EMPLOYMENT AGREEMENT
THIS AGREEMENT,
dated as of September 21, 2005 (the "Effective Date") is by
and between Zale Corporation, a Delaware corporation ("Company"), and Sue E.
Gove, a Texas resident ("Executive").
WHEREAS, Executive and
Company desire to enter into an employment agreement
which sets forth the terms and conditions
for Executive's continued, employment
with the Company;
NOW, THEREFORE,
in consideration of the foregoing recital and of the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged,
the parties agree
as
follows:
1. Employment; Term. Executive agrees to
enter into the continued employment
of the Company, and the Company agrees to employ Executive, on the terms and
conditions set forth in this Agreement. The
term of Executive's employment under
this Agreement (the "Term") will commence
on the Effective Date and, subject to
its earlier termination as provided in
Section 4, will continue through July 31,
2006; provided, however, that the Term will automatically be extended on a
day-by-day basis effective on the three
hundred sixty fifth (365th) day prior to
the expiration of the Term (so that
the remaining term
will always be at least
three hundred sixty five (365) days) until such date as either
the Company or
Executive delivers written notice to the other party of the Company's or
Executive's, as the case may be, intention
not to extend the Term.
2. Position; Duties.
(a) During the
Term (including as it may be extended hereunder), Executive
will serve as
the Executive Vice President and Chief Operating Officer of
the Company.
It is the intention of
the parties that
throughout the
Term
Executive will
serve as a member of the Board of Directors (the "Board") of
the Company.
Executive will report
directly to the Chief Executive Officer
and will have
all authorities,
duties and responsibilities customarily
exercised by an
individual serving in
those positions in a
corporation of
the size and
nature of the Company
and will not be assigned any duties or
responsibilities
that are materially
inconsistent with, or that materially
impair her
ability to discharge, the foregoing duties and
responsibilities.
At the request
of the Board,
Executive will serve as an officer, director
or equivalent position of any subsidiary or affiliate of the Company
provided that (i) Executive
is indemnified with
respect to such service to
the full
extent provided in Section 10 and (ii) such service is not
inconsistent
with the duties set forth herein.
(b) During the Term, Executive will devote substantially all of her
business time,
efforts, skills and
abilities and attention to the business
of the Company;
provided, however, that Executive (i) may serve on one
board of
directors of a publicly traded corporation, (ii) with the consent
of the Board
(which will not be unreasonably withheld), may serve on other
boards of
directors of business
entities, (iii) may
engage in charitable,
educational
or community affairs, including serving on the board of
directors of any
charitable, educational or community organization and (iv)
may manage her
personal investments,
provided that such
activities do not
materially
interfere with the performance of her duties hereunder.
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3. Compensation.
(a) Base
Salary. During the Term, the Company will pay to Executive an
annual base
salary of not less than $650,000 ("Base Salary"), which will be
payable in
accordance with the Company's normal payroll procedure for
other
senior
executives.
The Base Salary will
be reviewed annually by the Board
and will be
subject to upward adjustment, but not downward adjustment
unless the
downward adjustment is generally applicable to other senior
executives,
at the discretion of
the Board (or an authorized Committee or
representative
thereof). After any such adjustment, the term "Base Salary"
as utilized in
this Agreement will thereafter refer to the adjusted amount.
Without
limiting
the foregoing, the initial Base Salary shall be
retroactive to
August 1, 2005.
(b) Incentive
Bonus. During the Term, Executive will be eligible to receive
an annual
incentive bonus as determined under the Company's Executive
Bonus
Program,
established by the
Board, in its
discretion.
The annual target
bonus ("Target
Bonus") for Executive will be 80% of Executive's Base Salary
and the maximum
annual bonus that
Executive will be entitled to receive is
150%
of her Base Salary. The annual incentive bonus will be paid to
Executive in
accordance
with the terms and
conditions
of the Executive
Bonus
Program.
(c) Equity and
Long-Incentive Awards.
(i) For fiscal year 2006, Executive
will be granted the following
equity awards:
(A) As soon as practicable following the Company's
annual meeting of
stockholders in November 2005, the Company will grant Executive
15,000
shares of restricted stock, or units with respect thereto, pursuant
to
the Company's 2003 Stock Incentive Plan, as amended from
time to time
or any successor
plan (the "Equity
Plan"), with such grant vesting
based upon the attainment of the performance goals attached hereto as
Annex 1 by September 5, 2008.
(B) As soon as practicable following the Company's
annual meeting of
stockholders in November 2005, the Company will grant Executive
15,000
shares of restricted stock, or units with respect thereto, pursuant
to
the Equity Plan, with such grant vesting, except as otherwise
provided
herein, on
September 5, 2008, provided that Executive is on such
vesting date, and at all times between the date hereof and the
vesting
date, a full-time employee of the Company.
(C) As of September 6, 2005, or such other date proximate thereto as
may be selected by the
Company, the Company will grant Executive
pursuant to the Equity
Plan a ten-year option to purchase 75,000
shares of the Company's common stock. The exercise price will be the
Fair Market Value (as
defined in the Equity Plan) of the common stock
on the date of grant and, except as otherwise provided in Section 5,
the option will vest over four years, with one-fourth (1/4) of the
shares underlying the option vesting on the first, second, third and
fourth anniversaries of the date of grant.
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<PAGE>
(ii) For fiscal years 2007 and thereafter, Executive will be entitled
to participate
in equity and other
long-term incentive
award programs of
the Company,
including,
without limitation, the Equity Plan, on a basis
generally
consistent with that of other senior-level executives.
(d) Vacation.
Executive will be entitled to a reasonable
vacation of not
less than four
paid weeks each year of the term of this Agreement.
(e) Executive
Perquisites; Benefit; Expenses.
(i) Executive will be entitled to receive executive perquisites and
fringe and other
benefits on a basis
which is no less
favorable than the
basis on which
such perquisites
and benefits are provided to any other
senior
executive (including for this purpose,
to the extent
applicable,
executive's
family)
under
any of the Company's plans, policies,
arrangements
or programs in effect
from time to time.
Such benefits will
include
comprehensive
healthcare,
dentalcare,
life insurance and other
welfare benefit
plans that are no less favorable than the plans in force on
the Effective
Date.
(ii) The Company will
reimburse Executive
for such reasonable and
necessary
out-of-pocket business
expenses as may be incurred by her in the
performance
of her duties hereunder. The Company will also reimburse
Executive
for, or at Executive's request pay directly on Executive's
behalf,
all of the
legal fees and other expenses incurred by her in
connection with
the negotiation and drafting of this Agreement, such amount
not to exceed
$40,000
(f) Supplemental
Retirement Plan. Executive will be eligible to participate
in the Company's
supplemental
retirement
plan on terms no less
favorable
than those
available to other senior executives.
(g) Tax
Withholding.
The Company has the right to deduct from any
compensation
payable to Executive
under this
Agreement social security
(FICA) taxes and
all Federal,
state and local income
taxes and charges as
are required by
applicable law and regulations.
4. Termination. Notwithstanding the
provisions of Section 1 hereof, but
subject to the provisions of Section 5 hereof, the Term and Executive's
employment hereunder will terminate upon
expiration of the Term or, if earlier,
as follows:
(a) Death or Disability. The Term will terminate upon the death or
Disability of
Executive. For purposes of this Agreement, "Disability" means
Executive's
inability to perform her duties and responsibilities as
contemplated
under this Agreement for a period of more than 120 consecutive
days due to
physical, mental or emotional incapacity or impairment. A
determination of
Disability will be made by a physician acceptable to both
Executive
and the Company; provided that if Executive and the Company
cannot
agree as to a
physician, each will
select a physician and
the two
physicians
will select a third physician, whose determination as to
Disability
will be binding on
Executive and the
Company. Executive,
her
legal
representative or any
adult member of her immediate family will have
the right to
present to the Company and such physician such information and
arguments on her
behalf as Executive or
they deem appropriate,
including
the opinion of
her personal physician. Executive's employment will not be
terminated
due to Disability until the physician has delivered
a written
opinion
certifying such
Disability and a written notice of termination for
Disability has
been delivered by the Company or Executive, as the case may,
to the other
party.
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<PAGE>
(b) Termination
for Cause.
The Company may
terminate the Term at any time
for "Cause." For purposes of this Agreement, "Cause" means any of the
following:
(i) Executive's
conviction
of (A) a felony within
the meaning of US
Federal or state
law or (B) a crime
involving moral
turpitude under
U.S.
Federal or state
law;
(ii) Executive's
commission of an act constituting fraud, deceit, or
material
misrepresentation with respect to the Company;
(iii) Executive's
becoming addicted to
any alcoholic,
controlled or
illegal
substance or drug, which addiction materially interferes with the
performance of
her duties hereunder;
(iv) Executive's embezzlement of Company assets or funds; or
(v) in carrying out her duties for the Company, Executive engages in
conduct that
constitutes willful
gross neglect or willful gross misconduct
resulting, in
either case, in material economic harm to the Company, unless
Executive
believed in good faith
that such action or non-action was in, or
not opposed to,
the best interests of the Company.
Anything
herein to the contrary notwithstanding, Executive may not be
terminated
for Cause within the meaning of clauses
(b)(v) above unless
written notice
stating the basis for
termination is
provided to Executive
and she is given
at least ten days
notice to cure the
neglect or conduct
that is the
basis of such
claim and, if Executive fails to cure such
neglect or
conduct (or such neglect or conduct is incurable), Executive is
afforded
an opportunity to be heard before the full Board (at which
Executive may be
accompanied by counsel) and, after such hearing, there is
a majority
vote of all
members of the Board
(other than Executive) to
terminate her
employment for Cause which vote is communicated to Executive
in writing.
(c) Termination Without Cause. The Company may terminate the Term
at any
time by
delivering a written termination notice to Executive.
(d) Termination
by Executive.
Executive may terminate the Term at any time
by delivering a written termination notice to the Company; provided,
however,
that Executive
will be deemed to have
terminated her
employment
for Good
Reason if Executive terminates her employment for any of the
following
reasons:
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<PAGE>
(i) a reduction by the Company in Executive's Base Salary unless such
reduction
is generally applicable to other senior executives or the
Company's
failure to increase (within 12 months of Executive's last
increase in Base
Salary) Executive's then current Base Salary, unless such
failure is the
result of (A) a salary
freeze uniformly applied to other
senior
executives or (B)
Executive's failure to
meet preestablished
and
objective
performance criteria;
(ii) a reduction in
the annual Target
Bonus, equity award or other
short-term or
long-term compensation
opportunities that are made available
to Executive or a modification of one or more of such programs that
substantially
diminishes
the value of Executive's awards under the
Company's
short-term or
long-term incentive plans unless such reduction or
modification
is generally
applicable
to other senior
executives
of the
Company;
(iii) the Company's principal executive offices are moved to a
location more
than fifty (50) miles from its current location or Executive
is required to be based anywhere other than the Company's principal
executive
offices;
(iv) the assignment
to Executive of duties
materially
inconsistent
with her
position as Executive Vice President and Chief Operating Officer
of the
Company or the
material diminution in her positions, duties or
authorities
as in effect immediately prior to such diminution, or any
interference
with her carrying out her duties so that she is unable to
carry out her
duties as contemplated on the Effective Date;
(v) the failure of the Company to reappoint or reelect Executive to
the positions of
Executive Vice
President and chief
Operating Officer
or
the removal of
Executive from any such position;
(vi) a change in the Company's reporting structure so that Executive
no longer reports directly to the Chief Executive Officer or, where
appropriate, the
Board;
(vii) a Change
in Control (as defined herein) (which will be a
termination
event whether or not Executive consented to such Change of
Control),
provided that Executive's employment is terminated by the
Company
without
cause or by the Executive for Good Reason within two years
following a
Change of Control;
(viii) a failure of
the Company
to require any successor to the
Company or to
all or substantially
all of the
business or assets of the
Company to
expressly assume the obligations of the Company under this
Agreement;
or
(ix) a breach by the Company of a material provision of this
Agreement
or any other
material plan or program covering Executive.
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<PAGE>
I5. Termination Benefits.
(a) General. In the event that the Term is terminated for any reason
(including
expiration), in
addition to any other payments or benefits owed
to Executive
under this Section 5,
the Company will pay to Executive, her
estate or her
representatives, as
the case may be, any accrued, but unpaid
salary, bonuses,
expenses or benefits as of the date of termination. In the
event
that the Company terminates Executive's employment for Cause or
Executive
terminates
her employment
without Good Reason,
then Executive
will not be
entitled to any
additional
payments or benefits under this
Section 5 other
than those described
in this Section 5(a). In the event of
the expiration of the Term, the only benefits that Executive shall be
entitled to
under this Agreement
in connection
with the expiration are
those provided
in this Section 5(a).
(b) Death or
Disability. If
Executive's employment
terminates as a result
of death or
Disability, the Company will (i) continue to pay (in accordance
with it's normal
payroll procedures) Executive's Base Salary at the time of
termination of
her employment due to
Disability or death,
as the case may
be, to Executive
(or her estate or representatives, as the case may be) for
a period of
twelve (12) months following Executive's death or Disability,
(ii)
provide healthcare, dental and welfare benefits to Executive or
Executive's
family, as the case
may be, for a period of twelve (12) months
following
Executive's
death on the same basis as such benefits were
provided during
Executive's employment hereunder, (iii) any unvested stock
options, equity
awards or other long-term incentive awards will immediately
vest and such
stock options and awards will continue to be exercisable
for
the remainder of
their respective
terms and (iv) the
Company will pay the
amounts set
forth in Section 5(a).
(c) Termination
Without Cause or for Good Reason. In the event that (x) the
Company
terminates
Executive's
employment without
Cause or (y) Executive
terminates
her employment for Good Reason, then, except as provided in
Section 5(d),
Executive will be entitled to the following benefits:
(i) Severance
Payments. The Company will pay to Executive
an amount
equal to two
times the sum of (v) the then current Base Salary and (w)
the
greater of (I)
the Target
Bonus for the year of
termination
or (II) the
average of the
immediately preceding
two years' annual
incentive bonuses
received by
Executive;
(ii) Benefits. During
the greater of (x) the
twenty-four (24)
month
period
following the date of termination or (y) the number of months,
including
fractional
months, remaining in the Term, the Company will
continue to
provide Executive
(and, as applicable, her family) with the
benefits,
including but not limited to healthcare, dental and life
insurance, set
forth in Section 3(e);
(iii) Equity and
Long-Term Incentive Awards. All unvested stock
options and
other equity and long-term incentive awards will immediately
vest and all
such vested options
and awards involving
exercise of rights
will
continue to be
exercisable
for the remainder of their respective
terms;
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<PAGE>
(iv) SERP.
Executive will receive an additional two (2) years of
service and age
credit for purposes of determining the benefits payable to
Executive under
the SERP; and
(v) Other Amounts.
Executive will receive the payments set
forth in
Section
5(a).
(d) Change of Control. If (x) within two years following a Change of
Control or (y)
following a Potential
Change of Control
which is followed
within
one (1) year by a
Change of Control, Executive terminates her
employment with
the Company for Good Reason (as hereinafter defined) or the
Company
terminates
Executive's
employment
for any reason other
than for
Cause, the
Company will pay to, and provide for, Executive the payments
and
benefits as set
forth in Section 5(c), except that:
(i) for purposes of determining the amount that Executive is
entitled
to under Section
5(c)(i), the Base Salary and bonus will be the greatest of
each such
amount determined on (x) the date of the
Potential Change of
Control,
(y) the date of the Change of Control or (z) the date of
Executive's
termination
of employment and the sum of (v) and (w) as
provided for
therein will be multiplied by three rather than two;
(ii) the Company will pay to Executive the actuarial value of the
SERP
as of the date
of termination
(determined in accordance with the actuarial
assumptions then
applicable to the SERP as certified by the actuary for the
Company)
together with interest at the Applicable Federal Rate for
short-term
debt for the period
from the date of termination to the date of
payment
which will be immediately following the date of termination,
subject to the
provisions of Section 5(g); and
(iii) Executive will be entitled to the tax-gross up payment
provided
for in Section
6.
In addition,
upon the occurrence of a Change of Control, all unvested stock
options and
other equity and long-term incentive awards will immediately
vest and all
such vested options
and awards involving
exercise of rights
will
continue to be
exercisable
for the remainder of their respective
terms.
(e) Change of
Control. For purposes of this Agreement, "Change of Control"
means the
earliest to occur of the following:
(i) any "person," as
such term is used in Sections 3(a)(9) and 13(d)
of the Securities
Exchange Act of 1934,
becomes a "beneficial
owner," as
such term is
used in Rule 13d-3
promulgated under that act, of 20% or more
of the Voting
Stock of the Company;
(ii) the majority
of the Board
consists of
individuals
other than
incumbent
directors,
which term means the members of the Board on the
Effective Date;
provided that any
person becoming a director subsequent to
such date whose
election or
nomination
for election was supported by
two-thirds of
the directors who then comprised the incumbent directors will
be considered to
be an incumbent director;
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(iii) the Company
adopts any plan of
liquidation providing
for the
distribution of
all or substantially all of its assets;
(iv) all or substantially all of the assets or business of the
Company
is disposed of
pursuant to a merger,
consolidation
or other transaction
(unless the
stockholders of the Company immediately prior to such merger,
consolidation
or other transaction beneficially own, directly or
indirectly,
in substantially the
same proportion as they owned. the Voting
Stock of the
Company, all of the
Voting Stock or other ownership interests
of the entity or
entities, if any, that succeed to the business of the
Company); or
(v) the Company
combines with another
company and is the
surviving
corporation but,
immediately after the combination, the stockholders of the
Company
immediately prior to
the combination hold, directly or indirectly,
50% or less of
the Voting
Stock of the combined company (there being
excluded from
the number of shares held by such stockholders, but not from
the Voting Stock
of the combined company, any shares received by affiliates
of such, other
company in exchange for stock of such other company).
For purposes of the Change of Control
definition, "the Company" will include any
entity that succeeds to all or
substantially all, of the business of the Company
and "Voting Stock" will mean securities of any class or classes
having general
voting power under ordinary circumstances,
in the absence of
contingencies, to
elect the directors of a corporation.
(f) Potential
Change of Control.
"Potential
Change of Control"
means the
earliest to
occur of the following
events: (i) the
Company enters into an
agreement the
consummation
of which, or the approval by stockholders of
which, would
constitute a Change of Control; (ii) proxies for the election
of members of
the Board are solicited by any Person other than the Company;
(iii) any Person
publicly announces an intention to take or to
consider
taking actions
which, if consummated, would constitute a Change of Control;
or (iv) any
other event occurs which is deemed to be a Potential Change of
Control by the
Board and the Board adopts a resolution to the effect that a
Potential Change
of Control has occurred.
(g) Section
409A. It is expressly contemplated by the parties that this
Agreement will
conform to, and be interpreted to comply with, Section 409A
of the Code.
Unless expressly provided otherwise, all of the payments due
to Executive
under this Section 5
will, be made within
fifteen (15) days
following
the date of
termination;
provided, however, that if, under
Section 409A of
the Code, such payments must be delayed to conform with the
applicable
tax rules,
the Company
will defer any such
payment until no
later than one
day following the
first date upon which such payment may be
made without
incurring the tax imposed thereunder; provided, further, that
if Executive
incurs any additional tax, interest or penalties under Section
409A,
the Company will pay
Executive an additional amount so that, after
all taxes on
such amount, Executive
has an amount equal to such additional
tax.
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(h) Payment in
Lieu of Benefits.
In the event th
