Zale Corporation Announces Agreements to Strengthen Capital Structure and Changes to Board of Directors

Zale Corporation (NYSE: ZLC) today announced that it has closed on a new $150 million, five year senior secured term loan (the "GGC Loan”) provided by Golden Gate Capital ("GGC”), a leading private equity firm with extensive experience in the retail sector. In addition to interest and fees on the GGC Loan, GGC will receive warrants to purchase common stock aggregating a 25% equity interest in the Company on a fully diluted basis once necessary shareholder approvals are obtained. Two representatives of Golden Gate Capital were also elected to serve on the Company’s Board of Directors.

The Company has also closed on a new bank credit facility (the "New Bank Facility”) that amends and extends its existing asset-backed credit facility. The New Bank Facility consists of two tranches – an extended tranche and a non-extended tranche. The extended tranche has total commitments of $530 million, including an $88 million seasonal adjustment, and expires April 30, 2014. The non-extended tranche has total commitments of $120 million, including a $20 million seasonal adjustment, and expires August 11, 2011. The New Bank Facility has aggregate commitments of $650 million, including a $108 million seasonal adjustment. Previously, the Company’s credit facility totaled $600 million, including a $100 million seasonal adjustment. After application of the net proceeds of the GGC Loan to repay outstanding indebtedness under its existing bank facility, the Company expects to have approximately $160 million in outstanding indebtedness, and available liquidity of approximately $250 million.

The New Bank Facility is led by Bank of America, N.A., administrative agent, and General Electric Capital Corporation and Wells Fargo Retail Finance, LLC, as co-borrowing base agents, each of which has committed $125 million under the New Bank Facility.

Finally, the Company has reached agreement with TD Financing Services, a wholly-owned subsidiary of Toronto-Dominion Bank, to offer a proprietary credit card program (the "Canadian Card Program”) to its Canadian customers effective July 1, 2010. The program replaces the Company’s existing agreement with Citi Cards Canada Inc. that expires on June 30, 2010. The new Canadian Card Program is for a term of 5 years. The program supports the operations of Peoples Jewellers and Mappins Jewellers. As previously announced, the Company entered exclusive negotiations with Citibank (South Dakota), N.A. with the objective of replacing the current U.S. proprietary credit card program.

Taken in the aggregate, the GGC Loan, the New Bank Facility and the Canadian Card Program significantly expand Zale’s liquidity and provide the stability of long term agreements under which the Company will continue, and in certain areas accelerate, its existing business plans. The Company believes that these agreements will allow it to complete the restructuring of its retail network, continue the expansion of its internet sales efforts, and provide the working capital necessary to execute its merchandising and marketing initiatives.

"The agreements announced today are important steps in positioning Zale for the future,” said Theo Killion, President and Interim Chief Executive Officer. "With the completion of our financial restructuring, we will now be able to focus 100% of our time on key merchandising, in-store and marketing initiatives to grow sales and return to profitability.”

Matt Appel, Executive Vice President and Chief Financial Officer, added, "Our goal was to strengthen our liquidity profile and to put in place a new capital structure that will fuel the continued recovery of our business. The agreements announced today should not only achieve that objective, but will also allow us to benefit from Golden Gate’s deep expertise in the retail industry.”

"This is an exciting day for Zale, its employees and Golden Gate Capital. This is a great brand with great potential," said Stefan Kaluzny, a Managing Director at Golden Gate Capital. "We look forward to partnering with management and supporting the Company as its turnaround plan is executed."

The Company announced that Stefan Kaluzny and Peter Morrow have been elected to its Board of Directors. Mr. Kaluzny focuses on several sectors, including multi-channel retail, consumer products and restaurants. He currently serves as Chairman of the Board of Directors at Express. Mr. Morrow is a Principal at GGC, where he focuses on several sectors, including multi-channel retail and consumer products. Simultaneously, Thomas C. Shull and David M. Szymanski have resigned from the Board of Directors. In addition, John B. Lowe, Jr., Chairman, has advised the Company that he will not run for reelection to the Board when his current term as a director expires at the Company’s next annual meeting.

For the GGC Loan and the New Bank Facility, Peter J. Solomon Company acted as financial advisor and Cravath, Swaine & Moore LLP and Troutman Sanders LLP served as counsel for the Company.

Details on the GGC Loan

• $150 million loan from Golden Gate Capital maturing in five years;
• Golden Gate Capital to have two representatives on Company’s Board of Directors and receives warrants for 25% equity stake on fully diluted basis;
• Warrants for right to purchase 11.1 million shares of common stock with exercise price of $2.00; 6.4 million shares immediately exercisable upon close and 4.7 million shares subject to shareholder approval;
• Interest costs of 15% per annum, 10% paid in cash and 5% eligible to be paid-in-kind at the Company’s option;
• Optional redemption with call premium of 10% in year one, 7.5% in year two, 5% in year three, 2.5% in year four and 0% in year five;
• Loan secured with second priority security position on inventory and receivables and with first priority security position on all remaining assets.

Details on the New Bank Facility

• The New Bank Facility matures April 30, 2014;
• The New Bank Facility consists of two tranches:
  • Extended Tranche includes commitments totaling $530 million, matures on April 30, 2014 and is priced at LIBOR plus an applicable percentage (ranging from 350 basis points to 400 basis points) based on the Company’s average availability;
  • Non-Extended Tranche includes commitments totaling $120 million, matures on August 11, 2011 and is priced at LIBOR plus an applicable percentage (ranging from 100 basis points to 150 basis points) based on the Company’s average availability;
• Unused fee for Extended Tranche and Non-Extended Tranche is 50 and 20 basis points, respectively;
• Total fees paid for the transaction of approximately $11 million.

Details on Capital Structure Conference Call

There will be a conference call today at 6:00 p.m. ET. Participants are encouraged to listen to the presentation via webcast at http://www.zalecorp.com on the Investor Relations section.

• The conference call may also be accessed by dialing:
  (800) 679-2671 or (706) 643-7467
  Passcode: 73237206

A replay of the webcast can be viewed by visiting the Investor Relations section of the Zale Corporation Web site at http://www.zalecorp.com for approximately 30 days. In addition, an audio replay of the conference call will be available for approximately seven days by dialing (800) 642-1687 or (706) 645-9291 (Passcode: 73237206).

Details on Third Quarter Fiscal 2010 Results Conference Call

The Company plans to report financial results for the third quarter ended April 30, 2010, on Wednesday, May 26, 2010, before the market opens. Zale will also host a conference call at 9:00 a.m. ET the same day. Participants are encouraged to listen to the presentation via webcast at http://www.zalecorp.com on the Investor Relations section.

• The conference call may also be accessed by dialing:
  (800) 679-2671 or (706) 643-7467
  Passcode: 73237463

A replay of the webcast can be viewed by visiting the Investor Relations section of the Zale Corporation Web site at http://www.zalecorp.com for approximately 30 days. In addition, an audio replay of the conference call will be available for approximately seven days by dialing (800) 642-1687 or (706) 645-9291 (Passcode: 73237463).

About Zale Corporation

Zale Corporation is a leading specialty retailer of diamonds and other jewelry products in North America, operating approximately 1,900 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Zale also operates online at www.zales.com, www.zalesoutlet.com and www.gordonsjewelers.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.

About Golden Gate Capital

Golden Gate Capital is a San Francisco-based private equity investment firm with approximately $8 billion of assets under management. Golden Gate is dedicated to partnering with world class management teams and targets investments in situations where there is a demonstrable opportunity to significantly enhance a company’s value. The principals of Golden Gate have a long and successful history of investing with management partners across a wide range of industries and transaction types, including corporate divestitures, leveraged buyouts, and recapitalizations. Golden Gate has a deep experience base in specialty retailing and direct marketing. Investments include specialty retailers Express, Eddie Bauer, J. Jill, and Orchard Brands (the leading direct marketer to Americans over the age of 55). Golden Gate also has investments in Lexicon Marketing (the leading direct marketer to U.S. Hispanics), Macaroni Grill (the nation's second largest Italian casual dining chain) and Apogee (the country's second largest for-profit thrift store chain). For additional information, visit www.goldengatecap.com

This release and related presentations contain forward-looking statements, including statements regarding the expected effect of the financings and other agreements on our business, including our ability to complete the restructuring of our retail network, continue the expansion of our internet sales efforts, and provide the working capital necessary to execute our merchandising and marketing initiatives. Forward-looking statements are not guarantees of future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors include, but are not limited to: if the general economy continues to perform poorly, discretionary spending on goods that are, or are perceived to be, "luxuries” may decrease; the concentration of a substantial portion of the Company’s sales in three, relatively brief selling seasons means that the Company’s performance is more susceptible to disruptions; most of the Company’s sales are of products that include diamonds, precious metals and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company’s ability to obtain and produce products at favorable prices; the Company’s sales are dependent upon mall traffic; the Company operates in a highly competitive industry; the financing market remains difficult; and changes in regulatory requirements or in the Company’s private label credit card arrangement with Citibank may increase the cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance. For other factors, see the Company's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2010. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances, except as required by law.