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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
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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):
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(4) Proposed maximum aggregate value of transaction:
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(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 NOVEMBER 13, 1997
--------------
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Zale Corporation, a Delaware corporation (the "Company"), will be
held on Thursday, November 13, 1997, at 10:00 a.m., local time, at the ITT
Sheraton Luxury Collection Hotel-Houston (formerly the Ritz-Carlton Hotel), 1919
Briar Oaks Lane, Houston, Texas 77027 for the following purposes:
1. To elect eight directors for terms expiring at the 1998 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 3,000,000 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 19,
1997, 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 Annual 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
EXECUTIVE VICE PRESIDENT, CHIEF
ADMINISTRATIVE OFFICER,
GENERAL COUNSEL AND SECRETARY
Dallas, Texas
October 14, 1997
<PAGE>
ZALE CORPORATION
901 WEST WALNUT HILL LANE
IRVING, TEXAS 75038-1003
(972) 580-4000
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PROXY STATEMENT
OCTOBER 14, 1997
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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 the ITT Sheraton Luxury
Collection Hotel-Houston (formerly the Ritz-Carlton Hotel), 1919 Briar Oaks
Lane, Houston, Texas 77027 at 10:00 a.m., local time, on Thursday, November 13,
1997, 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
stockholders' 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
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 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 19, 1997, the Company had 35,221,275 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 19,
1997 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 about October 14, 1997.
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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 19, 1997 (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.
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(1)
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FIVE PERCENT STOCKHOLDERS:
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Lynch & Mayer, Inc. 2,260,000(2) 6.4%
520 Madison Avenue
New York, NY 10022
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Denver Investment Advisors LLC 2,008,000(3) 5.7%
1225 17th Street, 26th Floor
Denver, CO 80202
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The Capital Group Companies, Inc. 1,900,000(4) 5.4%
333 South Hope Street
Los Angeles, CA 90071
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Snyder Capital Management, Inc. 1,845,000(5) 5.2%
350 California St., Suite 1460
San Francisco, CA 94101
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DIRECTORS AND
NAMED EXECUTIVE OFFICERS:
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Robert J. DiNicola 608,250(6) 1.7%
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Glen Adams 4,750(7) *
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A. David Brown -0- *
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Peter P. Copses 4,350(8) *
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Andrea Jung 1,250(9) *
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Richard C. Marcus 4,650(10) *
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Charles H. Pistor, Jr. 1,000 *
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Andrew H. Tisch 44,250(11) *
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Beryl B. Raff 51,250(12) *
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Alan P. Shor 27,450(13) *
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Mary L. Forte 44,470(14) *
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Paul G. Leonard 31,250(15) *
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Merrill J. Wertheimer -0-(16) *
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DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (21 PERSONS): 899,620 2.5%
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* Represents less than one percent.
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(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) Based on information obtained from a Form 13-F filed with the Securities
and Exchange Commission in March 1997.
(3) Based on information obtained from a Form 13-F filed with the Securities
and Exchange Commission in March 1997.
(4) Based on information obtained from a Form 13-F filed with the Securities
and Exchange Commission in March 1997.
(5) Based on information obtained from a Form 13-F filed with the Securities
and Exchange Commission in March 1997.
(6) Includes 606,250 shares of Common Stock which Mr. DiNicola may acquire upon
the exercise of options within 60 days after September 19, 1997.
(7) Includes 3,250 shares of Common Stock which Mr. Adams may acquire upon
exercise of options within 60 days of September 19, 1997.
(8) Includes (i) 3,250 shares of Common Stock held jointly with Judith V.
Mueller and (ii) 1,100 shares of Common Stock owned by The Copses
Children's Irrevocable Trust of 1996. Mr. Copses disclaims beneficial
ownership of the 1,100 shares of Common Stock owned by The Copses
Children's Irrevocable Trust of 1996.
(9) All shares of Common Stock may be acquired by Ms. Jung upon exercise of
options within 60 days after September 19, 1997.
(10) Includes 3,250 shares of Common Stock which Mr. Marcus may acquire upon
exercise of options within 60 days after September 19, 1997.
(11) Includes 20,000 shares of Common Stock held by Mr. Tisch as custodian for
his four minor children and 3,250 shares of Common Stock which Mr. Tisch
may acquire upon exercise of options within 60 days after September 19,
1997.
(12) All shares of Common Stock may be acquired by Ms. Raff upon exercise of
options within 60 days after September 19, 1997.
(13) Includes 26,250 shares of Common Stock which Mr. Shor may acquire upon
exercise of options within 60 days after September 19, 1997.
(14) Includes 43,750 shares of Common Stock which Ms. Forte may acquire upon
exercise of options within 60 days after September 19, 1997.
(15) All shares of Common Stock may be acquired by Mr. Leonard upon exercise of
options within 60 days after September 19, 1997.
(16) Mr. Wertheimer retired from the Company effective July 31, 1997.
3
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PROPOSAL NO. 1:
ELECTION OF DIRECTORS
Action will be taken at the Annual Meeting for the election of eight
directors, each of whom will serve until the 1998 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 following sets forth the principal occupations for at least the last
five years and the current directorships of the eight nominees for director
to be elected pursuant to Proposal No.1.
ROBERT J. DINICOLA, Age 49.
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 the 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 17 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 The May
Department Stores Company, Inc.
GLEN ADAMS, Age 58.
DIRECTOR
Mr. Adams has served as a director of the Company since July 21, 1993.
From August 1990 to August 1996, Mr. Adams served as Chairman, President and
Chief Executive Officer of Southmark Corporation in Dallas, Texas, a real
estate financing and syndication firm. 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, Marvel
Entertainment Group, Inc., Toy Biz, Inc. and Search Financial Services, Inc.
PETER P. COPSES, Age 39.
DIRECTOR
Mr. Copses served from September 9, 1993 to September 9, 1996 as a
director of the Company and returned to serve on the Board on February 4,
1997. Since 1990, Mr. Copses has been a principal of Apollo Advisors, L.P.,
which, together with an affiliate, acts as the managing general partner of
Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III,
L.P., private securities investment funds, and of Lion Advisors, L.P., which
acts as a financial advisor to and representative for certain institutional
investors with respect to securities investments. Mr. Copses is a director
of Family Restaurants Inc., Dominick's Finer Foods, Inc. and Food 4 Less
Holdings, Inc.
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<PAGE>
A. DAVID BROWN, Age 55.
DIRECTOR
Mr. Brown joined the board as a director on March 4, 1997. Mr. Brown
became Managing Partner for the New York office of Pendleton James Associates
as of May 15, 1997. Prior to joining Pendleton James Associates, Mr. Brown
served as Vice President of the Worldwide Retail/Fashion Specialty Practice
at Korn/Ferry International from June 1, 1994 to May 14, 1997. Prior to
joining Korn/Ferry, Mr. Brown held numerous positions with R.H. Macy & Co.,
Inc., including Senior Vice President of Human Resources, a position he held
from 1983 to 1994. Mr. Brown is also a director of Selective Insurance
Group, Inc.
ANDREA JUNG, Age 38.
DIRECTOR
Ms. Jung joined the board as a director on June 6, 1996. Ms. Jung is
President of Global Marketing and New Business 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 58.
DIRECTOR
Mr. Marcus has served as a director of the Company since July 21, 1993.
Mr. Marcus is a private investor and cofounder of InterSolve Group, a
management services firm which was established in 1991. Since January 1997,
Mr. Marcus has served as an advisor to Peter J. Solomon Company, a New York
investment banking firm. From December 1994 through December 1995, Mr.
Marcus served as CEO of the Plaid Clothing Group and as a director of that
company from December 1994 through December 1996. In July 1995, Plaid
Clothing Group filed a petition of reorganization under Chapter 11 of the
U.S. Bankruptcy Code and was subsequently sold to Hartmarx in December 1996.
From 1988 to 1991, Mr. Marcus was a 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 member of the
Compensation Committee for XcelleNet, Inc.
CHARLES H. PISTOR, JR., Age 67.
DIRECTOR
Mr. Pistor joined the board as a director on June 24, 1997. Mr. Pistor
is the former Vice Chair of Southern Methodist University, and has served as
Chief Executive Officer of Republic BankDallas and president of the American
Bankers Association. Mr. Pistor currently serves as a director on the boards
of Fortune Brands, AMR and American Airlines, Centex Corporation and ORYX
Energy Company.
5
<PAGE>
ANDREW H. TISCH, Age 48.
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 October 1995 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 May 1995. Mr. Tisch is Chairman of the Board of
Directors of Bulova Corporation and served as its President from 1980 to
1989. 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 Canary
Wharf, Ltd.
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 1997
fiscal year beginning on August 1, 1996 and ending July 31, 1997 ("Fiscal
Year 1997").
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 during Fiscal
Year 1997. Glen Adams, Peter P. Copses, Andrea Jung and Charles H. Pistor,
Jr. 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, the Compensation
Committee administers the Company's Stock Incentive Plan, and its other
incentive compensation plans. The Compensation Committee met one time during
Fiscal Year 1997. The current members of the Compensation Committee are
Richard C. Marcus, A. David Brown and Andrew H. Tisch.
During Fiscal Year 1997, the Board of Directors met eight 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.
6
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PROPOSAL NO. 2:
AMENDMENT TO THE ZALE CORPORATION OMNIBUS STOCK INCENTIVE PLAN
On June 15, 1994, the Board of Directors of the Company adopted the Zale
Corporation 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 and other equity-based awards, which awards may be incentive stock
options ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), nonqualified stock options ("NQSOs"),
stock appreciation rights ("SARs"), restricted stock ("Restricted Stock"),
phantom stock ("Phantom Stock"), or stock bonuses ("Stock Bonuses")
(collectively, the "Incentive Awards"). As of September 19, 1997, 2,851,700
shares of Common Stock were reserved for issuance upon the exercise of
options or other Incentive Awards previously granted under the Stock
Incentive Plan and 187,875 were reserved for the grant of future options or
other Incentive Awards.
On September 11, 1997, the Board of Directors approved an amendment to
the Stock Incentive Plan, subject to stockholder approval, to increase the
number of shares of Common Stock reserved for issuance by an additional
3,000,000 shares, thereby increasing the number of shares of Common Stock
available for future grants under the Stock Incentive Plan to 3,187,875. The
Board adopted this amendment to ensure that the Company will continue to have
sufficient shares of Common Stock 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 stockholders 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 and its
subsidiaries (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 are not employees or officers of the Company are
ineligible to participate in the Stock Incentive Plan. The Company estimates
that at the present time approximately 6% of its approximately 10,000
employees are eligible employees who may 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 may appoint 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 Stock Incentive Plan to be deductible by the
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Company pursuant to Section 162(m) of the Code, members of the Committee
shall be "outside directors" within the meaning of such Section.
AWARD 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 ISOs 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 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. Restricted Stock is stock for
which no transfer of a Participant's rights with respect to such stock will
be permitted prior to the vesting of such stock. Phantom stock awards 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 or SAR 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 ISO 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 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 ISO 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 the
Restricted Stock and a vesting date with respect to shares of both the
Restricted Stock and Phantom Stock.
8
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CHANGE OF CONTROL. The Stock Incentive Plan provides that, upon the
occurrence of a Change in Control (as defined in the Stock Incentive Plan)
(i) each option and each Stand-Alone SAR granted thereunder and outstanding
at such time will become fully and immediately exercisable and will remain
exercisable until its expiration, termination or cancellation pursuant to the
terms of the Stock Incentive Plan, and (ii) all outstanding shares of
Restricted Stock and Phantom Stock which have not theretofore vested will
immediately vest.
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 a mid or long-term capital gain or loss, depending on
the length of time the stock was held. 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 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).
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
9
<PAGE>
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.
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 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, so
long as the 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, mid or short-term capital gain, depending on the length of time the
stock was held.
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,
10
<PAGE>
mid or short-term, depending on the length of time the stock was held) 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.
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 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
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 stockholders.
ADDITIONAL INFORMATION REGARDING NEW PLAN BENEFITS. Awards under the
Stock Incentive Plan are based upon the Company's performance. Accordingly,
future awards ("new plan benefits") under the Stock Incentive Plan are not
determinable at this time. Reference is made to the sections captioned
"Summary Compensation Table," "Option Grants in Last Fiscal Year" and "FY-End
Option Values" at pages 13 through 15 of this Proxy Statement for detailed
information on stock incentive awards and exercises of such awards by certain
executive officers under the Stock Incentive Plan during the three most
recent fiscal years.
MARKET PRICE OF THE COMMON STOCK
The closing price of the Common Stock as reported by the New York Stock
Exchange was $27.9375 per share on September 19, 1997.
The Board of Directors recommends that the stockholders vote FOR the
amendment to the Stock Incentive Plan.
11
<PAGE>
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, July 31, 1996 and July 31, 1997, and has been
reappointed by the Board of Directors to serve in that capacity for the 1998
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 1998 fiscal year if the Board of Directors
believes that such a change would be in the best interests of the Company.
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.
12
<PAGE>
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, 1997, July 31, 1996 and July 31, 1995, to the
Company's Chief Executive Officer, the four other most highly compensated
executive officers of the Company currently serving as such, and one retired
executive officer (collectively, the "named executive officers"). 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.
<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(3) 1997 825,000 588,414 -- 39,889
Chairman and 1996 750,000 621,075 500,000 8,702
Chief Executive Officer 1995 679,791 325,000 675,000 620,383
- --------------------------------------------------------------------------------------------------------------
Mary L. Forte(4) 1997 250,000 58,529 45,000 5,215
President, 1996 230,000 28,750 50,000 6,280
Gordon's Division 1995 216,264 44,691 40,000 121,207
- --------------------------------------------------------------------------------------------------------------
Paul G. Leonard(5) 1997 235,000 117,500 -- 6,472
President, 1996 220,000 110,000 50,000 6,783
Bailey, Banks and Biddle Division 1995 167,038 60,341 30,000 131,422
- --------------------------------------------------------------------------------------------------------------
Beryl B. Raff(6) 1997 301,507 37,500 60,000 9,326
Executive Vice President, 1996 260,000 112,489 75,000 150,677
Chief Operating Officer 1995 174,359 69,744 65,000 68,909
- --------------------------------------------------------------------------------------------------------------
Alan P. Shor(7) 1997 288,750 90,858 55,000 11,583
Executive Vice President, Chief Administrative 1996 275,000 113,864 35,000 62,274
Officer, General Counsel and Secretary 1995 43,718 -- 35,000 85,473
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Merrill J. Wertheimer(8) 1997 300,000 94,399 -- 13,093
Former Executive Vice President - 1996 275,000 113,864 50,000 10,141
Finance and Chief Financial Officer 1995 230,708 81,535 66,000 7,880
- --------------------------------------------------------------------------------------------------------------
</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" for 1997 consists of $696 for group
term life insurance premiums, $1,250 annual insurance premiums paid by the
Company, $7,943 for the Company's Medical Expenses Reimbursement Plan,
$5,000 for Executive Financial Planning and $25,000 retro pay.
(4) Ms. Forte's "All Other Compensation" for 1997 consists of $618 for group
term life insurance premiums, $1,153 annual insurance premiums paid by the
Company, $381 for the Company's Medical Expenses Reimbursement Plan and
$3,063 for Executive Financial Planning.
13
<PAGE>
(5) Mr. Leonard's "All Other Compensation" for 1997 consists of $402 for group
term life insurance premiums, $715 annual insurance premiums paid by the
Company, $2,292 for the Company's Medical Expenses Reimbursement Plan and
$3,063 for Executive Financial Planning.
(6) Ms. Raff's "All Other Compensation" for 1997 consists of $696 for group
term life insurance premiums, $1,223 annual insurance premiums paid by the
Company, $3,469 for the Company's Medical Expenses Reimbursement Plan and
$3,938 for Executive Financial Planning.
(7) Mr. Shor's "All Other Compensation" for 1997 consists of $264 for group
term life insurance premiums, $466 annual insurance premiums paid by the
Company, $6,915 for the Company's Medical Expenses Reimbursement Plan, and
$3,938 for Executive Financial Planning.
(8) Mr. Wertheimer retired from the Company effective July 31, 1997. Mr.
Wertheimer's "All Other Compensation" for 1997 consists of $1,778 for group
term life insurance premiums, $3,478 for annual insurance premiums paid by
the Company and $7,837 for the Company's Medical Expenses Reimbursement
Plan.
OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table sets forth all stock option grants to the named executive
officers during the year ended July 31, 1997.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION
FOR OPTION TERM (2)
- -----------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS EXERCISE OR
SECURITIES GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME UNDERLYING OPTIONS IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
GRANTED (#)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. DiNicola --- --- --- --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------
Mary L. Forte 45,000 1.09% 21.8125 7/17/07 603,551 1,542,470
- -----------------------------------------------------------------------------------------------------------------------------
Paul G. Leonard --- --- --- --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------
Beryl B. Raff 60,000 1.45% 21.8125 7/17/07 804,735 2,056,627
- -----------------------------------------------------------------------------------------------------------------------------
Alan P. Shor 55,000 1.33% 21.8125 7/17/07 737,673 1,885,241
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Merrill J. Wertheimer --- --- --- --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Sets forth options granted under the Stock Incentive Plan for the fiscal
year ended July 31, 1997. Unless the applicable plan agreement provides
otherwise, options granted under the Stock Incentive Plan 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. Upon the occurrence of a change of control (as defined in the
Stock Incentive Plan), options shall become fully and immediately
exercisable. See "Proposal No.2: Amendment to the Zale Corporation Omnibus
Stock Incentive Plan - Major Provisions of the Plan."
(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.
14
<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, 1997.
<TABLE>
- ------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)(1)
- ------------------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert J. DiNicola 606,250 568,750 $6,510,468 $3,720,153
- ------------------------------------------------------------------------------------------
Mary L. Forte 43,750 106,250 349,218 355,154
- ------------------------------------------------------------------------------------------
Paul G. Leonard 27,500 52,500 171,245 272,807
- ------------------------------------------------------------------------------------------
Beryl B. Raff 51,250 148,750 338,357 490,701
- ------------------------------------------------------------------------------------------
Alan P. Shor 26,250 98,750 186,635 257,729
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Merrill J. Wertheimer (2) 89,500 --- 627,843 ---
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) These amounts represent the excess of the fair market value of the Common
Stock of $21.75 per share as of July 31, 1997 above the exercise price of
the options.
(2) Mr. Wertheimer's unvested options were accelerated as of July 31, 1997, the
effective date of his retirement from the Company.
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. Leonard, Ms.
Raff, Mr. Shor, and Ms. Forte, in addition to other executive officers of the
Company, are eligible to receive benefits under the Severance Plan in accordance
with its terms.
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 on 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
definition of "Change of Control" in the Plan to correct a minor technicality.
15
<PAGE>
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, Paul G. Leonard,
Beryl B. Raff, Alan P. Shor and Mary L. Forte (assuming current salary of each
of the named executive officers) are $486,300, $194,700, $235,400, $295,300 and
$186,700, respectively.
EMPLOYMENT AGREEMENTS
DINICOLA EMPLOYMENT AGREEMENT. On August 1, 1997, Mr. DiNicola entered
into an employment agreement with the Company that will expire on August 1,
2002, unless earlier terminated. Mr. DiNicola serves as the Company's Chairman
of the Board and Chief Executive Officer pursuant to his employment agreement.
Pursuant to his employment agreement, Mr. DiNicola will receive an annual base
salary of not less than $850,000 (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 and is eligible to
receive up to 110% of his base salary in accordance with the terms of the
Company's Executive Bonus Program.
If Mr. DiNicola's employment is terminated without cause (as defined), the
Company elects not to renew Mr. DiNicola's agreement, or Mr. DiNicola terminates
the agreement for good reason (as defined), he will be entitled to receive his
base salary for 60 months after the effective date of such expiration or
termination. In the event of a change of control (as defined), the Company
shall pay to Mr. DiNicola: (i) an amount equal to five times his base salary;
(ii) an amount equal to five times his average annual cash bonus for the
preceding two fiscal years; (iii) certain benefits under the Zale Delaware, Inc.
Supplemental Executive Retirement Plan, and (iv) all benefits under the
Company's various benefit plans for 60 months following the effective date of
expiration or termination.
EXECUTIVE EMPLOYMENT AGREEMENTS. On August 1, 1997, Mr. Shor, Ms. Raff and
Louis J. Grabowsky (the Company's Executive Vice President and Chief Financial
Officer) entered into employment agreements (the "Executive Employment
Agreements") with the Company substantially similar to the Company's employment
agreement with Mr. DiNicola, except that: (i) parties to the Executive
Employment Agreements are eligible to receive up to 50% of their base salary in
accordance with the Executive Bonus Program; (ii) the term of the Executive
Employment Agreements is 3 years; and (iii) in the event of a change of control,
benefits are provided under the Executive Employment Agreements for a period of
36 months.
16
<PAGE>
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 or 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 has entered into similar agreements with all directors
elected to the Board for the first time since 1993 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.
CHANGE OF CONTROL AGREEMENTS
The Company has entered into Change of Control Agreements (the "Change of
Control Agreements") with its executive officers (excluding its Chief Executive
Officer and Executive Vice Presidents) and certain key employees. The Change of
Control Agreements are intended to supplement any other programs sponsored by
the Company, including, but not limited to, the Company's severance and stock
option plans. Under the Change of Control Agreements, a change of control
("Change of Control") is defined as the date as of which: (i) there is
consummated any consolidation or merger of the Company pursuant to which the
Company is not the surviving corporation or the shares of the Company's Common
Stock are converted into cash, securities or other property, other than a merger
in which the holders of the Company's Common Stock have the same proportionate
ownership of the surviving corporation immediately after the merger, or any
sale, lease, exchange or other transfer of all or substantially all of the
assets of the Company; (ii) the stockholders of the Company approve any plan or
proposal for liquidation or dissolution of the Company; (iii) any "person" (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act, becoming
the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated
pursuant to the Exchange Act), of 30% of the Company's outstanding common stock;
or (iv) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board of Directors of the Company
ceasing for any reason to constitute a majority of the Board of Directors unless
17
<PAGE>
the election, or nomination for election by the Company's stockholders, was
approved by a vote of at least two-thirds of the directors who were directors at
the beginning of such period.
If any of the parties to the Change of Control Agreements are terminated
within two years following a Change of Control, for any reason other than Cause
or Disability (as defined), or if the parties terminate their employment with
the Company for Good Reason (as defined), the Company shall: (i) pay an amount
equal to three times the party's average Annual Compensation (as defined) for
any fiscal year beginning with or within the three-year period ending on the
date of termination of the party's employment; (ii) for three years following
the date of termination of employment, the party and anyone entitled to claim
under or through the party shall be entitled to all benefits provided by the
Company under certain group employee benefit plans to the same extent to which
the party would have been entitled if he or she had remained an employee of the
Company; and (iii) a lump sum payment equal to the actuarial equivalent of the
benefits that would have accrued to the party under the Zale Delaware, Inc.
Supplemental Executive Retirement Plan. The Change of Control Agreements are
required to be assumed by any successor to the Company by merger or otherwise.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, there were no Compensation Committee interlocks.
RELATED PARTY TRANSACTION
As of August 31, 1997, Greg Humenesky, an executive officer of the Company,
owed the Company $14,906, which is payable in full plus interest at a rate of 7%
per annum, on the first to occur of December 31, 1997 or Mr. Humenesky's
termination of employment with the Company.
18
<PAGE>
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:
- 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 among short, medium and long-term
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 1997, 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 division earnings before
interest, taxes, depreciation and amortization ("EBITDA") targets and EBITDA as
a percentage of total sales.
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 did not work
19
<PAGE>
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 worked for an operating division, no bonus could be paid if the
division failed to achieve at least the minimum threshold target for EBITDA.
For fiscal 1998, the annual bonuses available to the Company's executive
officers will be based upon quantitative measures of the Company's financial
performance as measured by corporate net earnings targets and net earnings as a
percentage of total sales, instead of EBITDA, as set forth in the Company's
annual financial plan.
Bonus opportunity will still be calculated as a percentage of the
recipient's base salary. Specifically, operating division participants can earn
up to 70% of their maximum bonus opportunity if the Company exceeds its net
earnings bonus target and up to 30% of the maximum bonus opportunity if the
Company exceeds its net earnings as a percentage of sales target. No bonus can
be achieved if the Company fails to attain at least the threshold target for net
earnings. For those employees who work for an operating division, no bonus can
be paid if the division fails to achieve at least the minimum threshold target
for division net earnings. Corporate participants can earn up to 49% of their
maximum bonus opportunity if the Company exceeds its net earnings bonus target
and up to 21% of the maximum bonus opportunity if the Company exceeds its net
earnings as a percentage of sales target. Additionally, 30% of their maximum
bonus opportunity is based upon the achievement of personal and functional
goals.
EQUITY INCENTIVES. The Company's 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, 1997, option awards were made to
approximately 73 of the Company's employees covering an aggregate of 577,000
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 1997 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 $850,000. This base salary is subject to annual review and potential
increase by the Board of Directors. See "Executive and Director Compensation -
Employment Agreements." An annual bonus for Mr. DiNicola for fiscal 1997 was
awarded pursuant to the terms of the Company's annual bonus plan. As described
in "Executive and Directors Compensation - Summary Compensation Table," in 1997,
Mr. DiNicola received a bonus of $588,414.
20
<PAGE>
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 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. Portions of the compensation paid to
Mr. DiNicola for 1997 do not meet the criteria for deductibility under Section
162(m). However, the amount exceeding the limits on deductibility is not
material to the Company. Moreover, the Committee believes that, in order to
attract, retain and reward the executive talent necessary to maximize
stockholder returns, the Company's interests are best served in some
circumstances by providing compensation which is subject to the deductibility
limitation imposed by Section 162(m). The Committee's present intention is to
structure compensation to be tax deductible; however, it retains the discretion
to authorize compensation that does not qualify for income tax deductibility.
Richard C. Marcus, Chairman
A. David Brown
Andrew H. Tisch
21
<PAGE>
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.
<TABLE>
<CAPTION>
8/1/93 1/31/94 7/29/94 1/31/95 7/31/95 1/31/96 7/31/96 1/31/97 7/31/97
------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zale Corporation 100 96.10 93.51 106.49 148.05 143.48 180.57 166.23 225.97
S&P 500 100 108.96 105.15 109.53 132.57 151.80 154.48 191.76 234.99
S&P Specialty Retail 100 100.51 97.59 99.85 103.84 93.01 108.00 111.11 153.09
</TABLE>
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 OF 1993, AS AMENDED (THE "SECURITIES ACT") OR THE EXCHANGE
ACT, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THE GRAPH
BY REFERENCE.
22
<PAGE>
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, 1997, except that the following filings were
late: Mr. Charles H. Pistor, Jr.'s Form 3 and Form 4 and Mr. Peter P. Copses'
Form 4.
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, the amendment to the Stock Incentive Plan
the ratification of independent public accountants, 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
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, under applicable Delaware law, abstentions will have the
effect of votes against the approval of the matter. Broker non-votes will count
for purposes of determining the presence of a quorum, but will have no effect on
the voting with respect to Proposal No.2 and Proposal No.3.
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 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 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.
23
<PAGE>
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 by a stockholder of
nominations for election of a director at a meeting of stockholders must be
delivered to the principal executive offices of the Company not less than 60
days and not more than 90 days prior to the meeting. However, in the event that
there is less than 70 days' notice or prior public disclosure of the date of the
meeting, in that case, to be timely, notice from the stockholder must be
received no later than ten (10) days following the day on which such notice of
the meeting date was mailed or such public disclosure was made. Alternatively,
in the case of an annual meeting, such notice must be delivered by the sixtieth
day before the anniversary date of the last annual meeting (November 13th in the
case of the 1997 Annual Stockholders' Meeting), assuming that such sixtieth day
is earlier than the tenth day following the day on which notice of the meeting
was mailed or public disclosure was made. 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 1998 Annual Meeting of Stockholders of the Company must be
received by no later than June 16, 1998 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, 1997, 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-1.
The foregoing Notice and Proxy Statement are sent by order of the Board of
Directors.
ALAN P. SHOR
EXECUTIVE VICE PRESIDENT,
CHIEF ADMINISTRATIVE OFFICER,
GENERAL COUNSEL AND SECRETARY
October 14, 1997
25
<PAGE>
DETACH HERE
ZALE CORPORATION
901 WEST WALNUT HILL LANE
IRVING, TEXAS 75038-1003
COMMON STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 13, 1997
P R O X Y
The undersigned appoints ROBERT J. DiNICOLA, LOUIS J. GRABOWSKY 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 19, 1997, at the
Annual Meeting of Stockholders of Zale Corporation (the "Company") to be held
at ITT Sheraton Collection Hotel-Houston (formerly the Ritz-Carlton Hotel),
located at 1919 Briar Oaks Lane, Houston, Texas 77027, at 10:00 a.m. local
time, on Thursday, November 13, 1997, and any adjournments thereof.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
<PAGE>
[LOGO]
ZALE CORPORATION
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Zale Corporation to be held at 10:00 a.m., November 13, 1997 at ITT Sheraton
Collection Hotel-Houston (formerly the Ritz-Carlton Hotel), located at 1919
Briar Oaks Lane, Houston, Texas 77027. 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
ZAL 2F
DETACH HERE
<TABLE>
<S> <C>
Please mark
/X/ 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.
FOR AGAINST ABSTAIN
1. To elect eight directors for terms expiring at the 1998 2. To approve an amendment to the / / / / / /
annual meeting of stockholders. Company's Omnibus Stock Incentive
NOMINEES: Robert J. DiNicola, Glen Adams, Peter P. Plan (the "Stock Incentive Plan")
Copses, A. David Brown, Andrea Jung, Richard C. Marcus, to increase the number of shares
Charles H. Pistor, Jr. and Andrew H. Tisch. of the Company's Common Stock
/ / FOR / / WITHHELD reserved for issuance under such
ALL FROM ALL plan by an additional 3,000,000
NOMINEES NOMINEES shares.
MARK HERE
FOR ADDRESS / /
/ /______________________________________ CHANGE AND
For all nominees except as noted above NOTE BELOW
FOR AGAINST ABSTAIN
3. To ratify the appointment of Arthur / / / / / /
Andersen LLP as the Company's
independent public accountants.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
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: ____________________
</TABLE>
