments issued or created in the ordinary course of business in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers compensation claims; provided that any reimbursement obligations in respect thereof are reimbursed within thirty (30) days following the incurrence thereof;

(l)                                     Indebtedness of any Excluded Subsidiary and any Guarantees thereof, provided that such Indebtedness shall not be Guaranteed by or otherwise be recourse to any Loan Party, except as permitted by SECTION 6.2(q);

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(m)                             Indebtedness in the form of any earnout or other similar contingent payment obligation which is not overdue and incurred in connection with an acquisition permitted hereunder;

(n)                                 Indebtedness incurred to pay premiums for insurance policies maintained by the Loan Parties or any of their Subsidiaries in the ordinary course of business not exceeding in aggregate the amount of such unpaid premiums;

(o)                                 other unsecured Indebtedness (i) in an aggregate principal amount not exceeding $25,000,000 at any time outstanding plus (ii) so long after giving effect to the incurrence of such Indebtedness the Fixed Charge Coverage Ratio (on a pro-forma basis for the Reference Period immediately preceding such incurrence) will be equal to or greater than 2.0:1.0, an additional aggregate principal amount not exceeding $50,000,000 at any time outstanding; provided that, in the case of clauses (i) and (ii), the terms of such Indebtedness do not contain any covenants or events of default which may be interpreted to be or are deemed to be in, the reasonable discretion of the Administrative Agent, more restrictive than the covenants and Events of Default contained in this Agreement;

(p)                                 other Indebtedness of Subsidiaries organized in a jurisdiction other than Canada, Puerto Rico or the United States that are formed or acquired after the Effective Date in an aggregate principal amount not to exceed $10,000,000 that is used and incurred solely for ordinary course working capital purposes.

Notwithstanding anything to the contrary in this Agreement, the Loan Parties shall cause the ZC Partnership not to incur any Indebtedness or any other material obligations.

Notwithstanding anything to the contrary, the Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to: (A) incur any Indebtedness for borrowed money secured by their assets; (B) other than in the ordinary course of business, cancel or compromise any Indebtedness or waive any material rights without receiving a realizable benefit of similar or greater value; or (C) change in any respect any of their policies with respect to investments, except, in the case of clause (C), as required by applicable law or regulation or as may be necessitated in connection with an expansion to new business lines or opportunities deemed lawful and appropriate for conduct by an insurance company licensed as are Zale Insurance Subsidiaries; provided that such change would not reasonably be expected to be adverse in any material respect to the Lenders.

SECTION 6.2                                        Liens.  The Loan Parties will, and will cause their Subsidiaries to, not create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a)                                 Liens created under the Loan Documents;

(b)                                 Permitted Encumbrances;

(c)                                  any Lien on any property or asset of any Loan Party set forth in Schedule 6.2, and any extensions or renewals thereof; provided, that (i) such Lien shall not apply to any other

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property or asset of any Loan Party other than after-acquired property affixed or incorporated thereto and the proceeds or products thereof, and (ii) such Lien shall secure only those obligations (including commitments in respect thereof) that it secures as of the Effective Date, and any Permitted Refinancing thereof;

(d)                                 Liens on fixed or capital assets acquired, constructed or improved by any Loan Party, provided, that (i) such Liens secure Indebtedness permitted by clause (f) of SECTION 6.1, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within one hundred eighty (180) days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such Liens shall not apply to any other property or assets of the Loan Parties;

(e)                                  Liens to secure Indebtedness permitted by clauses (g) or (h) of SECTION 6.1 securing Capital Lease Obligations provided, that such Liens shall not apply to any property or assets of the Loan Parties other than the assets so purchased or refinanced or leased or which is the subject of a sale-leaseback transaction;

(f)                                   Liens on Inventory and proceeds thereof (up to the Cost to such Loan Party of such Inventory) held on consignment from trade vendors securing obligations to return or pay the purchase price of such Inventory;

(g)                                  Voluntary options in favor of any of the Loan Parties and their respective Subsidiaries to purchase real property subject to operating leases;

(h)                                 Liens (if any) in favor of any credit card processor on any credit card receivables (and on any returned goods the purchase of which gave rise to a credit card receivable) (i) in the nature of chargebacks or reserves for claims, credits or credits pending, promotional program allowances, price adjustments, finance charges or other allowances, and (ii) to the extent the underlying Account owed by the holder of the credit card is deemed owned by the Loan Parties and not owned by such credit card processor, to secure the interest of such credit card processor in such underlying Account, in each case, to the extent arising under or in connection with the Loan Parties’ private label credit card facility, as amended or restated from time to time, and any replacement facilities thereof and any proceeds of the foregoing;

(i)                                     Sales, assignments or transfers of assets to the extent permitted by SECTION 6.5 hereof;

(j)                                    Liens securing the ABL Obligations granted to the ABL Agent under the ABL Loan Documents and any Permitted Refinancings thereof permitted under the Intercreditor Agreement, if and for so long as the Intercreditor Agreement is in effect;

(k)                                 Liens arising solely by virtue of any statutory or common law provisions relating to banker’s liens, liens in favor of securities intermediaries, rights of setoff or similar rights and remedies as to deposit accounts or securities accounts or other funds maintained with depository institutions or securities intermediaries;

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(l)                                     Liens (if any) arising from precautionary UCC, PPSA or PRUCC filings regarding “true” operating leases or consignment of goods to a Loan Party; and

(m)                             Liens on property in existence at the time such property is acquired by a Loan Party or on property of a Subsidiary of a Loan Party in existence at the time such Subsidiary is acquired by a Loan Party; provided that such Liens are not incurred in connection with, or in anticipation of, such acquisitions and do not attach to any other assets of any Loan Party;

(n)                                 leases or subleases granted to others not interfering in any material respect with the business of a Loan Party or any Subsidiary of a Loan Party and any interest or title of a lessor under any lease (whether a Capital Lease or an operating lease) permitted by this Agreement or the Security Documents;

(o)                                 Liens arising from the granting of a lease or license to enter into or use any asset of a Loan Party or any Subsidiary of a Loan Party to any Person in the ordinary course of business of a Loan Party or any Subsidiary of a Loan Party that does not interfere in any material respect with the use or application by (i) a Loan Party or any Subsidiary of a Loan Party of the asset subject to such license in the business of a Loan Party or such Subsidiary, or (ii) the Administrative Agent’s rights in connection with realization of the Collateral;

(p)                                 Liens attaching solely to cash earnest money deposits made by a Loan Party or any Subsidiary of a Loan Party in connection with any letter of intent or purchase agreement entered into it in connection with an acquisition permitted hereunder;

(q)                                 Liens on the assets or stock of Excluded Subsidiaries securing Indebtedness or obligations of such Excluded Subsidiary otherwise permitted hereunder, so long as such Indebtedness is without recourse to a Loan Party except to the extent of such Loan Party’s Stock in such Excluded Subsidiary;

(r)                                    Liens in favor of customs and revenues authorities imposed by applicable law arising in the ordinary course of business in connection with the importation of goods and securing obligations (i) that are not overdue by more than ninety (90) days, (ii)(A) that are being contested in good faith by appropriate proceedings, (B) as to which the applicable Loan Party or Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (C) such contest effectively suspends collection of the contested obligation and enforcement of any Lien securing such obligation, or (iii) the existence of which would not reasonably be expected to result in a Material Adverse Effect;

(s)                                   Liens that are contractual rights of set-off under agreements entered into with customers of any Loan Party or any of its Subsidiaries in the ordinary course of business;

(t)                                    Liens on insurance policies and proceeds thereof incurred in the ordinary course of business to secure premiums thereunder; and

(u)                                 Other Liens on assets of the Loan Parties (other than Inventory or accounts receivable) to the extent not otherwise included in paragraphs (a) through (t) of this Section securing Indebtedness and other liabilities in an aggregate amount not to exceed $10,000,000 at any time outstanding.

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Notwithstanding anything to the contrary in this Agreement, the Loan Parties shall not, and shall not permit any of their respective Subsidiaries to, create, incur, assume or permit to exist any Lien securing Indebtedness (other than under the Loan Documents and the ABL Loan Documents) on any Stock of (i) any Zale Insurance Subsidiary or (ii) the ZC Partnership.

SECTION 6.3                                        Fundamental Changes.  The Loan Parties will, and will cause their Subsidiaries to, not merge into, amalgamate or consolidate with any other Person, or permit any other Person to merge into, amalgamate or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, (i) any Subsidiary (other than any Zale Insurance Subsidiary) may merge into or amalgamate with, or liquidate or dissolve into, a Loan Party in a transaction in which such Loan Party is the surviving entity, (ii) any Loan Party may merge or amalgamate with, or liquidate or dissolve into, any other Person as long as the surviving corporation is, or simultaneously therewith becomes, a Loan Party, (iii) any Subsidiary that is not a Loan Party may merge into or amalgamate with, or liquidate or dissolve into, any other Subsidiary that is not a Loan Party, provided, that any such merger or amalgamation involving a Person that is not a wholly owned Subsidiary immediately prior to such merger or amalgamation shall not be permitted unless also permitted by SECTION 6.4, and (iv) the Borrowers and their Subsidiaries may consummate the Canadian Restructuring and the Insurance Restructuring so long as, in the case of the Canadian Restructuring, notice is provided in accordance with SECTION 5.3.

SECTION 6.4                                        Investments, Loans, Advances, Guarantees and Acquisitions.  The Loan Parties will, and will cause their Subsidiaries to, not purchase, hold or acquire (including pursuant to any merger or amalgamation with any Person that was not a wholly owned Subsidiary prior to such merger or amalgamation) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (each of the foregoing, an “investment”), except for:

(a)                                 Permitted Investments;

(b)                                 investments existing on the Effective Date, and set forth on Schedule 6.4, and any modification, renewal or extension thereof; provided that the amount of any investment permitted pursuant to this clause is not increased from the amount of such investment on the Effective Date except pursuant to the terms of such investment as of the Effective Date, as a result of undistributed earnings of the Person in whom such investment is made, or as otherwise permitted by this SECTION 6.4;

(c)                                  loans, advances, and investments by any Loan Party to or in, and guaranties by any Loan Party of the obligations of, any other Loan Party or purchases by a Loan Party of Stock of another Loan Party (other than Zale) or of assets constituting a business unit from another Borrower, provided that any Loan Party or other Subsidiary of the Borrower (except the ZC Partnership) making a loan or advance to another Loan Party is subject to the Intercompany Subordination Agreement;

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(d)                                 loans, advances, or other investments by any of the Loan Parties to or in, and guaranties by any Loan Party of the obligations of, any of its respective Subsidiaries or purchases by a Loan Party of stock of any Subsidiary or of assets constituting a business unit of a Subsidiary, all in an amount not to exceed $15,000,000 in the aggregate for all such loans, advances, guaranties, stock or asset purchases or other investments made since the Effective Date;

(e)                                  accounts receivable created or acquired, and deposits, prepayments and other credits to suppliers made, in the ordinary course of business;

(f)                                   investments consisting of transfers of Stock in a Excluded Subsidiary to any other Excluded Subsidiary, together with any note or other securities issued by such other Excluded Subsidiary in consideration of such transfer;

(g)                                  investments in registered investment companies which invest solely in investments otherwise permitted by this SECTION 6.4;

(h)                                 investments consisting of non-cash consideration received as proceeds of asset dispositions permitted by SECTION 6.5;

(i)                                     [intentionally omitted];

(j)                                    investments in Zale Stock, whether or not permitted under SECTION 6.6 in connection with the satisfaction of the Borrowers’ or a Subsidiary’s obligations under a 401(k) plan or an employee Stock ownership plan and/or the Zale Omnibus Stock Incentive Plan or similar employee benefit plans maintained by the Borrowers and their respective Subsidiaries, or any of them;

(k)                                 investments consisting of Indebtedness permitted by SECTION 6.1;

(l)                                     investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers of the Loan Parties, in each case in the ordinary course of business;

(m)                             loans or advances to employees, officers or directors for the purpose of travel, entertainment or relocation in the ordinary course of business not to exceed $2,000,000 in the aggregate at any time outstanding;

(n)                                 acquisitions of assets or Stock (other than the Stock of any of the Loan Parties) so long as (i) such assets or Stock acquired are related to the business of one of the Loan Parties or their Subsidiaries, (ii) the Payment Conditions are satisfied at the time of and after giving effect to such acquisition, (iii) with respect to any such acquisitions of Stock, if the entity so acquired is not an Excluded Subsidiary, simultaneously with the occurrence of such acquisition, the entity so acquired shall if it owns Inventory (A) be merged, amalgamated or consolidated with and into one of the Loan Parties, (B) transfer all of its assets (other than those required to satisfy liabilities) to the Loan Parties, or (C) become a Loan Party under this Agreement and the other Loan Documents in accordance with SECTION 5.13 hereof, and (iv) such acquisition shall have been approved by the Board of Directors of the Person (or similar governing body if such Person

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is not a corporation) which is the subject of such acquisition and such Person shall not have announced that it will oppose such acquisition or shall not have commenced any action which alleges that such acquisition shall violate applicable law;

(o)                                 acquisitions of Zale Stock permitted by SECTION 6.4(j) or repurchases of Zale Stock otherwise permitted by SECTION 6.6;

(p)                                 Guarantees of obligations of a Subsidiary other than any Canadian Loan Party in an amount not to exceed $10,000,000 in the aggregate for all such Guarantees at any time outstanding;

(q)                                 Guarantees of the foreign currency and hedging obligations of Zale Canada to meet the operating needs of the business consistent with past practices;

(r)                                    Guarantees and warranties of Inventory sold to customers in the ordinary course of business consistent with past practices;

(s)                                   Guarantees by any Loan Party of obligations of one or more Excluded Subsidiaries under repair, warranty or diamond bond contracts in connection with such Loan Party’s and its Subsidiaries’ ordinary course jewelry warranty programs;

(t)                                    investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business or consisting of and loans and advances by a Loan Party to consignment vendors, secured by a Lien on the inventory which has been, or will be, consigned to a Loan Party, in a principal amount not to exceed the value of such consigned inventory, and which are repayable out of the proceeds of the sale of such consigned inventory or upon the return of such consigned inventory to the consignment vendor;

(u)                                 investments consisting of Hedging Agreements permitted under SECTION 6.9;

(v)                                 investments in any Person existing at the time such Person becomes a Subsidiary of any Loan Party pursuant to an investment otherwise permitted under this SECTION 6.4, so long as such investments were not made in contemplation of such Person becoming a Subsidiary;

(w)                               Guarantees of leases that do not constitute Indebtedness, in each case entered into in the ordinary course of business;

(x)                                 other investments in an aggregate amount not to exceed $5,000,000; and

(y)                                 other investments, if, at the time of such investment and after giving effect thereto, the RP Conditions are satisfied.

Notwithstanding anything in this Agreement to the contrary, (a) exclusive of Indebtedness of Zale Canada Co. to ZC Partnership permitted hereunder and contractual liability insurance policies incurred in the ordinary course of business, the aggregate outstanding amount of any and all transactions between any or all of the Loan Parties, on the one hand, and any or all of the Excluded Subsidiaries, on the other hand, that are covered by any of the clauses (a)

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through (x) of this SECTION 6.4 (but excluding clause (y)) shall not exceed $25,000,000 at any one time, (b) in no event may proceeds of the Term Priority Collateral be invested in Permitted Investments or otherwise deposited in securities accounts, and (c) the Loan Parties shall cause the ZC Partnership not to make any Investments in any other Person, other than Investments in Zale Canada Co. consistent with past practice and otherwise permitted hereunder.

Notwithstanding anything to the contrary, the Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to make any investments in any other Person, other than investments made in the ordinary course of business in accordance with their investment policies, investments by one Zale Insurance Subsidiary in another Zale Insurance Subsidiary or as may be reasonably deemed appropriate in connection with an expansion to new business lines or opportunities reasonably deemed lawful and appropriate for conduct by an insurance company licensed as are the Zale Insurance Subsidiaries, provided that, such investments are not expected to be adverse in any material respect to the Lenders.

SECTION 6.5                                        Asset Sales.  (a) The Loan Parties will, and will cause their Subsidiaries to, not sell, transfer, lease or otherwise dispose of any asset, including any Stock, nor will the Loan Parties issue, nor will the Loan Parties permit their Subsidiaries to issue, any additional shares of its Stock or other ownership interest in such Loan Party, except:

(i)                                     (A) sales of Inventory in the ordinary course of business (other than in connection with the closure of Stores), or (B) used or surplus equipment, or (C) Permitted Investments, in each case in the ordinary course of business;

(ii)                                  sales, transfers and dispositions among the Loan Parties and their respective Subsidiaries (excluding, however, any sales, transfers and dispositions of Inventory or proceeds thereof, from any Loan Party except to another Loan Party), provided, that any such sales, transfers or dispositions involving a Subsidiary that is not a Loan Party shall be made in compliance with SECTION 6.4 or SECTION 6.7 and otherwise in compliance with this Agreement and the other Loan Documents;

(iii)                               transfers constituting part of the Insurance Restructuring permitted hereby;

(iv)                              [intentionally omitted];

(v)                                 issuances of shares of Stock of any Loan Party to any other Loan Party or the issuance by Zale of shares of its Stock;

(vi)                              the natural expiration of Intellectual Property licenses in accordance with the terms thereof;

(vii)                           investments permitted under SECTION 6.4;

(viii)                        Permitted Asset Sales provided that no Event of Default or Cash Control Event has occurred and is continuing or would occur as a result thereof; and

(ix)                              bulk sales or other dispositions of the Loan Parties’ Inventory and Store fixtures not in the ordinary course of business in connection with Store closures, at arm’s

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length; provided that such Store closures and related Inventory dispositions shall not exceed, in any fiscal year of the Borrowers, ten percent (10%) of the number of the Loan Parties’ Stores as of the beginning of such fiscal year (net of new Store openings; provided further that, unless the Administrative Agent otherwise agree, all sales of Inventory in connection with any Store closings (in a single or series of related transactions) of five percent (5%) or more of the number of the Loan Parties’ Stores then in existence shall be conducted at Store locations pursuant to a going out of business, liquidation or similar sale, in accordance with liquidation agreements and with professional liquidators reasonably acceptable to the Administrative Agent;

(x)                                 leases, subleases, or space leases, in each case in the ordinary course of business and which do not materially interfere with the business of any Loan Party; and

(xi)                              following the acquisition of a Person or business permitted by SECTION 6.4(n) hereof, the sale or other disposition (other than any sale or other disposition of the type described in SECTION 6.5(a)(ix)) above of (A) assets of such Person or business which are deemed by the Loan Parties to be surplus or unnecessary or (B) the assets of the Loan Party which overlap with the assets of such Person or business or which such Loan Party deems to have become surplus or unnecessary as a result of such acquisition; provided that the fair market value of such assets shall not exceed $10,000,000 in the aggregate in any fiscal year;

provided, that all sales, transfers, leases and other dispositions permitted hereby shall be made at arm’s length and for fair value (other than sales, transfers and other dispositions permitted under clause (ii)); and further provided, that the authority granted hereunder may be terminated in whole or in part by the Administrative Agent upon the occurrence and during the continuance of any Event of Default.

(b)                                 The Loan Parties will, and will cause their Subsidiaries to, not sell, transfer, lease or otherwise dispose of receipts from credit card processors of the Loan Parties.

SECTION 6.6                                        Restricted Payments; Certain Payments of Indebtedness.

(a)                                 The Loan Parties will, and will cause their Subsidiaries to, not declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that

(i)                                     the Loan Parties may make Restricted Payments so long as the RP Conditions are satisfied at the time of the making of and after giving effect to such Restricted Payment;

(ii)                                  any Loan Party may make a Restricted Payment to any other Loan Party;

(iii)                               any Excluded Subsidiary may make a Restricted Payment to another Excluded Subsidiary or to a Loan Party; provided that each Zale Insurance Subsidiary may only make Restricted Payments to a Loan Party in any fiscal year out of such Zale Insurance Subsidiary’s retained earnings for such fiscal year and to the extent such Restricted Payments do not constitute extraordinary dividends;

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(iv)                              any Subsidiary may make Restricted Payments ratably to the holders of the Stock of such Subsidiary;

(v)                                 Zale may make repurchases of Stock in Zale deemed to occur upon exercise of stock options or warrants if such Stock represents a portion of the exercise price of such options or warrants, in each case, to the extent not made in cash; and

(vi)                              Zale may make Restricted Payments pursuant to the transactions contemplated by the Warrant Agreement or in accordance with the terms of the Series A Preferred Stock.

(b)                                 The Loan Parties will not at any time, make or agree to pay or make, directly or indirectly any payment or other distribution (whether in cash, securities or other property) of or in respect of principal of or interest on any Indebtedness (other than intercompany Indebtedness owed to any Loan Party and payments made in connection with the Canadian Restructuring), or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Indebtedness, except (i) payment of regularly scheduled payments or mandatory prepayments of principal, interest and premium, if any, arising solely with respect to such payment in respect of any Indebtedness permitted under SECTION 6.1 hereof, (ii) if the Payment Conditions are satisfied at the time of the making of and after giving effect to such payment, (iii) Permitted Refinancings of Indebtedness permitted under SECTION 6.1 and (iv) voluntary prepayments of the ABL Obligations and the Obligations.

Notwithstanding anything to the contrary in this Agreement, the Loan Parties shall cause the ZC Partnership to not make any Restricted Payment to any other Person, other than Restricted Payments to any Loan Party consistent with past practice and other than pursuant to the Canadian Restructuring.

SECTION 6.7                                        Transactions with Affiliates.  Except as set forth on Schedule 6.7 hereto, the Loan Parties will, and will cause their Subsidiaries to, not at any time sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of their respective Affiliates, except (a) transactions in the ordinary course of business that are at prices and on terms and conditions not less favorable to the Loan Parties than could be obtained on an arm’s length basis from unrelated third parties, (b) transactions among the Loan Parties, (c) transactions among Excluded Subsidiaries, (d) transactions with any Person that is an Affiliate by reason of the ownership by Zale or any of its Subsidiaries of Stock of such Person which would not otherwise violate the provisions of the Loan Documents, (e) customary fees paid, and reimbursement of reasonable expenses, to members of the board of directors of Zale or any of its Subsidiaries, (f) customary compensation (including salaries and bonuses) paid, and reimbursement of reasonable expenses, to officers and employees of Zale or any Subsidiary of Zale and (g) transactions set forth in the Loan Documents and in the Warrant Agreement.

SECTION 6.8                                        Financial Covenants.  During the continuance of a Covenant Compliance Event, the Loan Parties shall not permit the Fixed Charge Coverage Ratio, calculated for any Reference Period as of the last day of each fiscal month commencing with the

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fiscal month immediately prior to the date that the Covenant Compliance Event occurs, to be less than 1.0:1.0.

SECTION 6.9                                        Hedging Agreement.  The Loan Parties shall, and shall cause their Subsidiaries to, not enter into any Hedging Agreement except for Hedging Agreements used solely as a risk management strategy and/or hedge against changes resulting from market operations in accordance with policies approved by the Board of Directors of Zale or Zale Delaware.

SECTION 6.10                                 [Intentionally Omitted].

SECTION 6.11                                 Canadian Plans.  None of the Loan Parties nor any of their Subsidiaries will permit any of the following:

(a)                                 become party to, or liable under, any Canadian Plan which provides benefits on a defined benefit basis, and the existence of any unfunded, solvency, or deficiency on windup liability or any accumulated funding deficiency (whether or not waived), or of any amount of unfunded benefit liabilities in respect of any Canadian Plan;

(b)                                 failure to pay any amounts required to be paid by it or them when due;

(c)                                  the existence of any liability upon it or them or Lien on any of its or their property in respect of any Canadian Plan;

(d)                                 failure to make all required contributions to any Canadian Plan when due; and

(e)                                  engaging in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Canadian Plan that could reasonably be expected to result in liability.

SECTION 6.12                                 Burdensome Agreements.  None of the Loan Parties shall nor shall their Subsidiaries enter into or permit to exist any contractual obligation (other than this Agreement, any other Loan Document or the ABL Loan Documents) that (a) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure the Obligations, or (b) limits the ability (i) of any Subsidiary to make Restricted Payments or other distributions to any Loan Party or to otherwise transfer property to or invest in a Loan Party, (ii) of any Subsidiary to Guarantee the Obligations, (iii) of any Subsidiary to make or repay loans to a Loan Party, or (iv) of the Loan Parties or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person in favor of the Administrative Agent; provided, however, that this clause (iv) shall not prohibit (A) encumbrances or restrictions under this Agreement and the other Loan Documents; (B) encumbrances or restrictions under the ABL Credit Agreement or any Permitted Refinancing in respect thereof, in each case, so long as the encumbrances and restrictions thereunder are no more onerous, when taken as a whole, to any Loan Party or Subsidiary than those contained in the ABL Credit Agreement as in effect on the Effective Date);  (C) customary encumbrances or restrictions in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements, which restrictions relate solely to the activities of such joint venture or are otherwise applicable only to the assets that are the subject to such agreement; (D) customary encumbrances or restrictions contained in sales of, or in agreements relating to the sale of Stock or assets of any Subsidiary of

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a Loan Party pending such sale, provided that such encumbrances and restrictions apply only to the Subsidiary of a Loan Party to be sold and such sale is permitted hereunder; (E) any such agreement imposed in connection with consignment agreements entered into in the ordinary course of business; (F) any such restriction contained in agreements pertaining to Indebtedness of Excluded Subsidiaries permitted hereunder; (G) customary anti-assignment provisions contained in agreements entered into in the ordinary course of business; (H) customary subordination of subrogation, contribution and similar claims contained in guaranties permitted hereunder; (I) encumbrances described on Schedule 6.12; (J) on cash deposits or other deposits imposed by customers under contracts entered into in the ordinary course of business; (K) on the transfer, lease, or license of any property or asset of any Loan Party in effect on the Effective Date that were entered into in the ordinary course of business, and (L) encumbrances or restrictions in documents governing Indebtedness assumed or incurred under SECTION 6.4(n) or existing with respect to any Person or the property or assets of such Person acquired by a Loan Party or any Subsidiary of a Loan Party in an acquisition permitted hereunder, provided that such encumbrances and restrictions are not applicable to any Person or the property or assets of any Person other than such acquired Person or the property or assets of such acquired Person and were not made in anticipation of such acquisition.

SECTION 6.13                                 Amendment of Material Documents.  None of the Loan Parties shall nor shall their Subsidiaries amend, modify or waive any of a Loan Party’s or any of a Loan Party’s Subsidiary’s rights under (a) its organization documents in a manner materially adverse to the Credit Parties, (b) any agreement or document evidencing Material Indebtedness (other than the ABL Loan Documents) unless such amendment, modification or waiver would not result in a Default or Event of Default, would not be materially adverse to the Lenders or the other Credit Parties and would not be reasonably likely to have a Material Adverse Effect or (c) any ABL Loan Document (other than on account of any Permitted Refinancing thereof permitted by the Intercreditor Agreement), to the extent that such amendment, modification or waiver would not be permitted under the Intercreditor Agreement, would result in a Default or Event of Default or otherwise would be reasonably likely to have a Material Adverse Effect.

SECTION 6.14                                 Change in Nature of Business.  The Loan Parties shall not engage in any line of business substantially other than the sale and distribution of watches, gemstones, jewelry, giftware and related items and services, insurance and other related financial products and any business substantially related, ancillary or incidental thereto.

SECTION 6.15                                 Certain Matters Relating to Zale Insurance Subsidiaries.

(a)                                 The Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to: (A) enter into any intercompany agreements which require approval of a Governmental Authority or (B) modify the terms of any existing intercompany agreements, in either case if such new agreement or amendment would reasonably be expected to be materially adverse to the Lenders.

(b)                                 The Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to issue any of their Stock or securities convertible into or exchangeable for any such Stock other than Stock issued to a Loan Party or to another Zale Insurance Subsidiary.

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(c)                                  The Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to: (A) enter into any commutation of or recapture of any risks under any Reinsurance Agreement except to the extent required by the other party thereto in accordance with the terms of such agreement or (B) other than in the ordinary course of business and consistent with past practice, amend any existing Reinsurance Agreement or enter into any new Reinsurance Agreement, except as (i) required by applicable law or regulation, (ii) as is consistent with market practices and (iii) would not reasonably be expected to be materially adverse to the Lenders.

(d)                                 The Loan Parties shall, and shall cause their Subsidiaries to, cause the Zale Insurance Subsidiaries not to make or amend any Tax election of such Zale Insurance Subsidiaries, except as required by applicable law or regulation and except as would not reasonably be expected to be materially adverse to the Lenders.

ARTICLE VII
EVENTS OF DEFAULT

SECTION 7.1                                        Events of Default.  If any of the following events (“Events of Default”) shall occur:

(a)                                 the Loan Parties shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b)                                 the Loan Parties shall fail to pay any interest on any Loan or fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, within three (3) Business Days of the date when the same shall become due and payable;

(c)                                  any representation, warranty, certification or statement made or deemed made by or on behalf of any Loan Party in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect (except that such materiality qualifier shall not be applicable to any representations, warranties, certifications or statements that already are qualified or modified by materiality in the text thereof) when made or deemed made;

(d)                                 the Loan Parties or their Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained:

(i)                                     in SECTION 2.21, SECTION 5.2, SECTION 5.3(b), SECTION 5.7, SECTION 5.9, SECTION 5.12,  SECTION 5.15, SECTION 5.17 or in ARTICLE VI; and

(ii)                                  in SECTION 5.1(f), and such failure shall continue unremedied for a period of one Business Day;

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(e)                                  any Loan Party or any of its Subsidiaries shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a), (b), (c), or (d) of this Article), and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date on which such failure shall first become known to any officer of any Loan Party or (ii) notice thereof from the Administrative Agent to Zale (which notice will be given at the request of any Lender);

(f)                                   any Loan Party or any of its Subsidiaries shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness (including, but not limited to, the ABL Obligations) when and as the same shall become due and payable (after giving effect to the expiration of any grace or cure period set forth therein);

(g)                                  any event or condition occurs that results in any Material Indebtedness (including, but not limited to, the ABL Obligations) becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided, however, that this clause (g) shall not apply to (x) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale or transfer is permitted under this Agreement and under the documents providing for such Indebtedness, or (y) to mandatory prepayments under Material Indebtedness that are not due as a result of a default under the documents providing for such Indebtedness and that are permitted to be paid pursuant to the terms hereof;

(h)                                 an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization, arrangement or other relief in respect of any Loan Party or its debts, or of a substantial part of its assets, under any Debtor Relief Law now or hereafter in effect or (ii) the appointment of a receiver, interim receiver, national receiver, monitor, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect for 60 days;

(i)                                     any Loan Party or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition, proposal, or notice seeking liquidation, reorganization or other relief under any Debtor Relief Law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, interim receiver, national receiver, monitor, trustee, custodian, sequestrator, conservator or similar official for any Loan Party, any of its Subsidiaries or for a substantial part of such Loan Party’s or such Subsidiary’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(j)                                    any Loan Party or any of its Subsidiaries shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

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(k)                                 one or more uninsured judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against any Loan Party or any of its Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any material assets of any Loan Party or any of its Subsidiaries to enforce any such judgment;

(l)                                     (i)                                     any challenge by or on behalf of any Loan Party or any of its Subsidiaries to the validity of any Loan Document or the applicability or enforceability of any Loan Document strictly in accordance with the subject Loan Document’s terms or which seeks to void, avoid, limit, or otherwise adversely affect any security interest created by or in any Loan Document or any payment made pursuant thereto.

(ii)                                  any challenge by or on behalf of any other Person to the validity of any Loan Document or the applicability or enforceability of any Loan Document strictly in accordance with the subject Loan Document’s terms, or which seeks to void, avoid, limit, or otherwise adversely affect the Administrative Agent’s, the Lenders’ or the other Credit Parties’ rights under the Intercreditor Agreement or any security interest created by or in any Loan Document or any payment made pursuant thereto, in each case, as to which an order or judgment has been entered adverse to the Administrative Agent, the Lenders or the other Credit Parties.

(iii)                               any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party or any of its Subsidiaries not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document, except as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents;

(m)                             a Change in Control shall occur;

(n)                                 [intentionally omitted];

(o)                                 the indictment of, or institution of any legal process or proceeding against, any Loan Party or any of its Subsidiaries, under any federal, state, provincial, municipal, foreign and other civil or criminal statute, rule, regulation, order, or other requirement having the force of law where the relief, penalties, or remedies sought or available include the forfeiture of any material property of any Loan Party or any of its Subsidiaries and/or the imposition of any stay or other order, the effect of which could reasonably be to restrain in any material way the conduct by the Loan Parties and their Subsidiaries, taken as a whole, of their business in the ordinary course;

(p)                                 the termination or attempted termination of any Facility Guarantee except as expressly permitted hereunder or under any other Loan Document;

(q)                                 except as otherwise permitted hereunder, the determination by any Loan Party or any of its Subsidiaries, whether by vote of such Loan Party’s or such Subsidiary’s board of directors or otherwise to: generally suspend the operation of such Loan Party’s or such Subsidiary’s business in the ordinary course, liquidate all or a material portion of such Loan

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Party’s or such Subsidiary’s assets or Store locations, or employ an agent or other third party to conduct any so-called store closing, store liquidation or “Going-Out-Of-Business” sales for such Loan Party’s or such Subsidiary’s Stores generally;

(r)                                    (i) an ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000 or which would reasonably likely result in a Material Adverse Effect, or (ii) a Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $10,000,000 or which would reasonably likely result in a Material Adverse Effect; or

(s)                                   any provision of the Intercreditor Agreement shall, at any time after the delivery of such Intercreditor Agreement, fail to be valid and binding, or enforceable;

then, and in every such event (other than an event with respect to any Loan Party or any of its Subsidiaries described in clause (h) or (i) of this SECTION 7.1), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to Zale, take either or both of the following actions, at the same or different times: (i) [intentionally omitted], and (ii) declare the Loans and the other Obligations then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans and other Obligations so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Loan Parties accrued under the Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Loan Parties; and in case of any event with respect to any Loan Party or any of its Subsidiaries described in clause (h) or (i) of this SECTION 7.1, the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations of the Loan Parties accrued under the Loan Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Loan Parties.

SECTION 7.2                                        When Continuing.  For all purposes under this Agreement, each Default and Event of Default that has occurred shall be deemed to be continuing at all times thereafter unless it either (a) is cured or corrected or (b) is waived in writing by the Lenders in accordance with SECTION 9.2.

SECTION 7.3                                        Remedies on Default.  In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the maturity of the Loans shall have been accelerated pursuant hereto, the Administrative Agent, the Lenders and the other Credit Parties may proceed to protect and enforce their rights and remedies under this Agreement, the Notes or any of the other Loan Documents by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations are evidenced, and, if such amount shall have become due, by declaration or otherwise, proceed

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to enforce the payment thereof or any other legal or equitable right of the Administrative Agent, the Lenders or the other Credit Parties. No remedy herein is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law.

SECTION 7.4                                        Application of Proceeds. After the exercise of remedies provided for in SECTIONS 7.1 or 7.3 (or after the Obligations have automatically become immediately due and payable as set forth in the last paragraph of SECTION 7.1) and the Administrative Agent, any Lender or any other Credit Party, as the case may be, receives any monies in connection with the enforcement of this Agreement, any of the Security Documents or any of the other Loan Documents, or otherwise with respect to the realization upon, or disposition of, any of the Collateral, such monies shall be distributed for application as follows:

(a)                                 First, to the payment of, or (as the case may be) the reimbursement of the Administrative Agent for or in respect of all reasonable costs, expenses, disbursements, indemnities and losses which shall have been incurred or sustained by the Administrative Agent in connection with the collection of such monies by the Administrative Agent for the exercise, protection or enforcement by the Administrative Agent of all or any of the rights, remedies, powers and privileges of the Administrative Agent under this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Administrative Agent against any taxes or liens which by law shall have, or may have, priority over the rights of the Administrative Agent to such monies and the other amounts due to the Administrative Agent hereunder, under the Monitoring Agreement Letter and the other Loan Documents;

(b)                                 Second, to payment of that portion of the Obligations for or in respect of all reasonable costs, expenses, disbursements, indemnities, and losses which shall have been incurred or sustained by the Lenders and the other Credit Parties (including expenses and indemnities due under SECTION 9.3 hereof) (other than principal, interest and fees) payable to the Lenders and the other Credit Parties, ratably among them in proportion to the amounts described in this clause Second payable to them;

(c)                                  Third, to payment of that portion of the Obligations constituting accrued and unpaid interest, fees and other amounts on the Loans and other Obligations, and fees (including, without limitation, any prepayment fee or Make Whole Amount required by SECTION 2.17), ratably among the Lenders and the other Credit Parties in proportion to the respective amounts described in this clause Third payable to them;

(d)                                 Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them;

(e)                                  Fifth, to payment of all other Obligations (including without limitation the cash collateralization of unliquidated indemnification obligations), ratably among the Credit Parties in proportion to the respective amounts described in this clause Fifth held by them;

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(f)                                   Sixth, to payment of all other Obligations, ratably among the Credit Parties in proportion to the respective amounts described in this clause Sixth held by them;

(g)                                  Seventh, upon payment and satisfaction in full, or other provisions for payment in full satisfactory to the Lenders and the Administrative Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to §9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State of New York and Section 64(1)(a) and (b) of the PPSA (Ontario) and all equivalent provisions of any other PPSA legislation; and

(h)                                 Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Loan Parties or as otherwise required by law or contract.

ARTICLE VIII
THE ADMINISTRATIVE AGENT

SECTION 8.1                                        Administration by the Administrative Agent.  Each Lender and each other Credit Party hereby irrevocably designates ZIH, LLC as Administrative Agent under this Agreement and the other Loan Documents. The general administration of the Loan Documents shall be by the Administrative Agent. The Lenders and the other Credit Parties each hereby irrevocably authorizes the Administrative Agent (i) to enter into the Loan Documents to which it is a party, (ii) at its discretion, to take or refrain from taking such actions as agent on its behalf and to exercise or refrain from exercising such powers under the Loan Documents and the Notes as are delegated by the terms hereof or thereof, as appropriate, together with all powers reasonably incidental thereto and (iii) agree and consent to all of the provisions of the Security Documents.  All Collateral shall be held or administered by the Administrative Agent (or its duly-appointed agent) for its benefit and for the ratable benefit of the other Credit Parties. Any proceeds received by the Administrative Agent from the foreclosure, sale, lease or other disposition of any of the Collateral and any other proceeds received pursuant to the terms of the Security Documents or the other Loan Documents shall be applied as provided in 0 or SECTION 7.4, as applicable.  The Administrative Agent shall have no duties or responsibilities except as set forth in this Agreement and the remaining Loan Documents, nor shall it have any fiduciary relationship with any other Credit Party, and no implied covenants, responsibilities, duties, obligations, or liabilities shall be read into the Loan Documents or otherwise exist against the Administrative Agent.

SECTION 8.2                                        [Intentionally Omitted].

SECTION 8.3                                        [Intentionally Omitted].

SECTION 8.4                                        [Intentionally Omitted].

SECTION 8.5                                        Agreement of Applicable Lenders.

(a)                                 Upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of only the Applicable Lenders, action shall be taken by the Administrative Agent for and on behalf or for the benefit of all Lenders upon the direction of the Applicable Lenders, and any such action shall be binding on all Lenders.  No amendment,

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modification, consent, or waiver shall be effective except in accordance with the provisions of SECTION 9.2.

(b)                                 Upon the occurrence of an Event of Default, the Administrative Agent shall take such action with respect thereto as may be reasonably directed by the Required Lenders; provided, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action as they shall deem advisable in the best interests of the Lenders. In no event shall the Administrative Agent be required to comply with any such directions to the extent that the Administrative Agent believes that the Administrative Agent’s compliance with such directions would be unlawful.

SECTION 8.6                                        Liability of Administrative Agent.

(a)                                 The Administrative Agent, when acting on behalf of the Lenders or the other Credit Parties, may execute any of its respective duties under this Agreement by or through any of its respective officers, agents and employees, and neither the Administrative Agent nor its respective directors, officers, agents or employees shall be liable to the Lenders, the other Credit Parties or any of them for any action taken or omitted to be taken in good faith, or be responsible to the Lenders, to the other Credit Parties or to any of them for the consequences of any oversight or error of judgment, or for any loss, except to the extent of any liability imposed by law by reason of the Administrative Agent’s own gross negligence or willful misconduct as determined by a final and non-appealable judgment of a court of competent jurisdiction. The Administrative Agent and their respective directors, officers, agents and employees shall in no event be liable to the Lenders, the other Credit Parties or to any of them for any action taken or omitted to be taken by them pursuant to instructions received by them from the Applicable Lenders, or in reliance upon the advice of counsel selected by it. Without limiting the foregoing, neither the Administrative Agent, nor any of their respective directors, officers, employees, or agents shall be responsible to any Lender or any other Credit Party for the due execution, validity, genuineness, effectiveness, sufficiency, or enforceability of, or for any statement, certification, warranty or representation in, this Agreement, any other Loan Document or any related agreement, document or order, or shall be required to ascertain or to make any inquiry concerning the performance or observance by any Loan Party of any of the terms, conditions, covenants, or agreements of this Agreement or any of the other Loan Documents.

(b)                                 Neither the Administrative Agent, nor any of their respective directors, officers, employees, or agents shall have any responsibility to the Loan Parties on account of the failure or delay in performance or breach by any Lender (other than by the Administrative Agent in its capacity as a Lender) or any other Credit Party of any of their respective obligations under this Agreement or the Notes or any of the other Loan Documents or in connection herewith or therewith.

(c)                                  The Administrative Agent shall be entitled to rely on any communication, instrument, or document reasonably believed by such Person to be genuine or correct and to have been signed or sent by a person or persons believed by such Person to be the proper Person or Persons, and, such Person shall be entitled to rely on advice of legal counsel, independent public accountants, and other professional advisers and experts selected by such Person. The Administrative Agent shall not be responsible for the negligence or misconduct of any Persons

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except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such Persons.

(d)                                 It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

SECTION 8.7                                        Reimbursement and Indemnification.  Each Lender agrees (a) to reimburse (x) the Administrative Agent (in such capacities and not solely as a Lender) for such Lender’s Pro Rata Share of any expenses and fees incurred by the Administrative Agent for the benefit of the Lenders under this Agreement, the Notes and any of the other Loan Documents, including, without limitation, counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, and any other expense incurred in connection with the operations or enforcement thereof in each case not reimbursed by the Loan Parties and (y) the Administrative Agent (in such capacities and not solely as a Lender) for such Lender’s Pro Rata Share of any expenses of the Administrative Agent incurred for the benefit of the Lenders that the Loan Parties have agreed to reimburse pursuant to SECTION 9.3 and have failed to so reimburse and (b) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees, or agents, on demand, in the amount of such Lender’s Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it or any of them in any way relating to or arising out of this Agreement, the Notes or any of the other Loan Documents or any action taken or omitted by it or any of them under this Agreement, the Notes or any of the other Loan Documents to the extent not reimbursed by the Loan Parties (except such as shall result from the Administrative Agent’s respective gross negligence or willful misconduct as determined by a final and non-appealable judgment of a court of competent jurisdiction).

SECTION 8.8                                        Rights of Administrative Agent.  It is understood and agreed that any Person serving as the Administrative Agent shall have the same rights and powers hereunder (including the right to give such instructions) in its capacity as a Lender as the other Lenders and may exercise such rights and powers, as well as its rights and powers under other agreements and instruments to which it is or may be party, and engage in other transactions with the Borrowers, as though it were not the Administrative Agent of the Lenders under this Agreement.  Such Persons and their Affiliates may accept deposits from, lend money to, and generally engage in any kind of commercial or investment banking, trust, advisory or other business with the Loan Parties and their Affiliates as if such Persons were not the Administrative Agent hereunder.

SECTION 8.9                                        Independent Lenders and Issuing Bank.  The Lenders each acknowledge that they have decided to enter into this Agreement and to make the Loans hereunder based on their own analysis of the transactions contemplated hereby and of the creditworthiness of the Loan Parties and agrees that the Administrative Agent shall bear no responsibility therefor.

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SECTION 8.10                                 Notice of Transfer.  The Administrative Agent may deem and treat a Lender party to this Agreement as the owner of such Lender’s portion of the Loans for all purposes, unless and until, and except to the extent, an Assignment and Acceptance shall have become effective as set forth in SECTION 9.4(b).

SECTION 8.11                                 Relation Among the Lenders and the Other Credit Parties.  The Lenders and the other Credit Parties are not partners or co-venturers, and no Lender or other Credit Party shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender or any other Credit Party.

SECTION 8.12                                 Successor Administrative Agent.  The Administrative Agent may resign at any time by giving five (5) Business Days’ written notice thereof to the Lenders and Zale. The Administrative Agent which the Required Supermajority Lenders have determined to be, and continues to be, a Defaulting Lender (subject to SECTION 2.31(b)) may be removed by the Required Supermajority Lenders. Upon any such resignation or removal of the Administrative Agent, the Required Lenders shall have the right to appoint a successor Administrative Agent, which so long as there is no Default or Event of Default existing shall be reasonably satisfactory to Zale (whose consent shall not be unreasonably withheld or delayed).  If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, the retiring Administrative Agent may, on behalf of the Lenders and the other Credit Parties, appoint a successor Administrative Agent which shall be (a) a financial institution having a rating of not less than A or its equivalent by S&P or (b) a Lender capable of complying with all of the duties of the Administrative Agent hereunder (in the opinion of the retiring Administrative Agent and as certified to the Lenders in writing by such successor Administrative Agent) which, in the case of (a) and (b) above, so long as there is no Default or Event of Default existing shall be reasonably satisfactory to Zale (whose consent shall not be unreasonably withheld or delayed). Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

SECTION 8.13                                 Reports and Financial Statements.  Promptly after receipt thereof from the Borrowers, the Administrative Agent shall remit to each Lender and, to the extent not previously delivered to such Person by the Borrowers, copies of (a) all financial statements, compliance certificates and Borrowing Base Certificates, as required to be delivered by the Borrowers hereunder, (b) all commercial finance examinations and appraisals of the Collateral received by the Administrative Agent and (c) such other information regarding the operations, business affairs and financial condition of any Borrower, or compliance with the terms of any Loan Document, as any Lender may reasonably request.

SECTION 8.14                                 Agency for Perfection.  Each Credit Party hereby appoints each other Credit Party as agent for the purpose of perfecting Liens for the benefit of the Administrative

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Agent and the other Credit Parties, in assets which, in accordance with Article 9 of the UCC or any other applicable law of the United States of America or Canada can be perfected only by possession.  Should any Credit Party (other than the Administrative Agent) obtain possession of any such Collateral, such Credit Party shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent’s request therefor, shall deliver such Collateral to the Administrative Agent, or otherwise deal with such Collateral in accordance with the Administrative Agent’s instructions.

SECTION 8.15                                 [Intentionally Omitted].

SECTION 8.16                                 Collateral Matters.

(a)                                 The Credit Parties hereby irrevocably authorize the Administrative Agent to release any Lien upon any Collateral: (i) upon payment and satisfaction in full of all Obligations; (ii) constituting property being sold, transferred or disposed of in a disposition permitted under SECTION 6.5 hereof upon receipt by the Administrative Agent of the Net Proceeds thereof (together with any prepayment fee or Make Whole Amount required by SECTION 2.17) to the extent required by this Agreement; or (iii) constituting property of Zale PR or a Canadian Loan Party required to be released by SECTION 2.30.  Except as provided above, the Administrative Agent will not release any of the Administrative Agent’s Liens without the prior written authorization of the Applicable Lenders. Upon request by the Administrative Agent or any Borrower at any time, the Credit Parties will confirm in writing the Administrative Agent’s authority to release any Liens upon particular types or items of Collateral pursuant to this SECTION 8.16.

(b)                                 Upon at least two (2) Business Days’ prior written request by the Borrowers, the Administrative Agent shall (and is hereby irrevocably authorized by the Credit Parties to) execute such documents as may be necessary to evidence the release of the Liens upon any Collateral described in SECTION 8.16(a); provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in their reasonable opinion, would, under applicable law, expose the Administrative Agent to liability or create any obligation or entail any adverse consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of any Loan Party in respect of) all interests retained by any Loan Party, including (without limitation) the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

(c)                                  Anything contained in any of the Loan Documents to the contrary notwithstanding, Loan Parties, Administrative Agent, each Lender and each other Credit Party hereby agree that (1) no Lender or other Credit Party (other than the Administrative Agent) shall have any right individually to realize upon any of the Collateral under any Security Document or to enforce the Facility Guarantee, it being understood and agreed that all powers, rights and remedies under the Security Documents and the Facility Guarantee may be exercised solely by Administrative Agent acting as agent for and representative of the Lenders and the other Credit Parties in accordance with the terms thereof, and (2) in the event of a foreclosure by Administrative Agent on any of the Collateral pursuant to a public or private sale or a sale under §363 of the Bankruptcy Code, Administrative Agent, any Lender or any other Credit Party may

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be the purchaser of any or all of such Collateral at any such sale and Administrative Agent, as agent for and representative of the Lenders and the other Credit Parties (but not any Lender or Lenders or any Credit Party or Credit Parties (other than Administrative Agent) in its or their respective individual capacities unless Required Lenders shall otherwise agree in writing) shall be entitled (at the direction of the Required Lenders), for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Collateral payable by Administrative Agent at such sale.

ARTICLE IX
MISCELLANEOUS

SECTION 9.1                                        Notices.  Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy or e-mail, as follows:

(a)                                 if to any Borrower (or any other Loan Party), to such Person at Zale Corporation, 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 Attention: General Counsel (Telecopy No. (972) 580-4934), e-mail legal@zalecorp.com, with copies to (i) Zale Corporation, 901 W. Walnut Hill Lane, Irving, Texas 75038-1003 Attention: Treasurer (Telecopy No. (972) 580-5547), e-mail treasury@zalecorp.com and (ii) Troutman Sanders LLP, 600 Peachtree Street, N.E., Suite 5200, Atlanta, Georgia 30308-2216, Attention: Hazen H. Dempster, Esq (Telecopy No. (404) 962-6544), e-mail hazen.dempster@troutmansanders.com;

(b)                                 If to the Administrative Agent, to Z Investment Holdings, LLC, One Embarcadero Center, Suite 3900, San Francisco, CA 94111, Attention:  Josh Olshansky, (Telecopy No. (415) 983-2828), e-mail jolshansky@goldengatecap.com, with a copy to (i) Z Investment Holdings, LLC, One Embarcadero Center, Suite 3900, San Francisco, CA 94111, Attention:  Josh Cohen, (Telecopy No. (415) 983-2884), e-mail jcohen@goldengatecap.com and (ii) Kirkland & Ellis LLP, 333 South Hope Street, 29th Floor, Los Angeles, California 90071, Attention: David Nemecek, Esq. (Telecopy No. (213) 808-8107), e-mail david.nemecek@kirkland.com;

(c)                                  If to any Lender, to it at its address (or telecopy number or e-mail) set forth on the signature pages hereto or on any Assignment and Acceptance for such Lender.

(d)                                 All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

(e)                                  Unless the Administrative Agent otherwise prescribes in writing, notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

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(f)                                   Each of the Borrowers may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Administrative Agent. The Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to Zale.  Each Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to Zale and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

SECTION 9.2                                        Waivers; Amendments.

(a)                                 No failure or delay by the Administrative Agent, any Lender or any other Credit Party in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Lenders and the other Credit Parties hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time.

(b)                                 Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified, and no consent with respect to any departure by a Loan Party or its Subsidiary therefrom shall be effective, except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the parties thereto to the extent set forth therein, in each case with the consent of the Required Lenders, provided, that no such agreement shall (i) [intentionally omitted], (ii) as to any Lender, reduce the rate of interest on any Loan, or reduce any fees payable hereunder, without the written consent of such Lender, (iii) as to any Lender, postpone the scheduled date of payment of the principal amount of any Loan (excluding any mandatory prepayment), or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the Maturity Date, without the written consent of such Lender, (iv) change any of the provisions of this SECTION 9.2 or the definition of the term “Required Lenders”, “Required Supermajority Lenders” or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender, and (v) except for sales described in SECTION 6.5 or as permitted in the Security Documents, release any material portion of the Collateral from the Liens of the Security Documents, without the written consent of each Lender;

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provided, that the foregoing shall not limit the discretion of the Required Supermajority Lenders to change the definition of the term “Permitted Asset Sales”; provided, further, that, notwithstanding anything herein to the contrary, (A) no such agreement shall amend, modify or otherwise affect the definition of “Defaulting Lender,” the provisions of SECTION 2.31 or SECTION 8.12 or the rights or duties of the Administrative Agent, without the prior written consent of the Administrative Agent, (B) no waiver, amendment, modification or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document and (C) no waiver, amendment, modification or consent shall, unless in writing signed by the parties thereto, be effective with respect to the Monitoring Agreement Letter.

(c)                                  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.

(d)                                 Notwithstanding anything to the contrary in this Agreement or any other Loan Document, any Loan Document may be amended and waived with the consent of the Administrative Agent at the request of the Borrower without the need to obtain the consent of any other Lender if such amendment or waiver is delivered in order (i) to comply with local law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause any Loan Document to be consistent with this Agreement and the other Loan Documents.

(e)                                  Notwithstanding anything to the contrary contained in this SECTION 9.2, in the event that the Borrowers request that this Agreement or any other Loan Document be modified, amended or waived in a manner which would require the consent of the Lenders pursuant to SECTION 9.2(b) and such amendment is approved by the Required Lenders, but not by the requisite percentage of the Lenders, the Borrowers, and the Required Lenders shall be permitted to amend this Agreement without the consent of the Lender or Lenders which did not agree to the modification or amendment requested by the Borrowers (such Lender or Lenders, collectively the “Minority Lenders”) to provide for (y) the increase in Loans by such new or increasing Lender or Lenders, as the case may be, as may be necessary to repay in full the outstanding Loans (including principal, interest, fees (including, without limitation, any prepayment fee or Make Whole Amount due pursuant to SECTION 2.17) and other amounts of the Minority Lenders immediately before giving effect to such amendment and (z) such other modifications to this Agreement or the Loan Documents as may be appropriate and incidental to the foregoing.

(f)                                   No notice to or demand on any Loan Party shall entitle any Loan Party to any other or further notice or demand in the same, similar or other circumstances. Each holder of a Note shall be bound by any amendment, modification, waiver or consent authorized as provided herein, whether or not a Note shall have been marked to indicate such amendment, modification, waiver or consent and any consent by a Lender, or any holder of a Note, shall bind any Person

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subsequently acquiring a Note, whether or not a Note is so marked. No amendment to this Agreement shall be effective against the Borrowers unless signed by the Borrowers or other applicable Loan Party.

SECTION 9.3                                        Expenses; Indemnity; Damage Waiver.

(a)                                 The Loan Parties shall jointly and severally pay (i) all reasonable and documented third-party out-of-pocket expenses incurred by the Administrative Agent and their Affiliates, including the reasonable and documented fees, charges and disbursements of counsel for the Administrative Agent, outside consultants for the Administrative Agent, appraisers, and for commercial finance examinations, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent, any Lender or any other Credit Party, including the fees, charges and disbursements of any counsel and any outside consultants for the Administrative Agent, any Lender or any other Credit Party, for appraisers, commercial finance examinations, and environmental site assessments, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made hereunder or the other outstanding Obligations, including all such reasonable and documented third-party out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans; provided, that the Lenders who are not the Administrative Agent shall be entitled to reimbursement for no more than one counsel representing all such Lenders (other than any reasonably necessary local or foreign counsel or absent a conflict of interest in which case the Lenders may engage and be reimbursed for additional counsel).

(b)                                 The Loan Parties shall, jointly and severally, indemnify the Administrative Agent, each Lender, each other Credit Party and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the transactions contemplated by the Loan Documents or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to any Loan Party or any of its Subsidiaries, (iv) any claims of, or amounts paid by any Credit Party to, a Blocked Account Bank or other Person which has entered into a control agreement with any Credit Party hereunder; or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by any Borrower or any other Loan Party or any of the Loan Parties’ directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto, provided, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses,

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claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee as determined by a final and non-appealable judgment of a court of competent jurisdiction or with respect to a claim by one Indemnitee against another Indemnitee (other than disputes involving the Administrative Agent in its capacity as Administrative Agent (and the Related Parties of the Administrative Agent)).

(c)                                  If, for any reason, the indemnification under paragraph (b) of this Section is unenforceable as a matter of law or with respect to a claim by one Indemnitee against another Indemnitee (other than disputes involving the Administrative Agent in its capacity as Administrative Agent (and the Related Parties of the Administrative Agent)), then the Loan Parties shall contribute to the amount paid or payable by such Indemnitee as a result of such loss, claim, damage or liability to the maximum amount legally permissible.  The Loan Parties also agree that no Indemnitee shall have any liability to the Loan Parties, any Person asserting claims on behalf of or in right of the Loan Parties or any other Person in connection with or as a result of this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated by the Loan Documents, any Loan or the use of the proceeds thereof, except, with respect to an Indemnitee, to the extent that the losses, claims, damages, liabilities or expenses incurred by the Loan Parties resulted from the gross negligence, willful misconduct, bad faith or breach of contractual obligations of such Indemnitee as determined by a final and non-appealable judgment of a court of competent jurisdiction.

(d)                                 To the extent that any Loan Party fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender’s Pro Rata Share of such unpaid amount, provided, that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent.

(e)                                  To the extent permitted by applicable law, no Loan Party shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated by the Loan Documents, any Loan or the use of the proceeds thereof.

(f)                                   All amounts due under this Section shall be payable promptly after written demand therefor.

(g)                                  The covenants contained in this SECTION 9.3 shall survive payment or satisfaction in full of all other Obligations.

SECTION 9.4                                        Successors and Assigns.

(a)                                 The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any such attempted assignment or transfer without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be

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construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)                                 Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of the Loans at the time owing to it), provided, that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender or any investment vehicle Controlled by the Administrative Agent, (1) the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed) and (2) so long as no Default or Event of Default has occurred and is continuing, Zale shall give its prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or any investment vehicle Controlled by the Administrative Agent or an assignment of the entire remaining amount of the assigning Lender’s Loans, the amount of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 unless the Administrative Agent (and, to the extent no Default or Event of Default has occurred and is continuing, Zale) otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations, and (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with (unless waived by the Administrative Agent or unless such assignment is to an Affiliate of a Lender) a processing and recordation amount of $3,500 (which shall not be payable or reimbursable by the Borrowers).  Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s remaining rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of SECTIONS 2.23, 2.26 and 9.3); provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (g) of this Section.

(c)                                  Notwithstanding anything to the contrary herein contained, no such assignment shall be made (i) to the Loan Parties or any of the Loan Parties’ Subsidiaries or Affiliates, (ii) to any Defaulting Lender or any of its Subsidiaries or Affiliates, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (ii), or (iii) to a natural Person.

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(d)                                 In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or sub-participations, or other compensating actions, including funding, with the consent of Zale and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full Pro Rata Share of all Loans.  Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

(e)                                  The Administrative Agent, acting for this purpose as an agent of the Loan Parties (and such agency being solely for tax purposes), shall maintain at one of its offices in San Francisco, California a copy of each Assignment and Acceptance delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error and the Loan Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(f)                                   Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the processing and recordation amount referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(g)                                  Any Lender may sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of the Loans owing to it), provided, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation in the the Loans shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision, or any consent to any departure from such

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provision by any Loan Party, of the Loan Documents, provided, that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification, waiver or consent described in the first proviso to SECTION 9.2(b) that affects such Participant. Subject to paragraph (i) of this Section, the Loan Parties agree that each Participant shall be entitled to the benefits of SECTION 2.23, SECTION 2.25 and SECTION 2.26 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of SECTION 9.9 as though it were a Lender, provided, such Participant agrees to be subject to SECTION 2.25(c) and SECTION 2.28 as though it were a Lender.

(h)                                 Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participation Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participation Register (including the identity of any Participant or any information relating to a Participant’s interest in any Loans or its other Obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Loans or other Obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations.  The entries in the Participation Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participation Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.  For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participation Register.

(i)                                     A Participant shall not be entitled to receive any greater payment under SECTION 2.23 or SECTION 2.26 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Zale’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of SECTION 2.26 unless (i) the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with SECTION 2.26(e) as though it were a Lender and (ii) such Participant is eligible for complete exemption from the withholding tax referred to therein, following compliance with SECTION 2.26(e).

(j)                                    Any Lender may, without obtaining the consent of any Loan Party, at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest, provided, that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.5                                        [Intentionally Omitted].

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SECTION 9.6                                        Survival.  All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Lender or any other Credit Party may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount or Obligation payable under this Agreement or any other Loan Document is outstanding and unpaid. The provisions of SECTION 2.23, SECTION 2.26 and SECTION 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans or the termination of this Agreement or any provision hereof.  In connection with the termination of this Agreement and the release and termination of the security interests in the Collateral, the Administrative Agent on behalf of itself and the other Credit Parties, may require such indemnities or collateral as it shall reasonably deem necessary or appropriate to protect the Credit Parties against loss on account of such release and termination, including, without limitation, with respect to credits previously applied to the Obligations that may subsequently be reversed or revoked, and any Obligations that may thereafter arise, including without limitation under SECTION 9.3.

SECTION 9.7                                        Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in SECTION 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and the Lenders and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto, the other Credit Parties and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic method of transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 9.8                                        Severability.  Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Without limiting the foregoing provisions of this SECTION 9.8, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, then such provisions shall be deemed to be in effect only to the extent not so limited.

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SECTION 9.9                                        Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender, each Participant, each other Credit Party and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender, Participant, other Credit Party or Affiliate to or for the credit or the account of the Loan Parties against any of and all the obligations of the Loan Parties now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured and/or such Obligations may be otherwise fully secured. The rights of each Lender, Participant, other Credit Party and Affiliate under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, Participant, other Credit Party or Affiliate may have.  No Lender will, or will permit its Participant to, and no other Credit Party (other than the Administrative Agent) will exercise its rights under this SECTION 9.9 without the consent of the Administrative Agent or the Required Lenders.  ANY AND ALL RIGHTS TO REQUIRE ANY AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE BY ANY LENDER, PARTICIPANT, OTHER CREDIT PARTY OR AFFILIATE OF ITS RIGHT OF SETOFF UNDER THIS SECTION ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

SECTION 9.10                                 Governing Law; Jurisdiction; Consent to Service of Process

(a)                                 EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OTHER LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

(b)                                 Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in SECTION 9.1. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

(c)                                  EACH OF THE LOAN PARTIES, EACH OF THE AGENTS AND EACH LENDER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

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SECTION 9.11                                 Waiver of Jury Trial.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.12                                 Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.13                                 Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.14                                 Confidentiality.

(a)                                 Each of the Lenders and the Administrative Agent agrees, on behalf of itself and each of its controlled Affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound practices, any non-public information supplied to it by the Loan Parties or of their Subsidiaries pursuant to this Agreement that is identified by such Person as being confidential at the time the same is delivered to such Lender or the Administrative Agent provided that nothing herein shall limit the disclosure of any such information (a) after such information shall have become public other than through a violation of this SECTION 9.14, (b) to the extent required by statute, rule, regulation or judicial process, (c) to counsel for any of the Lenders, the Administrative Agent or any other Credit Party, (d) to bank examiners, the National Association of Insurance Commissioners or any other U.S. federal or foreign regulatory authority having jurisdiction over any Lender, the Administrative Agent or any other Credit Party, or to auditors or accountants,

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(e) to the Administrative Agent, any Lender, any other Credit Party or any of their Related Parties, (f) in connection with any litigation to which the Administrative Agent, any Lender, any other Credit Party or any of their Related Parties is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, or (g) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant agrees to be bound by the provisions of this SECTION 9.14.

(b)                                 [Intentionally Omitted].

SECTION 9.15                                 Additional Waivers.

(a)                                 The Obligations are the joint and several obligations of each Loan Party. To the fullest extent permitted by applicable law, the obligations of each Loan Party hereunder shall not be affected by (i) the failure of the Administrative Agent or any other Credit Party to assert any claim or demand or to enforce or exercise any right or remedy against any other Loan Party under the provisions of this Agreement, any other Loan Document or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement, any other Loan Document, or any other agreement, including with respect to any other Loan Party of the Obligations under this Agreement, or (iii) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Administrative Agent or any other Credit Party.

(b)                                 The obligations of each Loan Party hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Loan Party hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent or any other Credit Party to assert any claim or demand or to enforce any remedy under this Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Loan Party or that would otherwise operate as a discharge of any Loan Party as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations).

(c)                                  To the fullest extent permitted by applicable law, each Loan Party waives any defense based on or arising out of any defense of any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any other Loan Party, other than the indefeasible payment in full in cash of all the Obligations. The Administrative Agent and the other Credit Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with any other Loan Party, or exercise any other right or remedy available to them against any other Loan Party, without affecting or

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impairing in any way the liability of any Loan Party hereunder except to the extent that all the Obligations have been indefeasibly paid in full in cash. Pursuant to applicable law, each Loan Party waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Loan Party against any other Loan Party, as the case may be, or any security.

(d)                                 Upon payment by any Loan Party of any Obligations, all rights of such Loan Party against any other Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations. In addition, any indebtedness of any Loan Party now or hereafter held by any other Loan Party is hereby subordinated in right of payment to the prior payment in full of the Obligations. None of the Loan Parties will demand, sue for, or otherwise attempt to collect any such indebtedness. If any amount shall erroneously be paid to any Loan Party on account of (a) such subrogation, contribution, reimbursement, indemnity or similar right or (b) any such indebtedness of any Loan Party, such amount shall be held in trust for the benefit of the Credit Parties and, subject to the terms of the Intercreditor Agreement, shall forthwith be paid to the Administrative Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents.

SECTION 9.16                                 Press Releases and Related Matters.  Each Loan Party consents to the publication by the Administrative Agent and the other Credit Parties of customary trade advertising material in tombstone format relating to the financing transactions contemplated by this Agreement using any Loan Party’s name logo or trademark.  The Administrative Agent and the other Credit Parties, as applicable, shall provide a draft reasonably in advance of any advertising material to Zale for review and comment prior to the publication thereof.  The Administrative Agent and the other Credit Parties reserve the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

SECTION 9.17                                 Patriot Act; Proceeds of Crime Act.  Each Lender hereby notifies the Loan Parties that, pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) (including all applicable “know your customer” rules, regulations and procedures applicable to such Lender in Canada), it is required to obtain, verify and record information that identifies the Loan Parties, which information includes the name and address of each Loan Party and other information that will allow such Lender to identify such Loan Party in accordance with the Act.  Each Loan Party is in compliance, in all material respects, with the Patriot Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (together with any successor statue, the “Proceeds of Crime Act”).  No part of the proceeds of the Loans will be used by the Loan Parties, directly or indirectly, for any purpose which would contravene or breach the Proceeds of Crime Act or for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

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SECTION 9.18                                 Judgment Currency.

(a)                                 If, for the purpose of obtaining or enforcing judgment against any Canadian Loan Party in any court in any jurisdiction, it becomes necessary to convert into any other currency (such other currency being hereinafter in this SECTION 9.18 referred to as the “Judgment Currency”) an amount due in Canadian dollars or Dollars under this Agreement, the conversion will be made at the rate of exchange prevailing on the Business Day immediately preceding:

(i)                                     the date of actual payment of the amount due, in the case of any proceeding in the courts of the Province of Ontario or in the courts of any other jurisdiction that will give effect to such conversion being made on such date; or

(ii)                                  the date on which the judgment is given, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this SECTION 9.18 being hereinafter in this SECTION 9.18 referred to as the “Judgment Conversion Date”).

(b)                                 If, in the case of any proceeding in the court of any jurisdiction referred to in SECTION 9.18(a)(i), there is a change in the rate of exchange prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable Canadian Loan Party will pay such additional amount (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of Canadian dollars or Dollars, as the case may be, which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the rate of exchange prevailing on the Judgment Conversion Date.

(c)                                  Any amount due from any Canadian Loan Party under the provisions of this SECTION 9.18 will be due as a separate debt and will not be affected by judgment being obtained for any other amounts due under or in respect of this Agreement.

(d)                                 The term “rate of exchange” in this SECTION 9.18 means:

(i)                                     for a conversion of Canadian dollars to the Judgment Currency, the reciprocal of the official noon rate of exchange published by the Bank of Canada for the date in question for the conversion of the Judgment Currency to Canadian dollars;

(ii)                                  for a conversion of Dollars to the Judgment Currency when the Judgment Currency is Canadian dollars, the official noon rate of exchange published by the Bank of Canada for the date in question for the conversion of Dollars to Canadian dollars;

(iii)                               for a conversion of Dollars to the Judgment Currency when the Judgment Currency is not Canadian dollars, the effective rate obtained when a given amount of Dollars is converted to Canadian dollars at the rate determined pursuant to this SECTION 9.18 and the result thereof is then converted to the Judgment Currency pursuant to this SECTION 9.18; or

(iv)                              if a required rate is not so published by the Bank of Canada for any such date, the spot rate quoted by Bank of America (acting through its Canada branch) at Toronto,

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Canada at approximately noon (Toronto time) on that date in accordance with its normal practice for the applicable currency conversion in the wholesale market.

SECTION 9.19                                 No Strict Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

SECTION 9.20                                 No Advisory or Fiduciary Responsibility.  In connection with all aspects of each transaction contemplated hereby, the Loan Parties each acknowledge and agree that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Loan Parties, on the one hand, and the Credit Parties, on the other hand, and each of the Loan Parties is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, each Credit Party is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Loan Parties or any of their respective Affiliates, stockholders, creditors or employees or any other Person; (iii) none of the Credit Parties has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Loan Parties with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any of the Credit Parties has advised or is currently advising any Loan Party or any of its Affiliates on other matters) and none of the Credit Parties has any obligation to any Loan Party or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Credit Parties and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their respective Affiliates, and none of the Credit Parties has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Credit Parties have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and each of the Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate.  Each of the Loan Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against each of the Credit Parties with respect to any breach or alleged breach of agency or fiduciary duty.

SECTION 9.21                                 Payments Set Aside.  To the extent that any payment by or on behalf of the Loan Parties is made to any Credit Party, or any Credit Party exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Credit Party in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally

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intended to be satisfied shall be immediately and automatically revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) the Loan Parties agree to pay to the Administrative Agent upon demand, and each Lender severally agrees to pay to the Administrative Agent upon demand its Pro Rata Share (without duplication) of, any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Loan Parties, the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement and the other Loan Documents.

SECTION 9.22                                 Intercreditor Agreement.  The Loan Parties, the Administrative Agent and the Lenders acknowledge that the exercise of certain of the Administrative Agent’s rights and remedies hereunder may be subject to, and restricted by, the provisions of the Intercreditor Agreement. Except as specified herein, nothing contained in the Intercreditor Agreement shall be deemed to modify any requirement or shall be deemed to modify any of the provisions of this Agreement and the other Loan Documents, which, among the Loan Parties, the Administrative Agent, the Lenders and the other Credit Parties shall remain in full force and effect.

SECTION 9.23                                 Existing Credit Agreement Amended and Restated; No Novation.  This Agreement shall, except as expressly set forth herein, supersede the Existing Credit Agreement from and after the Effective Date with respect to the Existing Loans outstanding under the Existing Credit Agreement as of the Effective Date.  The parties hereto acknowledge and agree, however, that except to the extent contemplated hereby with respect to the prepayment of the Existing Loans by the Effective Date Prepayment (a) this Agreement and all other Loan Documents executed and delivered herewith do not constitute a novation, payment and reborrowing or termination of the “Obligations” under the Existing Credit Agreement and the other Loan Documents as in effect prior to the Effective Date, (b) such Obligations are in all respects continuing with only the terms being modified as provided in this Agreement and the other Loan Documents, (c) the Liens and security interests in favor of the Administrative Agent for the benefit of the Credit Parties securing payment of such Obligations are in all respects continuing and in full force and effect with respect to all Obligations and (d) all references in the other Loan Documents to the Credit Agreement shall be deemed to refer, without further amendment, to this Agreement as in effect from time to time.

SECTION 9.24                                 Acknowledgment of Prior Obligations and Continuation Thereof.  Each of Loan Parties (a) consents to the amendment and restatement of the Existing Credit Agreement by this Agreement; (b) acknowledges and agrees that (i) the “Obligations” under this Agreement constitute the “Guaranteed Obligations” as defined under each Facility Guarantee executed in connection with the Existing Credit Agreement (the “Existing Guarantees”), and constitute “Obligations” as defined in the Intercompany Subordination Agreement and (ii) the prior grant or grants of Liens or security interests in favor of the Administrative Agent or any other Credit Party in its properties and assets, under each “Security Document” as defined in the Existing Credit Agreement (the “Existing Security Documents”), shall secure the Obligations under this Agreement; (c) reaffirms (i) all of its obligations owing to the Credit Parties arising under the Existing Guarantees and Existing Security Documents to which it is a party and all of its obligations owing to the Credit Parties under the Intercompany Subordination Agreement, and (ii) all prior or concurrent grants of Liens or security interests in favor of the Administrative

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Agent or any other Credit Party under each Existing Security Document; provided, however, that such Liens or security interests shall be as modified (if applicable) pursuant to the terms of the Loan Documents applicable thereto which are entered into on the date hereof, if any; and (d) agrees that, except as expressly amended hereby or unless being amended and restated concurrently herewith, each of the Existing Guarantees and the Existing Security Documents to which it is a party is and shall remain in full force and effect.  Each Loan Party hereby confirms and agrees that all outstanding principal, interest, fees and other amounts (including such accrued and unpaid principal, interest, fees and other amounts set forth in the immediately preceding sentence) and other “Obligations” (as defined in the Existing Credit Agreement) under the Existing Credit Agreement and the other Existing Loan Documents immediately prior to the Effective Date shall, to the extent not paid on the Effective Date, from and after the Effective Date, be, without duplication, Obligations owing and payable pursuant to this Agreement and the other Loan Documents as in effect from time to time, shall accrue interest thereon as specified in this Agreement and shall be secured by the Loan Documents.  Although each Loan Party has been informed of the matters set forth herein and has acknowledged and agreed to the same, it understands that no Credit Party shall have any obligation to inform it of such matters in the future or to seek its acknowledgement or agreement to future amendments, restatements, supplements or other modifications, and nothing herein shall create such a duty.

[balance of page left intentionally blank; signature pages follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as a sealed instrument as of the day and year first above written.

[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]