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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ZALE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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ZALE CORPORATION
901 WEST WALNUT HILL LANE
IRVING, TEXAS 75038-1003
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 30, 1996
______________
Notice is hereby given that the Annual Meeting of Stockholders of Zale
Corporation, a Delaware corporation (the "Company"), will be held on Wednesday,
October 30, 1996, at 10:00 a.m., local time, at the Company's headquarters
located at 901 West Walnut Hill Lane, Irving, Texas, for the following purposes:
1. To elect five directors for terms expiring at the 1997 annual meeting
of stockholders;
2. To approve an amendment to the Company's Omnibus Stock Incentive Plan
(the "Stock Incentive Plan") to increase the number of shares of the
Company's Common Stock reserved for issuance under such plan by an
additional 500,000 shares;
3. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 5,
1996, as the record date for determining the stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment thereof. A list of such
stockholders will be maintained at the Company's headquarters during the ten-day
period prior to the date of the annual meeting and will be available for
inspection by stockholders, for any purpose germane to the meeting, during
ordinary business hours.
We hope you will be represented at the meeting by signing and returning the
enclosed proxy card in the accompanying envelope as promptly as possible,
whether or not you expect to be present in person. Your vote is important and
the Board of Directors appreciates the cooperation of stockholders in directing
proxies to vote at the meeting.
By Order of the Board of Directors,
Alan P. Shor
SENIOR VICE PRESIDENT, ADMINISTRATION
GENERAL COUNSEL AND SECRETARY
Dallas, Texas
October 2, 1996
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ZALE CORPORATION
901 WEST WALNUT HILL LANE
IRVING, TEXAS 75038-1003
(972) 580-4000
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PROXY STATEMENT
OCTOBER 2, 1996
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GENERAL INFORMATION
This Proxy Statement is being furnished by the Board of Directors (the
"Board of Directors") of Zale Corporation, a Delaware corporation (the
"Company"), to the holders of common stock (the "Common Stock") of the Company
in connection with the solicitation of proxies for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m., local time, on
Wednesday, October 30, 1996, and at any and all adjournments thereof.
A proxy delivered pursuant to this solicitation is revocable at the option
of the person giving the same at any time before it is exercised. A proxy may
be revoked, prior to its exercise, by executing and delivering a later dated
proxy card, by delivering written notice of the revocation of the proxy to the
Secretary of the Company prior to the Annual Meeting, or by attending and voting
at the Annual Meeting. Attendance at the Annual Meeting, in and of itself, will
not constitute a revocation of a proxy. Unless previously revoked, the shares
represented by the enclosed proxy will be voted in accordance with the
stockholder's directions if the proxy is duly executed and returned prior to the
Annual Meeting. If no directions are specified, the shares will be voted FOR
the election of the director nominees recommended by the Board of Directors, FOR
approval of the Amendment to the Company's Omnibus Stock Incentive Plan (the
"Stock Incentive Plan"), FOR the ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountants, and in accordance
with the discretion of the named proxies on other matters properly brought
before the Annual Meeting.
The expense of preparing, printing and mailing this Proxy Statement and
soliciting the proxies sought hereby will be borne by the Company. In addition
to the use of the mails, proxies may be solicited by officers, directors and
regular employees of the Company, who will not receive additional compensation
therefor, in person, or by telephone, telegraph or facsimile transmission. The
Company also will request brokerage firms, banks, nominees, custodians and
fiduciaries to forward proxy materials to the beneficial owners of shares of
Common Stock as of the record date and will provide reimbursement for the cost
of forwarding the proxy materials in accordance with customary practice. Your
cooperation in promptly signing and returning the enclosed proxy card will help
to avoid additional expense.
At September 5, 1996, the Company had 35,209,126 shares of Common Stock
issued and outstanding. Each share of Common Stock entitles the holder to one
vote. Only stockholders of record at the close of business on September 5, 1996
will be entitled to notice of, and to vote at, the Annual Meeting.
This Proxy Statement and the enclosed proxy card are first being mailed to
stockholders on or
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about October 2, 1996.
OUTSTANDING VOTING SECURITIES OF THE COMPANY
AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information with respect to the
beneficial ownership, as of September 13, 1996 (except as otherwise noted
below), of shares of Common Stock by persons believed by the Company to own
beneficially more than five percent of the outstanding shares of Common Stock
and by the directors and named executive officers set forth in the Summary
Compensation Table herein and the directors and executive officers of the
Company as a group, and the percentage of the outstanding shares of Common Stock
represented thereby. Other than as set forth below, no director or executive
officer of the Company is known to be the beneficial owner of any shares of
Common Stock. Except as noted below, the Company believes that each of the
persons listed has sole investment and voting power with respect to the shares
included in the table.
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AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(1)
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FIVE PERCENT STOCKHOLDERS:
Harris Associates L.P.
Two North LaSalle Street
Suite 500 2,342,440(2) 6.7%
Chicago, Illinois 60602-3790
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Snyder Capital Management, Inc.
350 California St., Suite 1460 1,869,800(3) 5.3%
San Francisco, CA 94101
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DIRECTORS AND
NAMED EXECUTIVE OFFICERS:
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Robert J. DiNicola 314,500(4) *
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Glen Adams 65,750(5) *
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Frank E. Grzelecki 4,250(6) *
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Andrea Jung -0-
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Richard C. Marcus 2,250(7) *
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Andrew H. Tisch 42,250(8) *
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Merrill J. Wertheimer 26,500(9) *
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Paul Leonard 11,250(10) *
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Beryl Raff 16,250(11) *
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Alan P. Shor 9,950(12) *
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DIRECTORS AND EXECUTIVE 544,270(13) 1.5%
OFFICERS AS A GROUP (16 PERSONS):
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- -----------------------
* Represents less than one percent.
(1) The information contained in this table with respect to Common Stock
ownership reflects "beneficial ownership" as determined in accordance with
Rule 13-d under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(2) Consists of (i) 2,290,440 shares of Common Stock as to which Harris
Associates L.P. ("Harris"), by reason of advisory and other relationships
with the persons who own such shares, may be deemed to have the sole power
to dispose or to direct the disposition and (ii) 52,000 shares of Common
Stock, as to which Harris, by reason of advisory and other relationships
with the persons who own such shares, may be deemed to share the power to
dispose or to direct the disposition. Harris Associates, Inc. is the
general partner of Harris, and as such may be deemed to beneficially own
the 2,342,440 shares of Common Stock beneficially owned by Harris. Harris
has been granted the power to vote any shares of Common Stock beneficially
owned by it in circumstances it determines to be appropriate in connection
with assisting its clients to whom it renders financial advice in the
ordinary course of business by either providing information or advice to
the persons having such power, or by exercising the power to vote when it
determines such action to be appropriate in connection with matters which
are submitted to a security holder's vote. Of the 52,000 shares of Common
Stock as to which Harris has shared dispositive power, 48,500 shares are
beneficially owned by The Oakmark Fund, a series of an investment trust to
which Harris serves as investment adviser. The Oakmark Fund has shared
voting power with Harris with respect to the shares of Common Stock
beneficially owned by The Oakmark Fund. The information provided above was
obtained from Harris.
(3) Consists of (i) 117,100 shares of Common Stock as to which Snyder Capital
Management, Inc. ("Snyder") has the sole power to dispose
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or to direct the disposition and (ii) 1,752,700 shares of Common Stock
as to which Snyder has shared power to dispose or to direct the
disposition. Of the 1,752,700 shares of Common Stock as to which Snyder
has shared dispositive power, Snyder has shared voting power with
respect to 1,599,300 shares and no voting power with respect to 153,400
shares. The information provided above was obtained from Snyder.
(4) Includes 312,500 shares of Common Stock which Mr. DiNicola may acquire upon
the exercise of options within 60 days after September 13, 1996.
(5) Includes 63,000 shares of Common Stock issuable upon exercise of Series A
Warrants held by Mr. Adams and 1,250 shares of Common Stock which Mr. Adams
may acquire upon exercise of options within 60 days of September 13, 1996.
(6) Includes 1,250 shares of Common Stock which Mr. Grzelecki may acquire upon
exercise of options within 60 days after September 13, 1996.
(7) Includes 1,250 shares of Common Stock which Mr. Marcus may acquire upon
exercise of options within 60 days after September 13, 1996.
(8) Includes 20,000 shares of Common Stock held by Mr. Tisch as custodian for
his four minor children. The information provided above was obtained from
a Form 4 dated January 9, 1995 filed with the Securities and Exchange
Commission by Mr. Tisch and 1,250 shares of Common Stock which Mr. Tisch
may acquire upon exercise of options within 60 days after September 13,
1996.
(9) Includes 2,000 shares of Common Stock owned by the JAR Family Limited
Partners of which Mr. Wertheimer is the general partner and 20,500 shares
of Common Stock which Mr. Wertheimer may acquire upon the exercise of
options within 60 days after September 13, 1996.
(10) All shares of Common Stock may be acquired by Mr. Leonard upon exercise of
options within 60 days after September 13, 1996.
(11) All shares of Common Stock may be acquired by Ms. Raff upon exercise of
options within 60 days after September 13, 1996.
(12) Includes 8,750 shares of Common Stock which Mr. Shor may acquire upon
exercise of options within 60 days after September 13, 1996.
(13) Includes (i) 423,000 shares of Common Stock which may be acquired upon the
exercise of options within 60 days after September 13, 1996 and (ii) 63,000
shares of Common Stock issuable upon the exercise of Series A Warrants held
by Mr. Adams.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
Action will be taken at the Annual Meeting for the election of five
directors, each of whom will serve until the 1997 annual meeting of stockholders
and until his or her successor is elected and qualified.
The Board of Directors has no reason to believe that any of the nominees
for director will not be available to stand for election as director. However
if some unexpected occurrence should require the substitution of some other
person or persons for any one or more of the nominees, the proxies may be voted
FOR such substitute nominees, as the Board of Directors may designate.
The Company's bylaws currently fix the number of members of the Board of
Directors at seven or such greater number (not to exceed nine) as the Board of
Directors shall determine from time to time. Because only five nominees are
standing for election at the Annual Meeting, two vacancies will exist on the
Board of Directors following the Annual Meeting. The Board of Directors intends
to fill the vacancies after the Annual Meeting when appropriate candidates have
been identified. Proxies cannot be voted for a greater number of persons than
the number of nominees named therein.
The following table sets forth the principal occupations for at least the
last five years and the
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current directorships of the five nominees for director to be elected pursuant
to Proposal No. 1.
ROBERT J. DINICOLA, Age 48.
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. DiNicola has served as Chairman of the Board, Chief Executive Officer
and a director of the Company since April 18, 1994. For three years prior to
joining the Company, Mr. DiNicola was a senior executive officer of The Bon
Marche Division of Federated Department Stores, Inc., having served as Chairman
and Chief Executive Officer of that Division from 1992 to 1994 and as its
President and Chief Operating Officer from 1991 to 1992. From 1989 to 1991, Mr.
DiNicola was a Senior Vice President of Rich's Department Store Division of
Federated. For seventeen years, prior to joining the Federated organization,
Mr. DiNicola was associated with Macy's, where he held various executive,
management and merchandising positions, except for a one-year period while he
held a division officer position with May Co.
GLEN ADAMS, Age 57.
DIRECTOR
Mr. Adams has served as a director of the Company since July 21, 1993.
From 1990 to August 15, 1996, Mr. Adams served as Chairman, President and Chief
Executive Officer of Southmark Corporation in Dallas, Texas. From 1986 to 1989,
he served as Chairman, President and Chief Executive Officer of The Great
Western Sugar Company. Mr. Adams is also a director of U.S. Home Corporation
and Box Energy Corporation.
ANDREA JUNG, Age 37.
DIRECTOR
Ms. Jung joined the board as a director on June 6, 1996. Ms. Jung is
President, Global Marketing, for Avon Products, Inc. Prior to joining Avon, Ms.
Jung served as an Executive Vice President at Neiman Marcus from 1991 to 1994.
From 1987 to 1991, she served as Senior Vice President, General Merchandising
Manager for I. Magnin. Ms. Jung served as General Merchandising Manager at J.W.
Robinson's from 1985 to 1987 and was with Bloomingdales from 1979 to 1985, her
latest position being Vice President and Merchandising Manager. Ms. Jung also
serves as a director of the American Management Association and as a trustee of
the Fashion Institute of Technology.
RICHARD C. MARCUS, Age 57.
DIRECTOR
Mr. Marcus has served as a director of the Company since July 21, 1993.
Mr. Marcus is a principal of InterSolve Group, Inc., a management services firm
he cofounded in 1991. Since September 1994, Mr. Marcus has served in several
capacities with Plaid Clothing Group, including as an outside director from
September to November 1994, Chief Executive Officer and director from December
1994 through September 1995, and is presently an outside director. In July
1995, Plaid Clothing Group filed a
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petition of reorganization under Chapter 11 of the U.S. Bankruptcy Code.
From 1988 to 1991, Mr. Marcus was a private investor and consultant for
companies serving the retail industry. From 1979 to 1988, he served as
Chairman and Chief Executive Officer of Neiman Marcus in Dallas, Texas. Mr.
Marcus also serves as a director of Edison Brothers Stores and as a director
and a member of the Compensation Committee for Xcellenet, Inc.
ANDREW H. TISCH, Age 46.
DIRECTOR
Mr. Tisch has served as a director of the Company since July 21, 1993. Mr.
Tisch has been Chairman of the Management Committee of Loews Corporation since
June 1994 and a member of that committee since October 1994. Mr. Tisch also
served as Chairman of the Board and Chief Executive Officer of Lorillard, Inc.
from 1989 to June 1995. From 1980 to 1989, he served as President of Bulova
Corporation and has served as its Chairman of the Board since June of 1995.
From 1985 to 1989, Mr. Tisch served as a director of Gordon Jewelry Corporation
prior to its acquisition by the Company. Mr. Tisch currently serves as a
director of Loews Corporation, Bulova Corporation and Vegan Development Company.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The following discussion of meetings of the Board of Directors and the
committees thereof includes meetings occurring during the Company's 1996 fiscal
year beginning on August 1, 1995 and ending July 31, 1996.
The standing committees of the Board of Directors are the Audit and
Compensation Committees. Their principal functions and the names of the
directors currently serving as members of those committees are set forth below.
The Audit Committee has the power and authority to initiate or review the
results of all audits or investigations into the business affairs of the Company
and its subsidiaries, and to conduct pre- and post-audit reviews with the
Company's management, financial employees and independent auditors. The Audit
Committee also reviews the Company's quarterly and annual financial statements
and reports. The Audit Committee met five times between August 1, 1995 and July
31, 1996. Glen Adams and Andrea Jung are the current members of the Audit
Committee.
Subject to the final decision of the Board of Directors, the Compensation
Committee reviews the proposed compensation of the Company's Chief Executive
Officer and all other corporate officers and considers management succession and
related matters. In addition, during the fiscal year ended July 31, 1996, the
Compensation Committee administered the Company's Stock Incentive Plan and other
incentive compensation plans and dealt with other compensation plan issues. The
Compensation Committee met in conjunction with the Board of Directors twice
between August 1, 1995 and July 31, 1996. The current members of the
Compensation Committee are Richard C. Marcus and Andrew H. Tisch. Frank E.
Grzelecki, who served as Chairman of the Compensation Committee during the
fiscal year, will not stand for reelection at the Annual Meeting.
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From August 1, 1995 to July 31, 1996, the Board of Directors met 11 times.
No member of the Board of Directors attended fewer than 75% of the total number
of meetings held by the Board of Directors and the committees on which such
director served during that period.
PROPOSAL NO. 2:
AMENDMENT TO THE ZALE CORPORATION OMNIBUS STOCK INCENTIVE PLAN
On July 27, 1993, the Board of Directors of the Company adopted the Zale
Corporation Stock Option Plan which was amended and restated on July 27, 1994
and renamed the Omnibus Stock Incentive Plan (the "Stock Incentive Plan"). The
Stock Incentive Plan provides for the grant to officers and employees of the
Company and its subsidiaries of options to purchase shares of the Common Stock
of the Company, which options may be incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or nonqualified stock options ("NQSOs"); stock appreciation rights
("SARs"), restricted stock ("Restricted Stock"), phantom stock ("Phantom
Stock"), or stock bonuses ("Stock Bonuses"). As of September 5, 1996, 2,722,075
shares of Common Stock were reserved for issuance upon the exercise of options
previously granted under the Stock Incentive Plan and 124,850 were reserved for
the grant of future options.
On July 18, 1996, the Board of Directors approved an amendment to the Stock
Incentive Plan, subject to shareholder approval, to increase the number of
shares of Common Stock reserved for issuance by an additional 500,000 shares,
thereby increasing the number of shares of Common Stock available for future
option grants under the Stock Incentive Plan to 624,850. The Board adopted this
amendment to ensure that the Company will continue to have sufficient shares
available under the Stock Incentive Plan to attract and retain key employees.
At the Annual Meeting, the shareholders are being requested to consider and
approve the foregoing amendment to the Stock Incentive Plan.
The essential features of the Stock Incentive Plan are outlined below.
PURPOSE OF THE STOCK INCENTIVE PLAN
The purpose of the Stock Incentive Plan is to promote the interests of the
Company and its shareholders by providing officers and other employees
(including directors who are employees) of the Company with appropriate
incentives and rewards to encourage them to enter into and continue in the
employ of the Company and to acquire a proprietary interest in the long-term
success of the Company.
MAJOR PROVISIONS OF THE PLAN
The major provisions of the Stock Incentive Plan are as follows:
ELIGIBILITY. The persons who are eligible to receive awards pursuant to
the Stock Incentive Plan are those employees of the Company (including officers
of the Company, whether or not they are directors of the Company) as the
Committee (as defined below) selects from time to time. Directors who
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are not employees or officers of the Company are ineligible to receive
Incentive Awards under the Plan. The Company estimates that at the present
time approximately 10% of its approximately 9,500 employees are eligible
employees to participate in the Stock Incentive Plan.
ADMINISTRATION. The Stock Incentive Plan is administered by the
Compensation Committee of the Board of the Directors (the "Committee") or such
other committee as the Board of Directors appoints from time to time. The
Committee at all times consists of two or more persons, each of whom is a member
of the Board of Directors and who is not an employee of the Company. To the
extent required for compensation realized from Incentive Awards under the Plan
to be deductible by the Company pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), members of the Committee shall be
"outside directors" within the meaning of such Section.
OPTION TYPES. The Stock Incentive Plan permits the Committee to grant, in
its discretion, ISOs, NQSOs, SARs, Restricted Stock, Phantom Stock and Stock
Bonuses. Stock options designated as Incentive Stock Options will comply with
Section 422 of the Code, including the requirement that the aggregate Fair
Market Value, as defined in the Stock Incentive Plan, of Common Stock determined
at the time of each grant that a holder may exercise for the first time in any
calendar year shall not exceed $100,000. NQSOs, which are options that are not
ISOs, entitle the holder to purchase up to the number of shares of Common Stock
of the Company specified in the grant. SARs are rights that, when exercised,
entitle the holder to the appreciation in value of the number of shares of
Common Stock specified in the grant from the date granted to the date exercised.
An exercised SAR will be paid in cash. SARs may be either Stand-Alone SARS,
which are not granted in conjunction with an option, or Tandem SARs, which may
be granted at the same time as, or, in the case of an NQSO, subsequent to the
time that, its related option is granted. Prior to the vesting of a share of
Restricted Stock, no transfer of a Participant's rights with respect to such
share will be permitted. Phantom stock are rights to receive in cash, within 30
days of the date on which such share vests, an amount equal to the (i) Fair
Market Value of a share of Common Stock on the date on which such share of
Phantom Stock vests and (ii) the aggregate amount of cash dividends paid with
respect to a share of Common Stock during the period commencing on the date on
which the share of Phantom Stock was granted and terminating on the date on
which such share vests. In the event that the Committee grants a Stock Bonus, a
certificate for the shares of Common Stock comprising such Stock Bonus shall be
issued in the name of the Participant to whom such grant was made and delivered
to such Participant as soon as practicable after the date on which such Stock
Bonus is payable.
OPTION PRICE. The exercise price per share of options and SARs is
determined by the Committee but will in no event be less than the Fair Market
Value of a share of Common Stock on the date the option is granted. Payment for
shares of Common Stock purchased upon exercise of an option shall be made by one
or a combination of the following means: (i) in cash, (ii) in shares of Common
Stock owned by the Participant (subject to approval of the Committee), or (iii)
by such other provision as the Committee may from time to time authorize. The
Company receives no payment upon the granting of options or other Incentive
Awards pursuant to the Stock Incentive Plan.
NONTRANSFERABILITY. During the lifetime of the Participant, the Committee
may permit the transfer, assignment or other encumbrance of an outstanding
option unless such option is an Incentive Stock Option and the Committee and the
Participant intend that it retain such status. Upon the death of a Participant,
outstanding Incentive Awards granted to such Participant may be exercised only
by the executor or administrator of the Participant's estate or by a person who
shall have acquired the right to
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such exercise by will or by the laws of descent and distribution.
TIME AND MANNER OF EXERCISE. Unless the applicable plan agreement provides
otherwise, options granted under the Stock Incentive Plan and Stand-Alone SARs
become cumulatively exercisable as to 25 percent of the shares covered thereby
on each of the first, second, third and fourth anniversaries of the date of
grant. The Committee shall determine the expiration date of each option;
provided, however, that no Incentive Stock Option shall be exercisable more than
10 years after the date of grant. Unless otherwise provided in the plan
agreement, no option will be exercisable prior to the first anniversary of the
date of grant. A Tandem SAR will be exercisable only if and to the extent that
its related option is exercisable. At the time of the grant of shares of
Restricted Stock and Phantom Stock, the Committee will establish an issue date
with respect to the shares of Restricted Stock and a vesting date with respect
to shares of both the Restricted Stock and Phantom Stock.
AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may, at any time,
suspend or terminate the Plan or revise or amend it in any respect whatsoever;
provided, however, that stockholder approval shall be required if and to the
extent the Board of Directors determines that such approval is appropriate for
purposes of satisfying Section 162(m) or Section 422 of the Code. No action may
reduce the participant's rights under any outstanding Incentive Award without
the consent of the participant.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTIONS. If an option under the Stock Incentive Plan is
treated as an ISO, the optionee generally recognizes no regular taxable income
as the result of the grant or exercise of the option. However, an amount equal
to the difference between the Fair Market Value of the stock on the date of
exercise and the exercise price is classified as an item of alternative minimum
taxable income in the year of exercise for purposes of the alternative minimum
tax.
The Company will not be allowed a deduction for federal income tax purposes
in connection with the grant or exercise of an ISO, regardless of the
applicability of the alternative minimum tax to the optionee. The Company will
be entitled to a deduction, however, to the extent that ordinary income is
recognized by the optionee upon a disqualifying disposition (see below).
Upon a sale or exchange of the shares at least two years after the grant of
an ISO and one year after exercise of the option, gain or loss will be
recognized by the optionee equal to the difference between the sale price and
the exercise price. Such gain or loss will be characterized for federal income
tax purposes as long-term capital gain or loss. The Company is not entitled to
any deduction under these circumstances.
If an optionee disposes of shares acquired upon issuance of an ISO prior to
completion of either of the above holding periods, the optionee will have made a
"disqualifying disposition" of the shares. In such event, the optionee will
recognize ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of the Fair Market Value of the stock
at the date of the option exercise or the sale price of the stock. The Company
generally will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee on a disqualifying disposition if the
optionee's total compensation is deemed reasonable in amount.
The optionee also will recognize capital gain or loss on such disqualifying
disposition in an
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amount equal to the difference between (i) the amount realized by the
optionee upon such disqualifying disposition of the stock and (ii) the
exercise price, increased by the total amount of ordinary income, if any,
recognized by the optionee upon such disqualifying disposition (as described
in the second sentence of the preceding paragraph). Any such capital gain or
loss resulting form a disqualifying disposition of shares acquired upon
exercise of an ISO will be long-term capital gain or loss if the shares with
respect to which such gain or loss is realized have been held for more than
twelve months.
NQSOS. An optionee generally recognizes no taxable income as the result of
the grant of an NQSO, assuming that the option does not have a readily
ascertainable fair market value at the time it is granted (which is usually the
case with plans of this type). Upon exercise of an NQSO, an optionee will
normally recognize ordinary compensation income for federal tax purposes equal
to the excess, if any, of the then Fair Market Value of the shares over the
exercise price. Optionees who are employees will be subject to withholding with
respect to income recognized upon exercise of an NQSO.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the exercising optionee, so long as
the optionee's total compensation is deemed reasonable in amount.
Upon a sale of shares acquired pursuant to the exercise of an NQSO, any
difference between the sale price and the Fair Market Value of the shares on the
date of exercise will be treated as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than twelve months.
STOCK BONUS/RESTRICTED STOCK AWARD. The federal income tax treatment of
individuals who receive property in connection with the performance of services
is governed by Section 83 of the Code. That section requires that the recipient
of the property recognize income from the transfer in an amount equal to the
excess of the Fair Market Value of the property received over the amount (if
any) paid for the property. Income is recognized by the recipient in the first
year in which the rights of the recipient to the property become "vested," i.e.,
are transferable or are no longer subject to a substantial risk of forfeiture,
whichever occurs first. The income is taxable at ordinary income rates and (in
the case of participating individuals who are employees) is subject to
withholding of income and applicable employment taxes at the time of vesting.
Under the Stock Incentive Plan, participating individuals will not pay any
consideration for stock transferred to them under the stock bonus/restricted
stock award components of the Stock Incentive Plan, and the stock transferred
may or may not be subject to restrictions. If stock is granted to a recipient
without restriction, the recipient will recognize ordinary income (calculated as
described in the preceding paragraph) in the recipient's taxable year in which
the stock is granted.
If stock granted under the Stock Incentive Plan is nontransferable and
subject to a substantial risk of forfeiture, then (unless an election is made
under Section 83(b) of the Code, as described in the next paragraph), recipients
of stock will recognize taxable income as of each date on which they become
vested in stock received under the Stock Incentive Plan in the amount of the
Fair Market Value of the stock then vesting.
Participating individuals may elect under Section 83(b) of the Code to
report as taxable income in the year of award an amount of ordinary income equal
to the stock's Fair Market Value at the time of the
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<PAGE>
award. If such an election is made, the electing employee is not required
thereafter to report any further compensation income upon becoming vested in
the stock covered by the election. Such an election must be made within 30
days of receipt of the stock. Such election may not be revoked except with
the consent of the government. Participating individuals making this election
who are employees will be subject to withholding with respect to the taxable
income they recognize at the time the stock is awarded to them.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual,
individual's total compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of their
stock equal to the excess of (a) the amount realized on such disposition over
(b) the ordinary income recognized with respect to their stock under the
principles set forth above. That gain will be taxable as long or short-term
capital gain depending on whether the stock was held for at least one year.
If a participating individual disposes of his or her stock for an amount
less than the amount of ordinary income recognized with respect to the stock, he
or she will generally recognize a capital loss (long or short-term, depending on
the holding period) equal to the difference between any ordinary income
recognized with respect to the stock under the principles described previously
and the amount realized upon disposition of the stock. If a participating
individual forfeits unvested stock with respect to which a Section 83(b)
election has been made upon termination of employment, he or she will generally
recognize a capital gain or loss equal to the difference between the amount, if
any, paid by the employee for the stock and the amount received as a result of
the forfeiture, but no loss or deduction is allowed with respect to the amount
previously included in income as a result of the Section 83(b) election.
SARS. Recipients of SARs generally should not recognize income until such
rights are exercised (assuming there is no ceiling on the value of the right).
Upon exercise, the participating individual will normally recognize ordinary
compensation income for federal income tax purposes equal to the amount of cash
and the Fair Market Value of stock, if any, received upon such exercise.
Participating individuals who are employees will be subject to withholding with
respect to income recognized upon exercise of an SAR.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual, so long
as the individual's total compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of any
stock received on exercise of an SAR equal to the excess of (a) the amount
realized on such disposition over (b) the ordinary income recognized with
respect to such stock under the principles set forth above. That gain will be
taxable as long or short-term capital gain depending on whether the stock was
held for at least one year.
PHANTOM STOCK. Recipients of Phantom Stock will recognize ordinary income
in the taxable year in which cash is transferred to the individual. The Company
will be entitled to a tax deduction to the extent and in the year that ordinary
income is recognized by the participating individual, provided the individual's
total compensation is deemed reasonable in amount.
SECTION 162(m) OF THE CODE. Under Section 162(m) of the Code, compensation
paid to any
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<PAGE>
covered employee is potentially nondeductible by the Company to the extent
that it exceeds $1,000,000. However, certain "performance-based
compensation" is exempt from the $1,000,000 cap on deductibility. The Stock
Incentive Plan contains provisions designed to qualify options and SARs
granted thereunder to covered employees as "performance-based compensation"
under Section 162(m). These provisions include: (1) grants to covered
employees are made only by the Section 162(m) Committee; (2) the Stock
Incentive Plan states a maximum number of shares (600,000 shares) with
respect to which options or SARs may be granted to any individual per fiscal
year; (3) in the case of grants to covered employees, the option exercise
price must be at least equal to the Fair Market Value of the stock on the
date the option is granted; and (4) the Stock Incentive Plan has been
approved by shareholders.
MARKET PRICE OF THE COMMON STOCK
The closing price of the Common Stock as reported by the New York Stock
Exchange was $18.625 per share on September 5, 1996. As of such date the
aggregate market value of the shares of Common Stock available for issuance
under the Stock Incentive Plan (including the 500,000 shares submitted for
approval at the upcoming Annual Meeting) was $11,637,831. The total number of
options held by named executive officers are as follows: Robert J. DiNicola -
1,175,000, Merrill J. Wertheimer - 116,000, Paul Leonard - 80,000, Beryl Raff -
140,000, and Alan P. Shor - 70,000. The total number of shares subject to
options held by all executive officers as a group, all current directors who are
not executive officers as a group, and all employees, including all current
officers who are not executive officers, as a group, are 1,868,000, 25,000, and
854,075, respectively.
The Board of Directors recommends that the stockholders vote FOR the
amendment to the Stock Incentive Plan.
PROPOSAL NO. 3:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as the Company's independent public accountants
for the interim period from April 1, 1994 to July 31, 1994 and for the fiscal
years ended July 31, 1995 and July 31, 1996, and has been reappointed by the
Board of Directors to serve in that capacity for the 1997 fiscal year. The
Company has been advised that no member of Arthur Andersen LLP or any of its
associates has any financial interest in the Company or its affiliates. A
representative of Arthur Andersen LLP will be available at the Annual Meeting to
respond to appropriate questions and will be given an opportunity to make a
statement on behalf of Arthur Andersen LLP, if desired.
Although not formally required, the appointment of the independent auditors
of the Company has been directed by the Board of Directors to be submitted to
the stockholders for ratification as a matter of sound corporate practice. If
the stockholders do not ratify the appointment of Arthur Andersen LLP, the
appointment of the independent auditors will be reconsidered by the Board of
Directors. If the stockholders ratify the appointment, the Board of Directors,
in its sole discretion, may still direct the appointment of new independent
auditors at any time during the 1997 fiscal year if the Board of Directors
believes that such a change would be in the best interests of the Company.
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The Board of Directors recommends that the stockholders vote FOR the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants.
EXECUTIVE AND DIRECTOR COMPENSATION
The following tables set forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company during each of
the fiscal years ended July 31, 1996, July 31, 1995 and March 31, 1994, to the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company. All compensation paid or accrued by the
Company during the interim period from April 1, 1994 to July 31, 1994 (i.e., the
transition period from the end of fiscal 1994 until the beginning of fiscal
1995), excluding base salary, are included as compensation paid for the fiscal
year ended July 31, 1995.
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<TABLE>
- ------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------------------------------------------------------
SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION
Name and Principal Position YEAR ($) (1) BONUS($)(2) OPTIONS(#) ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert J. DiNicola, Chairman 1996 750,000 621,075 500,000 8,702
and Chief Executive Officer(3) . . . . . 1995 679,791 325,000 675,000 620,383
- ------------------------------------------------------------------------------------------------------
Merrill J. Wertheimer, 1996 275,000 113,864 50,000 10,141
Executive Vice President - 1995 230,708 81,535 66,000 7,880
Finance and Chief Financial Officer . . . 1994 201,927 10,000 17,440
- ------------------------------------------------------------------------------------------------------
Paul D. Leonard(5) 1996 220,000 110,000 50,000 6,783
President, Guild Division 1995 167,038 60,341 30,000 131,422
- ------------------------------------------------------------------------------------------------------
Beryl B. Raff(6) 1996 260,000 112,489 75,000 150,677
President, Zale Division 1995 174,359 69,744 65,000 68,909
- ------------------------------------------------------------------------------------------------------
Alan P. Shor(7) 1996 275,000 113,864 35,000 62,274
Senior Vice President, Administration, 1995 43,718 35,000 85,473
General Counsel and Secretary
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
_____________
(1) Includes amounts contributed by such executive officers to the Company's
401(k) savings plan.
(2) Includes amounts deferred under the Executive Deferred Compensation Plan.
(3) Mr. DiNicola's "All Other Compensation" consists of the Company's Medical
Expenses Reimbursement Plan of $5,972, group term life insurance premiums
of $1,230 and a matching contribution by the Company in Company stock under
its 401(k) plan of $1,500. Mr. DiNicola's "All Other Compensation" for
1995 includes a one-time bonus of $200,000 paid to Mr. DiNicola upon the
commencement of his employment by the Company, a reimbursement of $150,000
for certain benefits Mr. DiNicola would have otherwise received from his
former employer, $264,447 for relocation costs incurred by Mr. DiNicola in
connection with the commencement of his employment by the Company, $5,472
in connection with the termination of the Company's Key Executive Medical
Plan and $464 of term life insurance premiums paid by the Company.
(4) Mr. Wertheimer's "All Other Compensation" consists of the Company's Medical
Expenses Reimbursement Plan of $5,071, group term life insurance premiums
of $3,570 and a matching contribution by the Company in Company stock under
its 401(k) plan of $1,500. Mr. Wertheimer's "All Other Compensation" for
1995 consists of $5,837 in connection with the termination Company's Key
Executive Medical Plan, $1,215 of term life insurance premiums paid by the
Company and $828 matching contribution by the Company in Company stock
under its 401(k) plan.
(5) Mr. Leonard's "All Other Compensation" consists of $1,213 in relocation
expenses, the Company's Medical Expenses Reimbursement Plan of $3,350,
group term life insurance premiums of $720 and a matching contribution by
the Company in Company stock under its 401(k) plan of $1,500. Mr.
Leonard's FY95 "All Other Compensation" consisted of relocation expenses of
$128,772 and the termination of the Company's Key Executive Medical Plan of
$2,650.
(6) Ms. Raff's "All Other Compensation" consists of relocation expenses of
$144,206, the Company's Medical Expenses Reimbursement Plan of $3,741,
group term life insurance premiums of $1,230 and a matching contribution by
the Company in Company stock under its 401(k) plan of $1,500. Ms. Raff's
FY95 "All Other Compensation" consisted of a signing bonus of $50,000,
termination of the Company's Key Executive Medical Plan of $2,136 and
$16,773 in relocation expenses.
(7) Mr. Shor's "All Other Compensation" consists of relocation expenses and
reimbursements related to his relocation of $55,717, the Company's Medical
Expenses Reimbursement Plan of $4,637, group term life insurance premiums
of $420 and a matching contribution by the Company in Company stock under
its 401(k) plan of $1,500. Mr. Shor's FY95 "All Other Compensation"
consisted entirely of relocation expenses and reimbursements related to his
relocation.
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OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth all stock option grants to the named
executive officers during the year ended July 31, 1996.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL OPTIONS EXERCISE OR
UNDERLYING OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. DiNicola 500,000 45.72% 17.8750 7/9/06 $5,722,518 $14,406,159
- -----------------------------------------------------------------------------------------------------------------------
Merrill J. Wertheimer 50,000 4.57% 17.6875 6/25/06 551,084 1,401,357
- -----------------------------------------------------------------------------------------------------------------------
Paul Leonard 50,000 4.57% 17.6875 6/25/06 551,084 1,401,357
- -----------------------------------------------------------------------------------------------------------------------
Beryl Raff 75,000 6.86% 17.6875 6/25/06 826,627 2,102,036
- -----------------------------------------------------------------------------------------------------------------------
Alan P. Shor 35,000 3.20% 17.6875 6/25/06 385,758 980,950
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
_____________
(1) Sets forth options granted under the Zale Corporation Omnibus Stock
Incentive Plan (the "Stock Incentive Plan") for the fiscal year ended July
31, 1996. Upon the occurrence of a change of control (as defined in the
Stock Incentive Plan), options shall become fully and immediately
exercisable.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates required by the Securities and Exchange Commission.
These amounts should not be construed as forecasts of possible future
appreciation, if any, of the stock price for the Company's Common Stock.
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<PAGE>
FY-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning the number of securities underlying unexercised
options and the value of unexercised options held as of July 31, 1996.
- -----------------------------------------------------------------------------
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
- ------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------
Robert J. DiNicola 312,500 862,500 $2,507,499 $2,663,748
- ------------------------------------------------------------------------------
Merrill J. Wertheimer 20,500 95,500 104,062 182,187
- ------------------------------------------------------------------------------
Paul Leonard 7,500 72,500 25,543 76,633
- ------------------------------------------------------------------------------
Beryl Raff 16,250 123,750 55,937 167,812
- ------------------------------------------------------------------------------
Alan P. Shor 8,750 61,250 35,075 105,227
- ------------------------------------------------------------------------------
EXECUTIVE SEVERANCE ARRANGEMENTS
Effective February 10, 1994, the Company adopted an executive severance
plan for its executives (the "Severance Plan"), which becomes operative upon the
occurrence of certain events, such as termination without cause (as defined).
Under the Severance Plan, as amended effective May 20, 1995, Executive Vice
Presidents, Company Senior Vice Presidents and Division Presidents are entitled
to receive severance pay equal to one month of pay and benefits for each year of
continuous service, with a minimum of three months of pay and a maximum of nine
months of pay. Company Vice Presidents and directors, and Division Senior Vice
Presidents, Vice Presidents and directors are entitled to severance pay equal to
one week of pay for each year of continuous service, with a minimum of twelve
weeks of pay and a maximum of twenty-six weeks of pay. Each of Mr. Wertheimer,
Mr. Leonard, Ms. Raff and Mr. Shor, in addition to other executive officers of
the Company, are eligible to receive benefits under the Severance Plan in
accordance with its terms.
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<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On September 14, 1995, each of the Boards of Directors of the Company and
Zale Delaware, Inc., a wholly-owned subsidiary of the Company ("ZDel") approved
the preparation and implementation of the Zale Delaware, Inc. Supplemental
Executive Retirement Plan (the "Plan"), which was executed on behalf of the
Company February 23, 1996, to be effective as of September 15, 1995. The
purpose of the Plan is to provide eligible executives with the opportunity to
receive payments each year after retirement equal to a portion of their Final
Average Pay as defined below. On July 18, 1996, the Company amended the Plan to
clarify the definition of "Change of Control" in the Plan.
A participant becomes vested in his benefit in the Plan after completing
five years of service with the Company after September 14, 1995. A participant
also becomes vested in his Plan benefits upon a change of control of the Company
or the death or disability of the participant while an active employee. A
retired participant who is vested is entitled to monthly payments continuing
over the life of the participant (or, at the election of the participant, in a
joint and 50% survivor annuity with his or her surviving spouse) commencing on
the first day of the month immediately following the participant's 65th
birthday. The amount of each payment is determined under the following formula:
BENEFIT POINTS X FINAL AVERAGE PAY
----------------------------------
100
Benefit Points are calculated based on a goal for earnings before interest,
taxes, depreciation and amortization established each plan year by the
Compensation Committee of the Company. The Final Average Pay means the average
of the monthly base salary received by the participant from the Company in the
60-month period ending immediately prior to the participant's retirement or
other termination from the Company. The estimated annual benefits payable upon
retirement at normal retirement age for Robert J. DiNicola, Merrill J.
Wertheimer, Paul Leonard, Beryl Raff and Alan P. Shor are $450,566, $74,891,
$204,457, $211,839 and $294,577, respectively. The calculation of these amounts
assumes (1) each named executive officer's current salary increased by 5% per
year until normal retirement age and (2) Benefit Points will equal two points
per year with 30 points as a maximum number of Benefit Points which can be
factored in the equation.
EMPLOYMENT AGREEMENTS
DINICOLA EMPLOYMENT AGREEMENT. On March 14, 1994, Mr. DiNicola entered
into an employment agreement with the Company that will expire on April 17,
1998, unless earlier terminated. Mr. DiNicola serves as the Company's Chairman
of the Board and Chief Executive Officer as a requirement of his employment
agreement. Pursuant to his employment agreement, Mr. DiNicola will receive an
annual base salary of not less than $650,000 (subject to annual review and
potential increase by the Board of Directors). Mr. DiNicola is eligible to
participate in any incentive bonus plan authorized by the Board of Directors.
If Mr. DiNicola's employment is terminated without cause (as defined), he
will be entitled to receive his base salary for the remainder of the term of the
agreement (subject to mitigation in certain circumstances). In the event of a
change of control (as defined), the term of Mr. DiNicola's agreement will be
extended for 30 months from the date of the change of control (if that period is
longer than the
17
<PAGE>
unexpired term of the agreement), unless the Company had previously given
notice of its termination of Mr. DiNicola's employment. Notwithstanding the
foregoing, if Mr. DiNicola's employment is terminated while the Company is
actively considering participating in a change of control, and if that change
of control is consummated within four months of the date of termination of
his employment, the term of Mr. DiNicola's employment will nevertheless be
extended for 30 months from the date of the change of control.
DIRECTOR COMPENSATION
Each Non-Employee director of the Company receives an annual retainer fee
of $10,000, and is entitled to a $3,000 fee for each board meeting attended in
person and a $1,000 fee for each meeting attended by telephone. A chairman of a
committee of the Board of Directors receives an additional annual retainer fee
of $2,500, and each committee member is entitled to $1,000 for each committee
meeting attended, whether in person or by telephone, unless such committee
meeting is held on the same day as a meeting of the Board of Directors. Non-
employee directors also receive grants of options to purchase Common Stock under
the 1995 Outside Directors' Stock Incentive Plan.
DIRECTOR INDEMNIFICATION ARRANGEMENTS
During 1993, each of the Company and ZDel entered into indemnification
agreements (the "Indemnification Agreements") with the directors of the Company,
agreeing to indemnify such persons against expenses, judgments, fines and
amounts paid in settlement of, or incurred in connection with, any threatened,
pending or completed action, suit or proceeding in which the director was, is,
or is threatened to be made, a party by reason of his service as a director,
officer, employee or agent of the Company subsequent to July 21, 1993, provided
that the director acted in good faith and in a manner he reasonably believed to
be in the best interest of the Company or ZDel, as applicable, and, with respect
to any criminal action or proceeding, provided he had reasonable cause to
believe his actions were lawful. Each Indemnification Agreement also provides
for the advancement of expenses incurred by the director in defending any
proceeding. The Company will enter into a similar agreement with Ms. Jung, who
became a director June 6, 1996, and may enter into similar agreements with any
new directors elected in the future.
The Company and ZDel also entered into a Trust Agreement with United States
Trust Company of New York, as trustee, pursuant to which $1,000,000 was
deposited with the trustee to secure the performance of the Company and ZDel
under the Indemnification Agreements and under the indemnification provisions of
the Certificate of Incorporation and Bylaws of the Company or ZDel or applicable
law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, there were no Compensation Committee interlocks.
RELATED PARTY TRANSACTIONS
As of August 30, 1996, Greg Humenesky, an executive officer of the Company,
owed the
18
<PAGE>
Company $100,000, which is payable in full plus interest at the rate of 7%
per annum, on the first to occur of December 31, 1996 or Mr. Humenesky's
termination of employment with the Company. This indebtedness represents a
loan made by the Company to finance Mr. Humenesky's relocation to the Dallas,
Texas area. The largest amount of this indebtedness outstanding since August
1, 1995, was $ 120,000.
As of August 30, 1996, Mary Forte, an executive officer of the Company,
owed the Company $61,245, which is payable in full plus interest at the rate of
7% per annum, on the first to occur of December 31, 1996 or Ms. Forte's
termination of employment with the Company. This indebtedness represents a loan
made by the Company to finance Ms. Forte's relocation to the Dallas, Texas area.
The largest amount of this indebtedness outstanding since August 1, 1995, was
$107,000.
In connection with the July 1996 underwritten public offering of the
Company's Common Stock by Apollo Jewelry Partners, L.P. ("Apollo"), the Company
and Apollo entered into an agreement pursuant to which Apollo agreed to pay up
to $275,000 of expenses of the offering incurred by the Company (other than
underwriting discounts and commissions), with any excess being paid 50% by
Apollo and 50% by the Company. Apollo and the Company have each agreed to
indemnify the other against certain liabilities which may arise from the
offering. Apollo was the beneficial owner of more than 5% of the Company's
Common Stock until September 11, 1996 when Apollo sold all of its remaining
2,125,854 shares of Common Stock. Mr. Peter Copses, who resigned as a member of
the Board of Directors on September 10, 1996, is an officer of Apollo Capital
Management, Inc., the general partner of Apollo Advisors, L.P., the managing
general partner of AIF II, L.P., which is the sole general partner of Apollo.
From August 1, 1995 until August 31, 1995, which is the period during the
1996 fiscal year for which Swarovski International Holding A.G. ("Swarovski")
was a beneficial owner of more than 5% of the Company's Common Stock, the
Company purchased approximately $125,000 of fashion jewelry and giftware
merchandise from Swarovski. On August 31, 1995, the Company repurchased the
1,852,884 Series B Warrants held by Swarovski for an aggregate purchase price of
approximately $9.3 million, which represented a discount, on a per warrant
basis, to the then current trading price of the Company's publicly traded Series
A Warrants. The Series B Warrants were not publicly traded.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Subject to the final decision of the Board of Directors, the Compensation
Committee (the "Committee") actively reviews the proposed compensation of the
Company's Chief Executive Officer and all other corporate officers and considers
management succession and related matters. In addition, the Committee
administers the Company's Stock Incentive Plan and its other incentive
compensation plans.
Under the supervision of the Committee, the Company has developed and
implemented compensation policies, plans and programs that seek to enhance the
profitability of the Company, and thus stockholder value, by aligning closely
the financial interests of the Company's executives with those of its
stockholders. The objectives of the Company's executive compensation program
are to:
19
<PAGE>
- Support the achievement of the Company's strategic operating
objectives;
- Provide compensation that will attract and retain superior talent and
reward the executives based upon Company and individual performance;
- Align the executives' financial interests with the success of the
Company by placing a substantial portion of pay at risk (i.e., payout
that is dependent upon Company and individual performance); and
- Provide a strategic balance between short- and long-term incentive
compensation such that it encourages a balanced perspective on the
part of the executive between short-term profit goals and long-term
value creation.
The Company's executive compensation program consists of base salary,
annual cash incentive compensation in the form of performance bonuses, long-term
incentive compensation in the form of stock options, restricted stock grants and
other equity incentives, supplemental executive benefits and various other
benefits, including life and medical insurance plans.
BASE SALARIES. It is the Committee's objective to maintain base salaries
that are reflective of the financial performance of the Company and the
individual executive's experience, responsibility level and performance, and
that are competitive with the salary levels of executives at other companies
engaged in the same or similar lines of business with revenues in a range
comparable to those of the Company. The Committee intends to monitor the
salaries of all corporate officers annually and to make any adjustments it deems
necessary and appropriate.
BONUSES. For fiscal 1996, the annual bonuses available to the Company's
executive officers were based upon quantitative measures of the Company's
financial performance as measured by corporate or division earnings before
interest, taxes, depreciation and amortization ("EBITDA") targets and EBITDA as
a percentage of total sales, set forth in the Company's annual financial plan.
Bonus opportunity was calculated as a percentage of the recipient's base
salary. Specifically, corporate or operating division participants could earn
up to 70% of their respective maximum bonus opportunities if the Company or the
operating division exceeded their respective EBITDA bonus targets and up to 30%
of their respective maximum bonus opportunities if the Company or the operating
division exceeded their respective EBITDA as a percentage of sales targets. For
those employees who do not work for an operating division, no bonus could be
achieved if the Company failed to attain at least the minimum threshold target
for EBITDA. For those employees who work for an operating division (i.e., the
Zale Division, the Gordon Division, the Guild Division and the Diamond Park
Division), no bonus could be paid if the division failed to achieve at least the
minimum threshold target for EBITDA.
For fiscal year 1997, the Company has elected to maintain the same bonus
program with appropriate changes in the targets for EBITDA and EBITDA as a
percentage of sales.
20
<PAGE>
EQUITY INCENTIVES. The Company's Omnibus Stock Incentive Plan (the "Stock
Incentive Plan") currently forms the basis for the Company's long-term incentive
plan for executives and key employees. The Stock Incentive Plan provides for
the grant of stock options, SARs, restricted stock, stock bonuses and phantom
stock. To date, only stock options have been issued in connection with the
Stock Incentive Plan. The purpose of the Stock Incentive Plan is to promote the
interests of the Company and its shareholders by providing officers and other
employees (including directors who are employees) of the Company with
appropriate incentives and rewards to encourage them to enter into and continue
in the employ of the Company and to acquire a proprietary interest in the long-
term success of the Company.
During the fiscal year ended July 31, 1996, option awards were made to
approximately 75 of the Company's employees covering 1,103,100 shares of Common
Stock. All options were granted with an exercise price equal to the Fair Market
Value of the Company's Common Stock at the date of grant, have a term of ten
years, and become exercisable 25% per year beginning one year from the date of
grant.
The Committee, in satisfying its duty to establish the compensation levels
of the Company's Chief Executive Officer and its other corporate officers,
considered and approved management's recommendations for the 1996 fiscal year
with respect to changes to the elements and levels of compensation paid to such
officers. The Committee consulted with the Company's human resources department
and/or outside compensation consultants in evaluating the recommendations made
by management. The Committee, in its role as administrator of the Stock
Incentive Plan, intends to review periodically with the Company's human
resources department and/or outside compensation consultants the levels and
types of cash incentives and stock-based compensation that are appropriate for a
corporation similarly situated to the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Under the terms of his
employment agreement, Mr. DiNicola receives an annual base salary of not less
than $650,000. This base salary is subject to annual review and potential
increase by the Board of Directors. See "Executive and Director Compensation -
Employment Agreements." After a review of the salaries of the chief executive
officers of a number of retail and specialty retail companies of similar size to
the Company and a review of the Company's performance, the Board of Directors
increased Mr. DiNicola's base salary to $750,000 effective April 18, 1995. An
annual bonus for Mr. DiNicola for fiscal 1996 was awarded pursuant to the terms
of the Company's annual bonus plan. As described in "Executive and Directors
Compensation - Summary Compensation Table, Mr. DiNicola received a bonus of
$621,075. In addition, he received an award of 500,000 stock options, which are
intended to cover a five-year employment period, subject to annual review and
potential increase by the Board.
SECTION 162(m). Section 162(m) of the Code prevents publicly held
corporations, including the Company, from taking a tax deduction for
compensation paid to a "covered employee" in a taxable year to the extent that
the compensation exceeds $1 million and is not qualified performance-based
compensation under the Code. Generally covered employees are the executive
officers named in the Summary Compensation Table. The Stock Incentive Plan has
been designed to meet the proposed regulations so that compensation realized in
connection with stock options, stock appreciation rights and other performance-
based equity incentives granted under the Stock Incentive Plan will also be
excluded from the deduction limit.
Richard C. Marcus
Andrew H. Tisch
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CORPORATE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company, the S&P 500 Index and the Dow Jones Retail - All Specialty Index
for the period since August 1, 1993 (the date on which the Company's Common
Stock began trading publicly). The comparison assumes $100 was invested on
August 1, 1993 in the Company's Common Stock and in each of the two indices
and, for the S&P 500 Index and the Dow Jones Retail - All Specialty Index,
assumes reinvestment of dividends. The Company has not paid dividends
since August 1, 1993.
[GRAPH]
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
08/01/93 10/29/93 01/31/94 04/29/94 07/29/94 10/31/94 01/31/95 04/28/95 07/31/95 01/31/95
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zale Corporation $100.00 $ 97.45 $ 96.10 $ 93.51 $ 93.51 $131.17 $106.49 $121.43 $148.05 $153.25
- ---------------------------------------------------------------------------------------------------------------------------
S&P 500 $100.00 $105.12 $108.96 $102.69 $105.15 $109.17 $109.53 $120.59 $132.57 $137.98
- ---------------------------------------------------------------------------------------------------------------------------
S&P Specialty Retail $100.00 $101.11 $100.51 $ 98.46 $ 97.59 $106.99 $ 99.85 $ 92.73 $103.84 $ 87.42
- ---------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------
01/31/96 04/30/96 07/31/96
- -----------------------------------------------------
Zale Corporation $143.48 $193.56 $180.57
- -----------------------------------------------------
S&P 500 $151.80 $156.97 $154.48
- -----------------------------------------------------
S&P Specialty Retail $ 93.01 $106.80 $108.00
- -----------------------------------------------------
</TABLE>
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THE STOCK PRICE PERFORMANCE DEPICTED IN THE ABOVE GRAPH IS NOT NECESSARILY
INDICATIVE OF FUTURE PRICE PERFORMANCE. THE CORPORATE PERFORMANCE GRAPH WILL
NOT BE DEEMED TO BE INCORPORATED BY REFERENCE IN ANY FILING BY THE COMPANY UNDER
THE SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THE GRAPH BY REFERENCE.
SECTION 16(A) REPORTING
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than 10% of any class
of the Company's equity securities, to file with the Commission initial reports
("Form 3") of beneficial ownership and reports of changes ("Form 4") in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
reports they file. To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, all Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with for the year ended July 31, 1996, except that the following filing was
late: Ms. Andrea Jung's Form 3.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting, it is the intention of the named proxies in the accompanying
proxy to vote in accordance with their judgment on such matters.
VOTING REQUIREMENTS
With regard to Proposal No. 1, the election of directors, votes may be cast
for or votes may be withheld from each nominee. Directors will be elected by
plurality vote. Therefore, votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may not be specified with
respect to the election of directors and, under applicable Delaware law, broker
non-votes will have no effect on the outcome of the election of directors.
With regard to Proposal No. 2, approval of the Amendment to the Stock
Incentive Plan, and Proposal No. 3, the ratification of independent public
accountants, votes may be cast for or against the matter, or stockholders may
abstain from voting on the matter. Approval of each such matter requires the
affirmative vote of at least a majority of the shares of Common Stock present or
represented by proxy at the meeting and entitled to vote. Therefore,
abstentions will have the effect of votes against the approval of the matter.
However, under applicable Delaware law, a broker non-vote with respect to the
proposed amendment will have no effect on the outcome of the approval of the
Amendment.
If no directions are specified in any duly signed and dated proxy card
received by the Company, the shares represented by that proxy card will be
counted as present for quorum purposes and will be voted by the named proxies
FOR the election of the director nominees recommended by the Board of Directors,
FOR approval of the amendment to the Stock Incentive Plan, FOR the ratification
of the appointment of Arthur Andersen LLP as the Company's independent public
accountants, and in accordance with the discretion of the named proxies on other
matters properly brought before the Annual
23
<PAGE>
Meeting.
STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES
The Bylaws of the Company provide that any stockholder of record who is
entitled to vote for the election of directors at a meeting called for that
purpose may nominate persons for election to the Board of Directors subject to
the following notice requirements.
As described more fully in the Company's Bylaws, a stockholder desiring to
nominate a person for election to the Board of Directors must send a written
notice to the Secretary of the Company setting forth (i) as to each person who
the stockholder proposes to nominate, all information required to be disclosed
in solicitations of proxies for election of directors, or as otherwise required,
in each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the Proxy Statement as a nominee and
to serving as a director if elected); and (ii) as to the stockholder giving the
notice (A) the name and address of such stockholder as it appears on the
Company's books and (B) the class and number of shares of the Company that are
owned of record by such stockholder.
Pursuant to the Company's Bylaws, to be timely, notice of persons to be
nominated by a stockholder as a director at a meeting of stockholders must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received not later than the close
of business on the tenth day following the day on which such notice of the
meeting date was mailed or such public disclosure was made or, in the case of an
annual meeting, if earlier than such tenth day, the sixtieth day before the
anniversary date of the last annual meeting (September 3, 1996 in the case of
the 1996 annual stockholders' meeting). The obligation of stockholders to
comply with the foregoing Bylaw provision is in addition to the requirements of
the proxy rules if the stockholder intends to solicit proxies in favor of the
election of its nominee(s).
STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the Company's Proxy Statement
relating to the 1997 Annual Meeting of Stockholders of the Company must be
received by no later than June 4, 1997 at the Company's principal executive
offices, 901 West Walnut Hill Lane, Irving, Texas 75038-1003, Attention: Legal
Department. Stockholders of the Company who intend to nominate candidates for
election as a director or to bring business before the meeting must also comply
with the applicable procedures set forth in the Company's Bylaws. See
"Stockholder Nomination of Director Candidates." The Company will furnish copies
of such Bylaw provisions upon written request to the Secretary of the Company at
the aforementioned address.
24
<PAGE>
AVAILABILITY OF FORM 10-K
The Company will provide to any stockholder, without charge, upon written
request of such stockholder, a copy of the Annual Report on Form 10-K for the
Fiscal Year Ended July 31, 1996, as filed with the Commission. Such requests
should be addressed to Zale Corporation, 901 West Walnut Hill Lane, Irving,
Texas 75038-1003, Attention: Investor Relations, MS 6B-3.
The foregoing Notice and Proxy Statement are sent by order of the Board of
Directors.
ALAN P. SHOR
SENIOR VICE PRESIDENT, ADMINISTRATION
GENERAL COUNSEL AND SECRETARY
October 2, 1996
25
<PAGE>
APPENDIX A
ZALE CORPORATION
OMNIBUS STOCK INCENTIVE PLAN
July 27, 1994
1. PREAMBLE
The Zale Corporation Stock Option Plan became effective on the Effective
Date (as defined in Section 2(j) below), having been, and having been deemed to
be, approved by a vote of the stockholders of Zale Corporation pursuant to
Sections 6.1(e) and (f) of the Bankruptcy Plan (as defined in Section 2(a)
below). Section 11 of the Stock Option Plan provides that the Board of
Directors of Zale Corporation may amend the Plan at any time, subject to
stockholder approval in certain circumstances. On June 15, 1994, the Board of
Directors adopted an amendment restating the Stock Option Plan in its entirety,
effective on the Effective Date, and renaming it the Zale Corporation Omnibus
Stock Incentive Plan. The restated plan is set forth in this document. This
Zale Corporation Omnibus Stock Incentive Plan is intended to promote the
interests of the Company and its shareholders by providing officers and other
employees (including directors who are employees) of the Company with
appropriate incentives and rewards to encourage them to enter into and continue
in the employ of the Company and to acquire a proprietary interest in the long-
term success of the Company.
2. DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Bankruptcy Plan" means the Plan of Reorganization under Chapter 11 of
the Bankruptcy Code for the Company and its Affiliated Debtors dated
March 24, 1993, as modified, and confirmed by order, entered May 20,
1993, of the United States Bankruptcy Court for the Northern District
of Texas, Dallas Division.
(b) "Board of Directors" shall mean the Board of Directors of the Company.
(c) "Cause," when used in connection with the termination of a
Participant's employment by the Company, shall mean (i) the willful
and continued failure by the Participant substantially to perform his
duties and obligations to the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) or
(ii) the willful engaging by the Participant in misconduct which is
materially injurious to the Company. For purposes of this Section 2
(c), no act, or failure to act, on a Participant's part shall be
considered "willful" unless done, or omitted to be done, by the
Participant in bad faith and without reasonable belief that his action
or omission was in the best interests of the Company. The Company
shall determine whether a termination of employment is for Cause and
shall notify the Committee of such a determination.
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<PAGE>
(d) "Change in Control" shall mean any of the following occurrences:
(1) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company or any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding
securities;
(2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in clause (1), (3) or (4) of this
definition) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other entity, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove
defined) acquires more than 50% of the combined voting power of
the Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall
appoint from time to time to administer the Plan provided, that the
Committee shall at all times consist of two or more persons, each of
whom shall be a member of the Board of Directors. To the extent
required for transactions under the Plan to qualify for the exemptions
available under Rule 16b-3, no person may serve on the Committee if,
during the year preceding such service, he was granted or awarded
equity securities of the Company (including options on such
securities) under the Plan or any other plan of the Company or any
affiliate thereof, other than a plan described in Rule
16b-3(c)(2)(ii). To the extent required for compensation realized
from Incentive Awards under the Plan to be deductible by the Company
pursuant
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<PAGE>
to Section 162(m) of the Code, members of the Committee (or any
subcommittee thereof) shall be "outside directors" within the meaning
of such Section.
(g) "Company" shall mean Zale Corporation, a Delaware corporation, and
each of its subsidiaries.
(h) "Company Stock" shall mean the common stock of Zale Corporation.
(i) "Disability" shall mean: (1) any physical or mental condition that
would qualify a Participant for a disability benefit under the long-
term disability plan maintained by the Company and applicable to him;
or (2) when used in connection with the exercise of an Incentive Stock
Option following termination of employment, disability within the
meaning of Section 22(e)(3) of the Code.
(j) "Effective Date" shall mean July 30, 1993, the effective date of the
Bankruptcy Plan.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) The "Fair Market Value" of a share of Company Stock with respect to
any day shall be the average of the high and low sale prices on the
immediately preceding business day as reported on the National
Association of Securities Dealers Automated Quotation System or on a
national securities exchange if listed thereon. In the event that the
price of a share of Company Stock shall not be so reported, the Fair
Market Value of a share of Company Stock shall be determined by the
Committee in its absolute discretion.
(m) "Incentive Award" shall mean an Option, Tandem SAR, Stand-Alone SAR,
share of Restricted Stock, share of Phantom Stock or Stock Bonus
granted pursuant to the terms of the Plan.
(n) "Incentive Stock Option" shall mean an Option that is an "incentive
stock option" within the meaning of Section 422 of the Code.
(o) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued
by the Company pursuant to the terms of Section 10(e).
(p) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(q) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 7.
(r) "Participant" shall mean an employee of the Company to whom an
Incentive Award is granted pursuant to the Plan, and, upon his death,
his successors, heirs, executors and administrators, as the case may
be.
(s) A share of "Phantom Stock" shall mean the right, granted pursuant to
Section 11, to receive in cash the Fair Market Value of a share of
Company Stock.
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<PAGE>
(t) "Plan" shall mean the Zale Corporation Omnibus Stock Incentive Plan,
as it may be amended from time to time.
(u) "Plan Agreement" shall mean the written agreement between the Company
and a Participant evidencing an Incentive Award.
(v) A share of "Restricted Stock" shall mean a share of Company Stock
which is granted pursuant to the terms of Section 10 hereof and which
is subject to the restrictions set forth in Section 10(c).
(w) "Rule 16b-3" shall mean the rule thus designated as promulgated under
the Exchange Act.
(x) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 9 which is not related to any Option.
(y) "Stock Bonus" shall mean a bonus payable in shares of Company Stock
granted pursuant to Section 12.
(z) "Subsidiary" shall mean any corporation in which, at the time of
reference, the Company owns, directly or indirectly, stock comprising
more than fifty percent of the total combined voting power of all
classes of stock of such corporation.
(aa) "Tandem SAR" shall mean a stock appreciation right granted pursuant to
Section 8 which is related to an Option.
(bb) "Vesting Date" shall mean the date established by the Committee on
which a share of Restricted Stock or Phantom Stock may vest.
3. STOCK SUBJECT TO THE PLAN
(a) SHARES AVAILABLE FOR AWARDS
The total number of shares of Company Stock with respect to which
Incentive Awards may be granted shall not exceed 3,055,000 shares.
Such shares may be authorized but unissued Common Stock or authorized
and issued Common Stock held in the Company's treasury or acquired by
the Company for the purposes of the Plan. The Committee may direct
that any stock certificate evidencing shares issued pursuant to the
Plan shall bear a legend setting forth such restrictions on
transferability as may apply to such shares pursuant to the Plan.
4
<PAGE>
(b) INDIVIDUAL LIMITATION
The total number of shares of Company Stock subject to Options and to
Stand-Alone SARs, awarded to any one employee during any fiscal year
of the Company, shall not exceed 600,000 shares. Determinations under
the preceding sentence shall be made in a manner that is consistent
with Section 162(m) of the Code and regulations promulgated
thereunder. The provisions of this Section 3(b) shall not apply in
any circumstance with respect to which the Committee determines that
compliance with Section 162(m) of the Code is not necessary.
(c) ADJUSTMENT FOR CHANGE IN CAPITALIZATION
If there is any change in the outstanding shares of Company Stock by
reason of a stock dividend or distribution, stock split-up,
recapitalization, combination or exchange of shares, or by reason of
any merger, consolidation, spinoff or other corporate reorganization
in which the Company is the surviving corporation, the number of
shares available for issuance both in the aggregate and with respect
to each outstanding Incentive Award, the price per share under each
outstanding Incentive Award, and the limitation set forth in Section
3(b), shall be proportionately adjusted by the Committee, whose
determination shall be final, binding and conclusive. After any
adjustment made pursuant to this Section 3(c), the number of shares
subject to each outstanding Incentive Award shall be rounded to the
nearest whole number.
(d) RE-USE OF SHARES
The following shares of Company Stock shall again become available for
Incentive Awards: any shares subject to an Incentive Award that remain
unissued upon the cancellation or termination of such Award for any
reason whatsoever, any shares of Restricted Stock forfeited, provided
that any dividends paid on such shares are also forfeited; and any
shares in respect of which a stock appreciation right is settled for
cash.
4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. The Committee shall from
time to time designate the employees of the Company who shall be granted
Incentive Awards and the amount, type and other features of each Incentive
Award.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary or appropriate. The Committee
shall determine whether an authorized leave of absence, or absence in military
or government service, shall constitute termination of employment. Decisions of
the Committee shall be final and binding on all parties. Notwithstanding
anything to the contrary contained herein, the Board of Directors may, in its
sole discretion, at any time and from time to time, resolve to administer the
Plan, in which case the term "Committee" as used herein shall be deemed to mean
the Board of Directors.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the
5
<PAGE>
date on which any Option or Stand-Alone SAR granted under the Plan becomes
exercisable, waive or amend the operation of Plan provisions respecting
exercise after termination of employment or otherwise adjust any of the terms
of such Option or Stand-Alone SAR, and (ii) accelerate the Vesting Date or
Issue Date, or waive any condition imposed hereunder, with respect to any
share of Restricted Stock or Phantom Stock or otherwise adjust any of the
terms applicable to such share.
No member of the Committee shall be liable for any action, omission or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
5. ELIGIBILITY
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be such employees of the Company (including officers of the
Company, whether or not they are directors of the Company) as the Committee
shall select from time to time. Directors who are not employees or officers of
the Company shall not be eligible to receive Incentive Awards under the Plan.
6. AWARDS UNDER THE PLAN; PLAN AGREEMENTS
The Committee may grant Options, Tandem SARs, Stand-Alone SARs, shares of
Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such amounts and
with such terms and conditions as the Committee shall determine, subject to the
provisions of the Plan.
Each Incentive Award granted under the Plan (except an unconditional Stock
Bonus) shall be evidenced by a Plan Agreement which shall contain such
provisions as the Committee may in its sole discretion deem necessary or
desirable. By accepting an Incentive Award, a Participant thereby agrees that
the Award shall be subject to all of the terms and provisions of the Plan and
the applicable Plan Agreement.
7. OPTIONS
(a) IDENTIFICATION OF OPTIONS
Each Option shall be clearly identified in the applicable Plan Agreement as
either an Incentive Stock Option or a Non-Qualified Stock Option.
(b) EXERCISE PRICE
Each Plan Agreement with respect to an Option shall set forth the amount
(the "option exercise price") payable by the grantee to the Company upon
exercise of the Option. The option exercise price per share shall be
determined by the Committee but shall in no event be less than the Fair
Market Value of a share of Company Stock on the date the Option is granted.
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<PAGE>
(c) TERM AND EXERCISE OF OPTIONS
(1) Unless the applicable Plan Agreement provides otherwise, an
Option shall become cumulatively exercisable as to 25 percent of
the shares covered thereby on each of the first, second, third
and fourth anniversaries of the date of grant. The Committee
shall determine the expiration date of each Option; provided,
however, that no Incentive Stock Option shall be exercisable more
than 10 years after the date of grant. Unless the applicable
Plan Agreement provides otherwise, no Option shall be exercisable
prior to the first anniversary of the date of grant.
(2) An Option may be exercised for all or any portion of the shares
as to which it is exercisable; provided, that no partial exercise
of an Option shall be for an aggregate exercise price of less
than $1,000. The partial exercise of an Option shall not cause
the expiration, termination or cancellation of the remaining
portion thereof.
(3) An Option shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
applicable Plan Agreement, shall specify the number of shares of
Company Stock with respect to which the Option is being exercised
and the effective date of the proposed exercise and shall be
signed by the Participant or other person then having the right
to exercise the Option. Such notice may be withdrawn at any time
prior to the close of business on the business day immediately
preceding the effective date of the proposed exercise. Payment
for shares of Company Stock purchased upon the exercise of an
Option shall be made on the effective date of such exercise by
one or a combination of the following means: (I) in cash, by
certified check, bank cashier's check or wire transfer; (ii)
subject to the approval of the Committee, in shares of Company
Stock owned by the Participant for at lease six months prior to
the date of exercise and valued at their Fair Market Value on the
effective date of such exercise; or (iii) subject to the approval
of the Committee, by such other provision as the Committee, by
such other provision as the Committee may from time to time
authorize. Any payment in shares of Company Stock shall be
effected by the delivery of such shares to the Secretary of the
Company, duly endorsed in blank or accompanied by stock powers
duly executed in blank, together with any other documents and
evidences as the Secretary of the Company shall require.
(4) Certificates for shares of Company Stock purchased upon the
exercise of an Option shall be issued in the name of the
Participant or other person entitled to receive such shares, and
delivered to the Participant or such other person as soon as
practicable following the effective date on which the Option is
exercised.
(d) LIMITATIONS ON INCENTIVE STOCK OPTIONS
(1) To the extent that the aggregate Fair Market Value of shares of
Company Stock
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<PAGE>
with respect to which Incentive Stock Options are exercisable
for the first time by a Participant during any calendar year
under the Plan and any other stock option plan of the Company
(or any "subsidiary corporation" of the Company within the
meaning of Section 424 of the Code) shall exceed $100,000, or
such higher value as may be permitted under Section 422 of the
Code, such Options shall be treated as Non-Qualified Stock
Options. Such Fair Market Value shall be determined as of the
date on which each such Incentive Stock Option is granted.
(2) No Incentive Stock Option may be granted to an individual if, at
the time of the proposed grant, such individual owns stock
possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or any of its
"subsidiary corporations" (within the meaning of Section 424 of
the Code), unless (i) the exercise price of such Incentive Stock
Option is at least 110 percent of the Fair Market Value of a
share of Company Stock at the time such Incentive Stock Option is
granted and (ii) such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive
Stock Option is granted.
(e) EFFECT OF TERMINATION OF EMPLOYMENT
(1) Unless the applicable Plan Agreement provides otherwise, in the
event that the employment of a Participant with the Company shall
terminate for any reason other than Cause, Disability or death
(i) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain
exercisable until the date that is three months after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the
close of business on the date of such termination. The three-
month period described in this Section 7(e)(1) shall be extended
to one year in the event of the Participant's death during such
three-month period. Notwithstanding the foregoing, no Option
shall be exercisable after the expiration of its term.
(2) Unless the applicable Plan Agreement provides otherwise, in the
event that the employment of a Participant with the Company shall
terminate on account of the Disability or death of the
Participant (i) Options granted to such Participant, to the
extent that they were exercisable at the time of such
termination, shall remain exercisable until the first anniversary
of such termination, on which date they shall expire, and (ii)
Options granted to such Participant, to the extent that they were
not exercisable at the time of such termination, shall expire at
the close of business on the date of such termination; provided,
however, that no Option shall be exercisable after the expiration
of its term.
(3) In the event of the termination of a Participant's employment for
Cause, all outstanding Options granted to such Participant shall
expire at the commencement of business on the date of such
termination.
8
<PAGE>
(f) ACCELERATION OF EXERCISE DATE UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, each Option granted under
the Plan and outstanding at such time shall become fully and
immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the
Plan.
8. TANDEM SARS
The Committee may grant in connection with any Option granted hereunder one
or more Tandem SARs relating to a number of shares of Company Stock less than or
equal to the number of shares of Company Stock subject to the related Option. A
Tandem SAR may be granted at the same time as, or, in the case of a Non-
Qualified Stock Option, subsequent to the time that, its related Option is
granted.
(a) BENEFIT UPON EXERCISE
The exercise of a Tandem SAR with respect to any number of shares of
Company Stock shall entitle the Participant to a cash payment, for
each such share, equal to the excess of (i) the Fair Market Value of a
share of Company Stock on the exercise date over (ii) the option
exercise price of the related Option. Such payment shall be made as
soon as practicable after the effective date of such exercise.
(b) TERM AND EXERCISE OF TANDEM SAR
(1) A Tandem SAR shall be exercisable only if and to the extent that
its related Option is exercisable.
(2) The exercise of a Tandem SAR with respect to a number of shares
of Company Stock shall cause the immediate and automatic
cancellation of its related Option with respect to an equal
number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other than
pursuant to this Section 8(b)(2)), with respect to a number of
shares of Company Stock shall cause the automatic and immediate
cancellation of any related Tandem SARs to the extent that the
number of shares of Company Stock remaining subject to such
Option is less than the number of shares subject to such Tandem
SARs.
Such Tandem SARs shall be canceled in the order in which they
became exercisable.
(3) A Tandem SAR may be exercised for all or any portion of the
shares as to which it is exercisable; provided, that no partial
exercise of a Tandem SAR shall be for an aggregate exercise price
of less than $1,000. The partial exercise of a Tandem SAR shall
not cause the expiration, termination or cancellation of the
remaining portion thereof.
(4) No Tandem SAR shall be assignable or transferable otherwise than
together with its related Option.
9
<PAGE>
(5) A Tandem SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
applicable Plan Agreement, shall specify the number of shares of
Company Stock with respect to which the Tandem SAR is being
exercised and the effective date of the proposed exercise and
shall be signed by the Participant or other person then having
the right to exercise the Option to which the Tandem SAR is
related. Such notice may be withdrawn at any time prior to the
close of business on the business day immediately preceding the
effective date of the proposed exercise.
9. STAND-ALONE SARS
(A) EXERCISE PRICE
The exercise price per share of a Stand-Alone SAR shall be determined
by the Committee at the time of grant, but shall in no event be less
than the Fair Market Value of a share of Company Stock on the date of
grant.
(B) BENEFIT UPON EXERCISE
The exercise of a Stand-Alone SAR with respect to any number of shares
of Company Stock shall entitle the Participant to a cash payment, for
each such share, equal to the excess of (i) the Fair Market Value of a
share of Company Stock on the exercise date over (ii) the exercise
price of the Stand-Alone SAR. Such payments shall be made as soon as
practicable.
(C) TERM AND EXERCISE OF STAND-ALONE SARS
(1) Unless the applicable Plan Agreement provides otherwise, a Stand-
Alone SAR shall become cumulatively exercisable as to 25 percent
of the shares covered thereby on each of the first, second, third
and fourth anniversaries of the date of grant. The Committee
shall determine the expiration date of each Stand-Alone SAR.
Unless the applicable Plan Agreement provides otherwise, no
Stand-Alone SAR shall be exercisable prior to the first
anniversary of the date of grant.
(2) A Stand-Alone SAR may be exercised for all or any portion of the
shares as to which it is exercisable; provided, that no partial
exercise of a Stand-Alone SAR shall be for an aggregate exercise
price of less than $1,000. The partial exercise of a Stand-Alone
SAR shall not cause the expiration, termination or cancellation
of the remaining portion thereof.
(3) A Stand-Alone SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no
less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be
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<PAGE>
accompanied by the applicable Plan Agreement, shall specify
the number of shares of Company Stock with respect to which
the Stand-Alone SAR is being exercised, and the effective date
of the proposed exercise, and shall be signed by the
Participant. The Participant may withdraw such notice at any
time prior to the close of business on the business day
immediately preceding the effective date of the proposed
exercise.
(D) EFFECT OF TERMINATION OF EMPLOYMENT
The provisions set forth in Section 7 (e) with respect to the exercise
of Options following termination of employment shall apply as well to
such exercise of Stand-Alone SARs.
(E) ACCELERATION OF EXERCISE DATE UPON CHANGE IN CONTROL
Upon the occurrence of a Change in Control, any Stand-Alone SAR
granted under the Plan and outstanding at such time shall become fully
and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the
Plan.
10. RESTRICTED STOCK
(a) ISSUE DATE AND VESTING DATE
At the time of the grant of shares of Restricted Stock, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or
Vesting Dates with respect to such shares. The Committee may divide
such shares into classes and assign a different Issue Date and/or
Vesting Date for each class. If the grantee is employed by the
Company on an Issue Date (which may be the date of grant), the
specified number of shares of Restricted Stock shall be issued in
accordance with the provisions of Section 10(e), Provided that all
conditions to the vesting of a share of Restricted Stock imposed
pursuant to Section 10(b) are satisfied, and except as provided in
Section 10(g), upon the occurrence of the Vesting Date with respect to
a share of Restricted Stock, such share shall vest and the
restrictions of Section 10(c) shall cease to apply to such share.
(b) CONDITIONS TO VESTING
At the time of the grant of shares of Restricted Stock, the Committee
may impose such restrictions or conditions to the vesting of such
shares as it, in its absolute discretion, deems appropriate. By way
of example and not by way of limitation, the Committee may require, as
a condition to the vesting of any class or classes of shares of
Restricted Stock, that the Participant or the Company achieve such
performance goals as the Committee may specify.
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<PAGE>
(C) RESTRICTIONS ON TRANSFER PRIOR TO VESTING
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall be permitted.
Immediately upon any attempt to transfer such rights, such share, and
all of the rights related thereto, shall be forfeited by the
Participant.
(D) DIVIDENDS ON RESTRICTED STOCK
The Committee in its discretion may require that any dividends paid on
shares of Restricted Stock shall be held in escrow until all
restrictions on such shares have lapsed.
(E) ISSUANCE OF CERTIFICATES
(1) Reasonably promptly after the Issue Date with respect to shares
of Restricted Stock, the Company shall cause to be issued a stock
certificate, registered in the name of the Participant to whom
such shares were granted, evidencing such shares; provided, that
the Company shall not cause such a stock certificate to be issued
unless it has received a stock power duly endorsed in blank with
respect to such shares. Each such stock certificate shall bear
the following legend:
The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture provisions and
restrictions against transfer) contained in the Zale
Corporation Omnibus Stock Incentive Plan and a Plan
Agreement entered into between the registered owner of such
shares and Zale Corporation. A copy of the Plan and
Agreement is on file in the office of the Secretary of Zale
Corporation, 901 West Walnut Hill Lane, Irving, Texas 75038-
1003.
Such legend shall not be removed until such shares vest pursuant
to the terms hereof.
(2) Each certificate issued pursuant to this Section 1O(e), together
with the stock powers relating to the shares of Restricted Stock
evidenced by such certificate, shall be held by the Company
unless the Committee determines otherwise.
(F) CONSEQUENCES OF VESTING
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 10(c) shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests,
the Company shall cause to be delivered to the Participant to whom
such shares were granted, a certificate evidencing such share, free of
the legend set forth in Section 10 (e).
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<PAGE>
(G) EFFECT OF TERMINATION OF EMPLOYMENT
(1) Subject to such other provision as the Committee may set forth in
the applicable Plan Agreement, and to the Committee's amendment
authority pursuant to Section 4, during the 90 days following
termination of a Participant's employment for any reason other
than Cause, the Company shall have the right to require the
return of any shares to which restrictions on transferability
apply, in exchange for which the Company shall repay to the
Participant (or the Participant's estate) any amount paid by the
Participant for such shares. In the event that the Company
requires such a return of shares, it shall also have the right to
require the return of all dividends paid on such shares, whether
by termination of any escrow arrangement under which such
dividends are held or otherwise.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Restricted Stock granted to such Participant
which have not vested as of the date of such termination shall
immediately be returned to the Company, together with any
dividends paid on such shares, in return for which the Company
shall repay to the Participant any amount paid for such shares.
(H) EFFECT OF CHANGE IN CONTROL
Upon the occurrence of a Change in Control, all outstanding shares of
Restricted Stock which have not theretofore vested shall immediately
vest.
11. PHANTOM STOCK
(a) VESTING DATE
At the time of the grant of shares of Phantom Stock, the Committee
shall establish a Vesting Date or Vesting Dates with respect to such
shares. The Committee may divide such shares into classes and assign
a different Vesting Date for each class. Provided that all conditions
to the vesting of a share of Phantom Stock imposed pursuant to Section
11(c) are satisfied, and except as provided in Section 11(d), upon the
occurrence of the Vesting Date with respect to a share of Phantom
Stock, such share shall vest.
(b) BENEFIT UPON VESTING
Upon the vesting of a share of Phantom Stock, the Participant shall be
entitled to receive in cash, within 30 days of the date on which such
share vests, an amount equal to the sum of (i) the Fair Market Value
of a share of Company Stock on the date on which such share of Phantom
Stock vests and (ii) the aggregate amount of cash dividends paid with
respect to a share of Company Stock during the period commencing on
the date on which the share of Phantom Stock was granted and
terminating on the date on which such share vests.
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<PAGE>
(c) CONDITIONS TO VESTING
At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions to the vesting of such shares
as it, in its absolute discretion, deems appropriate. By way of
example and not by way of limitation the Committee may require, as a
condition to the vesting of any class or classes of shares of Phantom
Stock, that the Participant or the Company achieve such performance
goals as the Committee may specify.
(d) EFFECT OF TERMINATION OF EMPLOYMENT
(1) Subject to such other provision as the Committee may set forth in
the applicable Plan Agreement, and to the Committee's amendment
authority pursuant to Section 4, shares of Phantom Stock that
have not vested, together with any dividends credited on such
shares, shall be forfeited upon the Participant's termination of
employment for any reason other than Cause.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Phantom Stock granted to such Participant
which have not vested as of the date of such termination shall
immediately be forfeited, together with any dividends credited on
such shares.
(e) EFFECT OF CHANGE IN CONTROL
Upon the occurrence of a Change in Control, all outstanding shares of
Phantom Stock which have not theretofore vested shall immediately
vest.
12. STOCK BONUSES
In the event that the Committee grants a Stock Bonus, a certificate for the
shares of Company Stock comprising such Stock Bonus shall be issued in the name
of the Participant to whom such grant was made and delivered to such Participant
as soon as practicable after the date on which such Stock Bonus is payable.
13. RIGHTS AS A STOCKHOLDER
No person shall have any rights as a stockholder with respect to any shares
of Company Stock covered by or relating to any Incentive Award until the date of
issuance of a stock certificate with respect to such shares. Except as
otherwise expressly provided in Section 3(c), no adjustment to any Incentive
Award shall be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
14. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD
Nothing contained in the Plan or any Plan Agreement shall confer upon any
Participant any right respect to continuation of employment by the Company or
interfere in any way with the right of the Company, subject to the terms of any
separate employment agreement to the contrary, at any time to
14
<PAGE>
terminate such employment or to increase, or decrease the compensation of the
Participant.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant any other Incentive Award
to such Participant or other person at any time nor preclude, the Committee from
making subsequent grants to such Participant or any other person.
15. SECURITIES MATTERS
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of 1933 of any interests in the Plan or
any shares of Company Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing shares of Company
Stock pursuant to the Plan unless and until the Company is advised by
its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental
authority and the requirements of the National Association of
Securities Dealers Automated Quotation System and any other securities
exchange on which shares of Company Stock are traded. The Committee
may require, as a condition of issuance and delivery of certificates
evidencing shares of Company Stock pursuant to the terms hereof, that
the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the
Committee, in its sole discretion, deems necessary or desirable.
(b) The transfer of any shares of Company Stock hereunder shall be
effective only at such time as counsel to the Company shall have
determined that the issuance and delivery of such shares is in
compliance with all applicable laws, regulations of governmental
authority and the requirements of the National Association of
Securities Dealers Automated Quotation System and any other securities
exchange on which shares of Company stock are traded. The Committee
may, in its sole discretion, defer the effectiveness of any transfer
of shares of Company Stock hereunder in order to allow the issuance of
such shares to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal
or state securities laws. The Committee shall inform the Participant
in writing of its decision to defer the effectiveness of a transfer.
During the period of such a deferral in connection with the exercise
of an Option, the Participant may, by written notice, withdraw such
exercise and obtain the refund of any amount paid with respect
thereto.
16. WITHHOLDING TAXES
Whenever cash to be paid pursuant to an Incentive Award, the Company shall
have the right to deduct therefrom an amount sufficient to satisfy any federal,
state and local withholding tax requirements related thereto.
Whenever shares of Company Stock are to be delivered pursuant to an
Incentive Award, the Company shall have the right to require the Participant to
remit to the Company in cash an amount
15
<PAGE>
sufficient to satisfy any federal, state and local withholding tax
requirements related thereto. With the approval of the Committee, which it
shall have sole discretion to grant, a Participant may satisfy the foregoing
requirement by electing to have the Company withhold from delivery shares of
Company Stock having a value equal to the amount of tax to be withheld. Such
shares shall be valued at their Fair Market Value on the date as of which the
amount of tax to be withheld is determined (the "Tax Date"). Fractional share
amounts shall be settled in cash. Such a withholding election may be made
with respect to all or any portion of the shares to be delivered pursuant to
an Incentive Award. To the extent required for such a withholding of stock
to qualify for the exemption available under Rule 16b-3, such an election by
a grantee whose transactions in Common Stock are subject to Section 16(b) of
the Exchange Act shall be: (a) subject to the approval of the Committee in
its sole discretion; (b) irrevocable; (c) made no sooner than six months
after the grant of the award with respect to which the election is made; and
(d) made at least six months prior to the Tax Date unless such withholding
election is in connection with exercise of an Option and both the election
and the exercise occur prior to the Tax Date in a "window period" of 10
business days beginning on the third day following release of the Company's
quarterly or annual summary statement of sales and earnings.
17. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE
If any Participant shall, in connection with the acquisition of shares of
Company Stock under the Plan, make the election permitted under Section 83(b) of
the Code (i.e., an election to include in gross income in the year of transfer
the amounts specified in Section 83(b)), such Participant shall notify the
Company of such election within 10 days of filing notice of the election with
the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code Section
83(b).
18. NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(b) OF THE
CODE
Each Plan Agreement with respect to an Incentive Stock Option shall require
the Participant to notify the Company of any disposition of shares of Company
Stock issued pursuant to the exercise of such Option under the circumstances
described in Section 421 (b) of the Code (relating to certain disqualifying
dispositions), within 10 days of such disposition.
19. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may, at any time, suspend or terminate the Plan or
revise or amend it in any respect whatsoever, provided, however, that
stockholder approval shall be required if and to the extent required by Rule
16b-3 or by any comparable or successor exemption under which the Board of
Directors believes it is appropriate for the Plan to qualify, or if and to the
extent the Board of Directors determines that such approval is appropriate for
purposes of satisfying Section 162(m) or 422 of the Code. Incentive Awards may
be granted under the Plan prior to the receipt of such shareholder approval but
each such grant shall be subject in its entirety to such approval and no award
may be exercised, vested or otherwise satisfied prior to the receipt of such
approval. Nothing herein shall restrict the Committee's ability to exercise its
discretionary authority pursuant to Section 4, which discretion may be exercised
without amendment to the Plan. No action hereunder may, without the consent of
a Participant, reduce the Participant's rights under any outstanding Incentive
Award.
16
<PAGE>
20. NO OBLIGATION TO EXERCISE
The grant to a Participant of an Option, Tandem SAR or Stand-Alone SAR
shall impose no obligation upon such Participant to exercise such Option, Tandem
SAR or Stand-Alone SAR.
21. TRANSFERS UPON DEATH; NONASSIGNABILITY
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executor or administrator of the
Participant's estate or by a person who shall have acquired the right to such
exercise by will or by the laws of descent and distribution. No transfer of an
Incentive Award by will or the laws of descent and distribution shall be
effective to bind the Company unless the Committee shall have been furnished
with (a) written notice thereof and with a copy of the will and/or such evidence
as the Committee may deem necessary to establish the validity of the transfer
and (b) an agreement by the transferee to comply with all the terms and
conditions of the Incentive Award that are or would have been applicable to the
Participant and to be bound by the acknowledgments made by the Participant in
connection with the grant of the Incentive Award.
During a Participant's lifetime, the Committee may permit the transfer,
assignment or other encumbrance of an outstanding Option or outstanding shares
of Restricted Stock unless (y) such Option is an Incentive Stock Option and the
Committee and the Participant intend that it shall retain such status, or (z)
the award is meant to qualify for the exemptions available under Rule 16b-3 and
the Committee and the Participant intend that it shall continue to so qualify.
22. EXPENSES AND RECEIPTS
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purpose.
23. FAILURE TO COMPLY
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant (or beneficiary) to comply with any of the terms and
renditions of the Plan or the applicable Plan Agreement, unless such failure is
remedied by such Participant (or beneficiary) within ten days after notice of
such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion, may determine.
24. EFFECTIVE DATE AND TERM OF PLAN
The Plan became effective on the Effective Date. Unless earlier terminated
by the Board of Directors, the right to grant Incentive Awards under the Plan
will terminate on the tenth anniversary of the Effective Date. Incentive Awards
outstanding at Plan termination will remain in effect according to their terms
and the provisions of the Plan.
17
<PAGE>
25. APPLICABLE LAW
Except to the extent preempted by any applicable federal law, the Plan will
be construed and administered in accordance with the laws of the State of Texas,
without reference to the principles of conflicts of law.
18
<PAGE>
[LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Zale Corporation to be held at 10:00 a.m., October 30, 1996 at our corporate
headquarters located at 901 W. Walnut Hill Lane, Irving, TX. Whether or not
you attend the meeting, we hope that you will be represented at the meeting
by signing and returning the enclosed proxy card in the accompanying envelope
as promptly as possible. Thank you for your consideration of the matters
presented.
Sincerely,
/s/ ROBERT J. DINICOLA
Robert J. DiNicola
Chairman of the Board and
Chief Executive Officer
DETACH HERE ZAL 3
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" ITEMS 1, 2 AND 3. MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of Directors:
NOMINEES: Robert J. DiNicola, Glen Adams, Andrea Jung, Richard Marcus and
Andrew H. Tisch.
FOR WITHHELD
/ / / /
/ / ______________________________________ MARK HERE / /
For all nominees except as noted above FOR ADDRESS
CHANGE AND
NOTE BELOW
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's Omnibus / / / / / /
Stock Incentive Plan to increase the
number of shares of Common Stock
reserved for issuance under such plan by
an additional 500,000 shares.
FOR AGAINST ABSTAIN
3. To ratify the appointment of Arthur / / / / / /
Andersen LLP as the Company's
independent public accountants.
4. In their discretion, the proxies are
authorized to vote as described in the
proxy statement and upon such other
business as may properly come before the
meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS ON STOCK
CERTIFICATE. IF STOCK IS HELD IN THE NAME OF
TWO OR MORE PERSONS, ALL MUST SIGN. WHEN SIGNING
AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME
BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
SIGNATURE: _______________________ DATE: ________
SIGNATURE: _______________________ DATE: ________
<PAGE>
DETACH HERE ZAL 3
ZALE CORPORATION
901 WEST WALNUT HILL LANE
P IRVING, TEXAS 75038-1003
R
O COMMON STOCK PROXY
X SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Y FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 30, 1996
The undersigned appoints ROBERT J. DiNICOLA, MERRILL J. WERTHEIMER and ALAN
P. SHOR, each of them, proxies with full power of substitution, to represent
and to vote as set forth herein all the shares of Common Stock of Zale
Corporation held of record by the undersigned on September 5, 1996, at the
Annual Meeting of Stockholders of Zale Corporation (the "Company") to be held
at the Company's Corporate headquarters located at 901 West Walnut Hill Lane,
Irving, Texas 75038-1003, at 10:00 a.m. local time, on Wednesday, October 30,
1996, and any adjournments thereof.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
