Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


THIS
EMPLOYMENT AGREEMENT (“Agreement”), dated as of February 16, 2006, is by and
between Zale Corporation (the “Company”),
and John A. Zimmermann (the “Executive”).


 


WHEREAS, the
Executive and the Company desire to enter into an employment agreement which
sets forth the terms and conditions of the Executive’s employment with the
Company.


 


NOW,
THEREFORE, in consideration of the foregoing recital, of the mutual covenants
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:


 


1.             Employment.  The
Executive agrees to continue in the employment of the Company, and the Company
agrees to employ the Executive, on the terms and conditions set forth in this
Agreement. The Executive agrees during the Term (as hereinafter defined) to
devote his full time efforts, skills and abilities to the performance of his
duties as stated in this Agreement and to the furtherance of the Company’s business.
As consideration for this Agreement and specifically in consideration for the
promises described in Section 9, the Company promises to provide the Executive
with confidential and proprietary information and trade secrets, the receipt
and sufficiency of which the Executive acknowledges, including, without
limitation, Trade Secrets (as defined below) belonging to the Company for use
in the performance of the Executive’s duties for the Company. The Executive’s
job title will be Group Senior Vice President of the Company and President,
Zale North America and his duties will be those designated from time to time by
the Chief Executive Officer (“CEO”)
and/or Board of Directors of the Company (“Board”). The
Executive further agrees to serve, without additional compensation, as an
officer or director, or both, of any subsidiary, division or affiliate of the
Company or any other entity in which the Company holds an equity interest,
provided, however, that (a) the Company shall indemnify the Executive from liabilities
in connection with serving in any such position to the same extent as his
indemnification rights pursuant to the Company’s Certificate of Incorporation,
Bylaws and applicable Delaware law, and (b) such other position shall not
materially detract from the responsibilities of the Executive pursuant to this
Section 1 or his ability to perform such responsibilities.


 


2.             Compensation.


 


(a)       Base Salary.  During
the term of the Executive’s employment with the Company pursuant to this
Agreement, the Company shall pay to the Executive as compensation for his
services an annual base salary of not less than $400,000 payable bi-weekly (“Base Salary”). The Executive’s Base
Salary will be payable in arrears in accordance with the Company’s normal
payroll procedures. Executive’s salary will not be reviewed for possible
adjustment before July 31, 2007.


 


(b)       Incentive Bonus.  The
Executive’s incentive compensation program during the term of his employment
under this Agreement shall be determined under the Company’s Executive Bonus
Program, established by the Board in its discretion. The parties expressly
understand and agree that for Fiscal Year 2006, the brand portion of Executive’s
bonus calculation shall be based on the performance of Zale Canada only, and
shall be calculated with a target bonus of 40% of Executive’s Base Salary of
$344,930 for Fiscal Year 2006 and a maximum bonus of 80% of Executive’s Base
Salary of $344,930 for Fiscal Year 2006, in accordance with the terms and 


 

















 


conditions of the Company’s
Executive Bonus Program then in effect at the Company, so that the brand
portion target is $68,986 and its maximum is $137,972. Additionally, the
parties understand and agree that for Fiscal Year 2006 only, Executive shall
have an additional bonus opportunity (the “Additional Bonus Opportunity”) based
on the performance of Zales Jewelers for March through July of Fiscal Year
2006, as described in the Revised Fiscal Year 2006 Zales Jewelers Operating
Earnings Plan. The Additional Bonus Opportunity shall be determined in
accordance with the Executive Bonus Program then in effect at the Company, with
the brand portion contingent on Zales Jewelers reaching the goals set forth in
the Revised Fiscal Year 2006 Zales Jewelers Operating Earnings Plan and
calculated with a target bonus of 75% of Executive’s Base Salary of $166,667
for March through of July Fiscal Year 2006 and a maximum bonus of 125% of
Executive’s Base Salary of $166,667 for March through July of Fiscal Year 2006,
so that the brand portion of the Additional Bonus Opportunity has a target of $62,500
and a maximum of $104,167. The parties further understand and agree that for
all fiscal years under this Agreement other than Fiscal Year 2006, the brand
portion of the Executive’s bonus calculation shall be based on the performance
of Zale Canada and Zales Jewelers, combined (“Zale North America”), with a
target annual bonus of 75% of Executive’s Base Salary and a maximum annual
bonus of 125% of Executive’s Base Salary, in accordance with the terms and
conditions of the Executive Bonus Program then in effect at the Company.


 


(c)       Vacation.  The
Executive shall be entitled to a reasonable vacation of four (4) paid weeks
each fiscal year during the term of his employment under this Agreement in
accordance with the Company’s vacation policy. Any additional vacation shall be
approved in the sole discretion of the Executive’s supervisor.


 


(d)       Executive Perquisites.  The
Executive shall be entitled during the term of his employment under this
Agreement to receive such executive perquisites and fringe and other benefits
as are provided to similarly situated executives and their families under any
of the Company’s plans and/or programs in effect from time to time and such
other benefits as are customarily available to executives of the Company and
their families.


 


(e)       Tax Withholding.  The
Company has the right to deduct from any compensation payable to the Executive
under this Agreement social security (FICA) taxes and all federal, state,
municipal or other such taxes or charges as may now be in effect or that may
hereafter be enacted or required.


 


3.             Term.  Unless
sooner terminated pursuant to Section 4 of this Agreement, the term of the
Executive’s employment under this Agreement shall commence as of the date
hereof and shall continue for three (3) years thereafter up to and including
February 15, 2009 (the “Term”). Following
the expiration of the Term, the Executive’s employment shall continue at-will
unless a new employment agreement is negotiated and executed.


 


4.             Early
Termination.  The Term may be terminated prior to the expiration
date specified in Section 3 under the following circumstances:


 


(a)       Death.  The
Executive’s employment under this Agreement shall terminate upon the death of
the Executive.


 


2

















 


(b)       Termination for Cause.  The
Company may terminate the Executive’s employment at any time for “Cause” (as
hereinafter defined) by delivering a written termination notice to the
Executive. For purposes of this Agreement, “Cause” shall mean any of the
following:


 


(i)        the
Executive is convicted of a felony or a crime involving moral turpitude;


 


(ii)       the
Executive commits an act constituting fraud, deceit or intentional misrepresentation
with respect to the Company that has a material adverse effect on the Company’s
business;


 


(iii)      the
Executive embezzles funds or other assets from the Company;


 


(iv)      the
Executive’s use of any alcoholic, controlled or illegal substance or drug at
work or otherwise such that, in the Company’s sole discretion, the Executive’s
job performance is impaired;


 


(v)       in
the Company’s sole discretion, the Executive commits any negligent or willful
act or omission in the performance of his duties or the exercise of his
responsibilities; or


 


(vi)      in
the Company’s sole discretion, the Executive commits any negligent or willful
act or omission that causes damage
(by reason, without limitation, of financial exposure or loss, damage to
reputation or goodwill, or exposure to civil or criminal penalties or other
prosecutorial action by any governmental authority) to the Company or any
parent or subsidiary corporation thereof;


 


provided, however, that following a Change of Control, Cause shall not
include clause (v) or (vi).


 


or


 


 (c)      Termination Without Cause.  The
Company may terminate the Executive’s employment at any time for any reason
other than for Cause by delivering a written termination notice to the
Executive.


 


(d)       Termination by the Executive.  The
Executive may terminate his employment at any time by delivering a written
termination notice to the Company and such termination shall be deemed a “Termination
Reason” for any of the following reasons:


 


(i)        a
material reduction by the Company in the Executive’s Base Salary unless such reduction
is the result of (A) a business judgment made by the Company in its sole
discretion, or (B) the Executive’s failure to meet pre-established and
objective performance criteria;


 


(ii)       Company’s
principal executive offices shall be moved to a location outside the Dallas/Fort
Worth, Texas Metroplex area or the Executive is required to be based anywhere
other than the Company’s principal executive offices; and


 


3

















 


(iii)      the
assignment to the Executive by the Company of duties materially inconsistent
with, or the material reduction of the powers and functions associated with,
the Executive’s position, duties, responsibilities and status with the Company
or a material adverse change in the Executive’s titles or offices, unless such
action is the result of the Executive’s failure to meet preestablished and
objective performance criteria, or in lieu of termination by the Company of the
Executive’s employment for the Executive’s Disability pursuant to Section 4(e)
below.


 


(e)       Termination Following
Disability.  In the event that in the Company’s sole discretion,
the Executive becomes mentally or physically impaired or disabled and is unable
to perform his duties and responsibilities hereunder for a period of at least
one hundred twenty (120) days in the aggregate during any one hundred fifty
(150) consecutive day period (a “Disability Event”), the Company may terminate
the Executive’s employment under this Agreement by delivering a written
termination notice to the Executive.


 


(f)        Payments/Deductions.  Following
any expiration or termination of the Executive’s employment under this
Agreement, and in addition to any amounts owed pursuant to Section 5 hereof,
the Company shall pay to the Executive all amounts earned by the Executive
hereunder up to the date of such expiration or termination. The Executive
agrees that any advances to the Executive by the Company outstanding at the
time of the expiration or termination of the Executive’s employment under this
Agreement may be deducted from his wages, including his final paycheck and/or
any severance owed to Executive.


 


5.             Rights
of Executive Upon Termination.  Subject to the Executive’s
adherence to the terms of this Agreement, including but not limited to the
non-competition, no-hire/non-solicitation and non-disclosure provisions set
forth below, the Executive shall be entitled to receive the following benefits
in the event his employment is terminated pursuant to Section 4 above prior to
the expiration of the Term specified in Section 3 above.


 


(a)       Death.  In
the event that the Executive’s employment is terminated upon the occurrence of
his death as provided in Section 4(a), the Company shall continue to pay, in
accordance with its normal payroll procedures, the Base Salary to the Executive’s
estate for a period of twelve (12) months after the date of the Executive’s
death.


 


(b)       Termination for Cause.  In
the event that the Executive’s employment is terminated by the Company for
Cause as provided in Section 4(b) or by the Executive without a Termination
Reason as provided in Section 4(d), the Executive shall not thereafter be
entitled to any further compensation from the Company.


 


(c)       Termination without
Cause or by the Executive.  In the event the Company terminates
the Executive’s employment without Cause as provided in Section 4(c) or the
Executive terminates his employment for a Termination Reason as provided in
Sections 4(d)(i), 4(d)(ii) or 4(d)(iii), then the Executive shall be entitled
to the following:


 


(i)        Severance.  The
Company shall continue to pay (in accordance with its normal payroll
procedures) the Base Salary to the Executive (or the Executive’s estate if the
Executive dies after termination of employment) for the greater of (i) the
remainder of the Term or (ii) the period for which the Executive would be
entitled to severance under the 


 


4

















 


Company’s
severance policy in existence at the time of the Executive’s termination (the
greater of (i) and (ii) being hereinafter referred to as the “Severance Period”). In addition,
the Company shall pay the Executive (or the Executive’s estate if the Executive
dies after termination of employment) the bonus he would otherwise be entitled
to under Section 2(b) with respect to the fiscal year in which the termination
occurs, prorated to reflect the number of full months during the fiscal year
that the Executive was employed by the Company, such payment to be made at such
time as it pays all other bonus eligible individuals.


 


 (ii)      Benefits.  During
the first twelve (12) months of the Severance Period or if the Severance Period
is less than twelve (12) months, until the end of the Severance Period, the
Executive shall continue to receive the fringe benefits provided under Section
2(d) hereof, provided that the continued participation of the Executive under
any benefit plan including, without limitation, group healthcare, dental and
life insurance is possible under the general terms and provisions of such plans.
Such twelve (12) months or shorter period of coverage shall count against
Executive’s eligibility period under COBRA. If the Executive’s participation in
any such plan is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the Executive would
otherwise have been entitled to receive under such plan or, alternatively at
the option of the Company, reimburse the Executive for the reasonable actual
costs of purchasing in the marketplace substantially similar benefits;
provided, however, that in either case the Executive shall pay to the Company,
or provide a credit against the Company’s reimbursement obligation for, the
amount equal to the premiums, or portion thereof, that the Executive was
required to pay to maintain such benefits prior to the date of termination of
employment. Notwithstanding anything to the
contrary contained herein, the Executive shall be entitled to participate in
the Company’s Executive Car Program in effect for the Executive immediately
prior to the Severance Period only until the earlier of (x) the second
anniversary of the Executive’s then current car lease, or (y) the end of the
Severance Period. The Executive shall return any Company vehicle provided to
him under the Executive Car Program to the Company or its designee upon the
expiration of his Executive Car Program benefits as described in the foregoing
sentence.


 


(iii)      Offset.  The
payments which would have been due and payable in accordance with Section
5(c)(i) hereof shall be reduced by an amount equal to any amounts that the
Executive receives in connection with any other employment during the Severance
Period. Any fringe benefits received by or available to the
Executive in connection with any other employment that are reasonably
comparable, but not necessarily as financially or otherwise beneficial
to the Executive as the fringe benefits then being provided by the Company
pursuant to Section 5(c)(ii) hereof, shall be deemed to be the equivalent thereof
and shall terminate the Company’s responsibility to continue providing the
fringe benefits then being provided by the Company pursuant to Section 5(c)(ii)
hereof.


 


(d)       Termination
Following Disability.  In the event that the Executive’s
employment is terminated due to a Disability Event as provided in Section 4(e),
the Executive shall be entitled to continue to receive his salary and benefits
(subject to the conditions regarding such benefits specified in Section
5(c)(ii) and 5(c)(iii) above) under Section 2 of this Agreement for a period of
twelve (12) months after the date of such termination.


 


5

















 


(e)           Complete
Compensation.  Except as specifically provided for in this
Section 5 and Section 4(f) above, the Executive shall be entitled to no
additional salary, benefits or other compensation following the termination of
his employment.


 


6.             Effect
of Change of Control.


 


(a)           If
within two (2) years following a “Change of Control” (as hereinafter defined),
the Executive terminates his employment with the Company for Good Reason (as
hereinafter defined) or the Company terminates the Executive’s employment for
any reason other than Cause or a Disability Event, the Company shall pay to the
Executive, in the case of clause (i), (ii) and (iv), and make available to the
Executive, in the case of clause (iii):


 


(i)        an
amount equal to three (3) times the Executive’s Base Salary as of the date of
termination;


 


(ii)       an
amount equal to three (3) times the Executive’s target annual bonus for the
fiscal year during which the termination occurs;


 


(iii)      all
benefits under the Company’s various benefit plans, including group healthcare,
dental, life and the Company’s Executive Car Program for the period equal to
thirty-six (36) months from the date of termination, provided that the
continued participation of the Executive is possible under the general terms
and provisions of such plans. If the Executive’s participation in any such plan
is barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under such plan or, alternatively at the option of the
Company, reimburse the Executive for the reasonable actual costs of purchasing
in the marketplace substantially similar benefits; provided, however, that in
either case the Executive shall pay to the Company, or provide a credit against
the Company’s reimbursement obligation for, the amount equal to the premiums,
or portion thereof, that the Executive was required to pay to maintain such
benefits prior to the date of termination of employment. Further, any insurance
or other benefits and benefits coverage provided pursuant hereto shall be
limited and reduced to the extent such coverage or benefits are otherwise
provided by or available from any other employer of the Executive; and


 


(iv)      a
lump sum payment equal to the actuarial equivalent (determined by the Company
in good faith with assistance of its accountants or actuaries), of the benefit
which would have accrued under the Zale Delaware, Inc. Supplemental Executive
Retirement Plan (“SERP”) if:


 


(1)  the Executive remained a participant in the SERP for the
three (3) year period commencing on the first day of the SERP’s plan year (“Plan Year”) in which the Executive’s
employment with the Company terminated (“Measurement Period”);


 


(2)  during each Plan Year in the Measurement Period the
Executive earned benefit points equal to the highest number of the benefit
points earned by such Executive in a Plan Year during the three (3) year period
ending on the last day of the 


 


6

















 


Plan Year
immediately preceding the Plan Year in which his employment with the Company
terminated; and


 


(3)  the Executive’s final average pay during the Measurement
Period is the greater of his monthly Base Salary on the date of (a) a Potential
Change of Control, (b) the Change of Control or (c) the date of his termination
of employment;


 


provided, however, that the amount paid to
Executive pursuant to this clause (iv) shall not exceed his accrued benefit
under the SERP as of December 31, 2004, except to the extent that such excess
is pursuant to a new supplemental executive retirement plan adopted by the
Company subsequent to such date.


 


(b)  “Change of Control” the earliest to occur of the
following:


 


(i)  any “person,” as such term is used in Sections 3(a)(9)
and 13(d) of the Securities Exchange Act of 1934, becomes a “beneficial owner,”
as such term is used in Rule 13d-3 promulgated under that act, of 20% or more
of the voting stock of the Company;


 


(ii)  the majority of the Board consists of individuals other
than incumbent directors, which term means the members of the Board as of the
date of this Agreement; provided that any person becoming a director subsequent
to such date whose election or nomination for election was supported by
two-thirds of the directors who then comprised the incumbent directors will be
considered to be an incumbent director;


 


(iii)  the Company adopts any plan of liquidation providing
for the distribution of all or substantially all of its assets;


 


(iv)  all or substantially all of the assets or business of
the Company is disposed of pursuant to a merger, consolidation or other
transaction (unless the stockholders of the Company immediately prior to such
merger, consolidation or other transaction beneficially own, directly or
indirectly, in substantially the same proportion as they owned, the voting
stock of the Company, all of the voting stock or other ownership interests of
the entity or entities, if any, that succeed to the business of the Company);
or


 


(v)  the Company combines with another company and is the
surviving corporation but, immediately after the combination, the stockholders
of the Company immediately prior to the combination hold, directly or
indirectly, 50% or less of the voting stock of the combined company (there
being excluded from the number of shares held by such stockholders, but not
from the voting stock of the combined company, any shares received by
affiliates of such, other company in exchange for stock of such other company).


 


For purposes of
the Change of Control definition, “Company” will include any entity that
succeeds to all or substantially all, of the business of the Company, and “voting
stock” will mean securities of any class or classes having general voting power
under ordinary circumstances, in the absence of contingencies, to elect the
directors of a corporation.


 


7

















 


(c)       “Good Reason” shall
mean any of the following actions taken by the Company without the Executive’s
written consent after a Change of Control:


 


(i)        the
assignment to the Executive by the Company of duties inconsistent with, or the
reduction, other then due solely to the fact that the Company no longer is a
publicly traded Company, of the powers and functions associated with, the
Executive’s position, duties, responsibilities and status with the Company
immediately prior to a Change of Control or Potential Change of Control (as
defined below), or a material adverse change in the Executive’s titles or
offices as in effect immediately prior to a Change of Control or Potential
Change of Control, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection with the
termination of his employment (A) by the Company for a Disability Event or
Cause or as a result of the Executive’s death or (B) by the Executive other
than for the reasons set forth in this Section (6)(c)(i)-(vii);


 


(ii)       a
reduction by the Company in the Executive’s Base Salary as in effect on the
date of a Change of Control or Potential Change of Control;


 


(iii)      the
Company’s principal executive offices shall be moved to a location outside the
Dallas/Fort Worth, Texas Metroplex area;


 


(iv)      the
Company shall require the Executive to be based anywhere other than at the
Company’s principal executive offices or the location where the Executive is
based on the date of a Change of Control or Potential Change of Control, or if
the Executive agrees to such relocation, the Company fails to reimburse the
Executive for moving and all other expenses incurred with such move;


 


(v)       the
Company shall fail to continue in effect any Company-sponsored plan that is in
effect on the date of a Change of Control or Potential Change of Control (or
replacement plans therefore that in the aggregate provides the same or more
favorable benefits)
that provides (A) incentive or bonus compensation, (B) reimbursement for
reasonable expenses incurred by the Executive in connection with the
performance of duties with the Company, and (C) pension benefits such as a Code
Section 401(k) plan;


 


(vi)      any
material breach by the Company of any provision of this Agreement; and


 


(vii)     any
failure by the Company to obtain the assumption of this Agreement by any
successor or assign of the Company effected in accordance with the provisions of this Section 6.


 


(d)       “Potential Change of Control”
shall mean the date as of which:


 


(i)        the
Company enters into an
agreement the consummation of which, or the approval by stockholders of which,
would constitute a Change of Control;


 


(ii)       proxies
for the election of
Directors of the Company are solicited by anyone other than the Company;


 


8

















 


(iii)      any
person (including, but not limited to, any individual, partnership, joint
venture, corporation, association or trust) publicly announces an intention to
take or to consider taking actions which, if consummated, would constitute a
Change of Control; or


 


(iv)      any
other event occurs which is deemed to be a Potential Change of Control by the
Board and the Board adopts a resolution to the effect that a Potential Change
of Control has occurred.


 


(e)       In the event that:


 


(i)        the
Executive would otherwise be entitled to the compensation and benefits
described in Section 6(a) hereof (“Compensation Payments”);
and


 


(ii)       the
Company determines, based upon the advice of tax counsel selected by the
Company’s independent auditors and acceptable to the Executive, that, as a
result of such Compensation Payments and any other benefits or payments
required to be taken into account under Code Section 280G(b)(2) (“Parachute Payments”), any of such
Parachute Payments would be reportable by the Company as “excess parachute
payments,” such Compensation Payments shall be reduced to the extent necessary
to cause the Executive’s Parachute Payments to equal 2.99 times the “base
amount” as defined in Code Section 280G(b)(3) with respect to such Executive. However,
such reduction in the Compensation Payments shall be made only if, in the
opinion of the Company, based upon the advice of such tax counsel, it would
result in a larger Parachute Payment to the Executive than payment of the
unreduced Parachute Payments after deduction of tax imposed on and payable by
the Executive under Section 4999 of the Code (“Excise
Tax”). The value of any non-cash benefits or any deferred
payment or benefit for purposes of this paragraph shall be determined by the
Company’s independent auditors.


 


(f)        Unless the Company
determines that any Parachute Payments made hereunder must be reported as “excess
parachute payments” in accordance with Section 6(e) above, neither party shall
file any return taking the position that the payment of such benefits
constitutes an “excess parachute payment” within the meaning of Section
280G(b)(1) of the Code.


 


(g)       The parties hereto agree
that the payments provided under Section 6(a), as may be adjusted pursuant to
Section 6(e), are reasonable compensation in light of the Executive’s services
rendered to the Company.


 


7.             Section
409A.  It is expressly contemplated by the parties that this
Agreement will conform to, and be interpreted to comply with, Section 409A of
the Code.  Unless expressly provided
otherwise, all of the payments due to Executive under this Section 5 will be
made within fifteen (15) days following the date of termination; provided,
however, that if, under Section 409A of the Code, such payments must be delayed
to conform with the applicable tax rules, the Company will defer any such
payment until no later than one day following the first date upon which such
payment may be made without incurring the tax imposed thereunder; provided,
further, that if Executive incurs any additional tax, interest or penalties
under Section 409A despite such deferral, the Company will pay Executive an
additional amount so that, after all taxes on such amount, Executive has an
amount equal to such additional tax.


 


9

















 


8.             Complete
Release.  The Executive acknowledges and agrees that he will not
receive any of the payments described in Sections 5 and 6 above unless the
Executive signs and returns to the Company a full and complete release of any
and all claims that the Executive or his estate, heirs or assigns may have
against the Company, its subsidiaries and affiliates and its and their
officers, directors, employees and agents in a form acceptable to and provided
by the Company at or around the time of the Executive’s termination.


 


9.             Non-Competition.  As
a material inducement for the Company’s promise to provide the trade secrets
and confidential and proprietary information described in Section 11
below, the Executive agrees that during the Term and for a period of three (3)
years from the date of cessation or termination of the Executive’s employment
with the Company for any reason whatsoever, he will not, directly or
indirectly, compete with the Company by providing services to any other person,
partnership, association, corporation, or other entity that is in a “Competing
Business.”  As used herein, a “Competing
Business” is any business that engages in whole or in part in the retail sale
of jewelry in the United States and/or Puerto Rico, including, but not limited
to, specialty jewelry retailers and other retailers having jewelry divisions or
departments, and the Executive’s employment function or affiliation with the
Competing Business is directly or indirectly related to such business of
jewelry. The restrictions contained in this Section 9 shall be tolled on a
day-for-day basis for each day during which the Executive participates in any
activity in violation of such restrictions. The parties agree that the above
restrictions on competition are completely severable and independent agreements
supported by good and valuable consideration and, as such, shall survive the
termination of this Agreement for whatever reason. The parties further agree
that any invalidity or unenforceability of any one or more of such restrictions
on competition shall not render invalid or unenforceable any remaining
restrictions on competition. Additionally, should a court of competent
jurisdiction determine that the scope of any provision of this Section 9 is too
broad to be enforced as written, the parties intend that the court reform the
provision to such narrower scope as it determines to be reasonable and
enforceable.


 


10.           No
Hire/Non-Solicitation of Employees.  During the Term and for a
period of three (3) years after the termination or cessation of his employment
with the Company for any reason whatsoever, the Executive shall not, on his own
behalf or on behalf of any other person, partnership, association, corporation,
or other entity, (a) directly, indirectly, or through a third party hire
or cause to be hired; (b) directly, indirectly or through a third party
solicit; or (c) in any manner attempt to influence or induce any employee
of the Company or its subsidiaries or affiliates to leave the employment of the
Company or its subsidiaries or affiliates, nor shall he use or disclose to any
person, partnership, association, corporation or other entity any information
obtained concerning the names and addresses of the Company’s employees. The
restrictions contained in this Section 9 shall be tolled on a day-for-day basis
for each day during which the Executive participates in any activity in
violation of such restrictions. The parties agree that the above restrictions
on hiring and solicitation are completely severable and independent agreements
supported by good and valuable consideration and, as such, shall survive the
termination of this Agreement for whatever reason. The parties further agree
that any invalidity or unenforceability of any one or more of such restrictions
on hiring and solicitation shall not render invalid or unenforceable any
remaining restrictions or hiring and solicitation. Additionally, should a court
of competent jurisdiction determine that the scope of any provision of this
Section 10 is too broad to be enforced as written, the parties intend that the
court reform the provision to such narrower scope as it determines to be
reasonable and enforceable.


 


10

















 


11.           Nondisclosure
of Trade Secrets.  The Company promises to disclose to the
Executive and the Executive acknowledges that in and as a result of his
employment by the Company, he will receive, make use of, acquire, have access
to and/or become familiar with various trade secrets and proprietary and
confidential information of the Company, its subsidiaries and affiliates,
including, but not limited to, processes, computer programs, compilations of
information, records, financial information, sales reports, sales procedures,
customer requirements, pricing techniques, customer lists, methods of doing
business, identities, locations, performance and compensation levels of
employees and other confidential information (collectively, “Trade Secrets”) which are owned by
the Company, its subsidiaries and/or affiliates and regularly used in the
operation of its business, and as to which the Company, its subsidiaries and/or
affiliates take precautions to prevent dissemination to persons other than
certain directors, officers and employees. The Executive acknowledges and
agrees that the Trade Secrets:


 


(a)       are secret and not known in
the industry;


 


(b)       give the Company or its
subsidiaries or affiliates an advantage over competitors who do not know or use
the Trade Secrets;


 


(c)       are of such value and
nature as to make it reasonable and necessary to protect and preserve the
confidentiality and secrecy of the Trade Secrets; and


 


(d)       are valuable, special and
unique assets of the Company or its subsidiaries or affiliates, the disclosure
of which could cause substantial injury and loss of profits and goodwill to the
Company or its subsidiaries or affiliates.


 


The Executive
promises not to use in any way or disclose any of the Trade Secrets and
confidential and proprietary information, directly or indirectly, either during
or after the Term, except as required in the course of his employment under
this Agreement, if required in connection with a judicial or administrative
proceeding, or if the information becomes public knowledge other than as a
result of an unauthorized disclosure by the Executive.  All files, records, documents, information,
data and similar items relating to the business of the Company, whether
prepared by the Executive or otherwise coming into his possession, will remain
the exclusive property of the Company and may not be removed from the premises
of the Company under any circumstances without the prior written consent of the
Company (except in the ordinary course of business during the Executive’s
period of active employment under this Agreement), and in any event must be
promptly delivered to the Company upon termination of the Executive’s
employment with the Company. The Executive agrees that upon his receipt of any
subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person,
whether received during or after the term of the Executive’s employment with
the Company, the Executive shall timely notify and promptly hand deliver a copy
of the subpoena, process or other request to the Company. For this purpose, the
Executive irrevocably nominates and appoints the Company (including any
attorney retained by the Company), as his true and lawful attorney-in-fact, to
act in the Executive’s name, place and stead to perform any act that the
Executive might perform to defend and protect against any disclosure of any
Trade Secrets.


 


The parties
agree that the above restrictions on confidentiality and disclosure are
completely severable and independent agreements supported by good and valuable
consideration and, as such, 


 


11

















 


shall survive the termination
of this Agreement for whatever reason.  The
parties further agree that any invalidity or unenforceability of any one or
more of such restrictions on confidentiality and disclosure shall not render
invalid or unenforceable any remaining restrictions on confidentiality and
disclosure. Additionally, should a court of competent jurisdiction determine
that the scope of any provision of this Section 11 is too broad to be enforced
as written, the parties intend that the court reform the provision to such
narrower scope as it determines to be reasonable and enforceable.


 


12.           Non-Disparagement.  Executive
expressly acknowledges, agrees, and covenants that he will not make any public
or private statements, comments, or communications in any form, oral, written,
or electronic (all of the foregoing, for purposes of this paragraph, “Communications”),
which in any way could constitute libel, slander, or disparagement of the
Company, its subsidiaries, affiliates or parent, its and/or their employees,
officers, and/or directors, or which may be considered to be derogatory or
detrimental to its or their good name or business; provided, however,
that the terms of this paragraph shall not (a) apply to Communications between
Executive and his spouse, clergy, or attorneys, which are subject to a claim of
privilege existing under common law, statute, or rule of procedure; (b) apply
to Communications required by law or made in response to a valid subpoena or
other lawful order compelling Executive to provide testimony or information;
provided, however, that in responding to a valid subpoena or other lawful
order, Executive agrees to provide the Company with advance notice and an
opportunity to seek a protective order or other safeguard for its confidential
information; or (c) be construed to inhibit or limit Executive’s ability to
initiate or cooperate with any investigation by a governmental or regulatory
agency or official. Executive specifically agrees not to issue any public
statement concerning his employment at Zale and/or the cessation of such
employment.


 


13.           Executive
Representations and Agreements.  The Executive agrees that the
Executive and the Company are engaged in a highly competitive business and, due
to the Executive’s position with the Company and the nature of the Executive’s
work, the Executive’s engaging in any business which is competitive with that
of the Company will cause the Company great and irreparable harm. The Executive
represents and warrants that the time, scope and geographic area restricted by
the foregoing paragraph(s) pertaining to no hire/non-solicitation,
non-competition, confidentiality and nondisclosure, and non-disparagement are
reasonable, that the enforcement of the restrictions contained in the foregoing
paragraphs would not be unduly burdensome to the Executive, and that the
Executive will be able to earn a reasonable living while abiding by the terms
included herein. The Executive agrees that the restraints created by the
covenants in the foregoing paragraph(s) pertaining to no hire/non-solicitation,
non-competition, confidentiality and nondisclosure, and non-disparagement are
no greater than necessary to protect the legitimate interests of the Company,
including its confidential business or proprietary information and trade
secrets, including but not limited to, the Trade Secrets. Similarly, the
Executive agrees that the need of the Company for the protection afforded by
the covenants of the foregoing paragraphs pertaining to no hire/non-solicitation,
non-competition, confidentiality and nondisclosure, and non-disparagement are
not outweighed by either the hardship to the Executive or any injury likely to
the public. The Executive agrees that any breach by him of the foregoing
provisions pertaining to no hire/non-solicitation, non-competition,
confidentiality and nondisclosure, and non-disparagement will entitle the
Company to discontinue any payments specified in Sections 2, 5 or 6, above, for
which the Executive might be eligible based on the terms of those Sections. Notwithstanding
the suspension or discontinuation of any such payments, the Executive agrees
that the Company is entitled to insist on full compliance by the Executive with
the full terms, including time periods, described in his promises not to


 


12

















 


hire/solicit, compete, disclose
confidential information or Trade Secrets or disparage. Any delay by the
Company in discontinuing payment shall not be construed as a waiver of any rights
to discontinue payment. Executive consents to the freezing of his benefits
under the SERP as of December 31, 2004.


 


14.           Severability.  If
any provision of this Agreement is held to be illegal, invalid or unenforceable
under present or future laws effective during the term of this Agreement, such
provision shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision never
constituted a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance here from. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there shall be
added as part of this Agreement, a provision as similar in its terms to such
illegal, invalid or enforceable provision as may be possible and be legal,
valid and enforceable.


 


15.           Arbitration.


 


(a)       The parties agree that any
controversy or claim (including all claims pursuant to common and statutory
law) relating to this Agreement or arising out of the Executive’s employment
with the Company, shall be resolved exclusively through arbitration pursuant to
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association (“AAA”). Any such arbitration proceeding shall take
place in Dallas County, Texas. All disputes shall be resolved by a single
arbitrator. The arbitrator will have the authority to award the same remedies,
damages and costs that a court could award. The arbitrator shall issue a
reasoned award explaining the decision, the reasons for the decision and any
damages awarded. The arbitrator’s decision will be final and binding. The
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This provision can be enforced under the Federal
Arbitration Act.


 


(b)       As the sole exception to
the exclusive and binding nature of the arbitration commitment set forth above,
the Executive and the Company agree that the Company shall have the right to
initiate an action in a court of competent jurisdiction in order to request
temporary, preliminary and permanent injunctive or other equitable relief,
including, without limitation, specific performance, to enforce the terms of
Sections 9, 10, 11, 12  or 13, above,
without the necessity of proving inadequacy of legal remedies or irreparable
harm or posting bond. However, nothing in this section should be construed to
constitute a waiver of the parties’ rights and obligations to arbitrate
regarding matters other than those specifically addressed in this paragraph.


 


 (c)      Should a court of competent
jurisdiction determine that the scope of any provision of this Section 15 is
too broad to be enforced as written, the parties intend that the court reform
the provision to such narrower scope as it determines to be reasonable and
enforceable.


 


16.           Survival. The
Executive acknowledges and agrees that this Agreement, including but not
limited to Sections 9, 10, 11, 12, 13, 14, 15, 17(a) and 17(d), shall survive
the termination of the Executive’s employment under this Agreement for whatever
reason. The existence of any claim or cause of action of the Executive against
the Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the covenants of the
Executive contained in this Agreement, including but not limited to those
contained in Sections 9, 10, 11, 12, 13 and 15.


 


13

















 


17.           Miscellaneous.


 


(a)       Notices.  Any
notices, consents, demands, requests, approvals and other communications to be
given under this Agreement by either party to the other must be in writing and
must be either:


 


(i)        personally
delivered;


 


(ii)       mailed
by registered or certified mail, postage prepaid with return receipt requested;


 


(iii)      delivered
by overnight express delivery service or same-day local courier service; or


 


(iv)      delivered
by telex or facsimile transmission, to the address set forth below, or to such
other address as may be designated by the parties from time to time in
accordance with this Section 17(a):


 


	
  If to the
  Company:

  	
  Zale
  Corporation

  
	
   

  	
  901 W.
  Walnut Hill Lane

  
	
   

  	
  Irving,
  Texas 75038

  
	
   

  	
  Attention:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
  with a copy
  to:

  	
  General
  Counsel

  
	
   

  	
   

  	
   

  
	
  If to
  Executive:

  	
  Mr. John A.
  Zimmermann

  
	
   

  	
  6229 Aberdeen

  
	
   

  	
  Dallas, TX 75230

  



 


Notices
delivered personally or by overnight express delivery service or by local
courier service are deemed given as of actual receipt. Notices mailed within
the continental United States are deemed given three business days after
mailing. Notices delivered by telex or facsimile transmission are deemed given
upon receipt by the sender of the answer back (in the case of a telex) or
transmission confirmation (in the case of a facsimile transmission).


 


(b)       Entire Agreement.  This
Agreement supersedes any and all other agreements, either oral or written,
between the parties with respect to the subject matter of this Agreement,
including, but not limited to, that certain Employment Agreement dated May 1,
2004, between the parties, and contains all of the covenants and agreements
between the parties with respect to the subject matter of this Agreement.


 


(c)       Modification.  No
change or modification of this Agreement is valid or binding upon the parties,
nor will any waiver of any term or condition in the future be so binding,
unless the change or modification or waiver is in writing and signed by the
parties to this Agreement.


 


14

















 


(d)       Governing Law and Venue.  The
parties acknowledge and agree that this Agreement and the obligations and
undertakings of the parties under this Agreement will be performable in Irving,
Dallas County, Texas. This Agreement is governed by, and construed in
accordance with, the laws of the State of Texas. If any action is brought to
enforce or interpret this Agreement, venue for the action will be in Dallas
County, Texas.


 


(e)       Counterparts.  This
Agreement may be executed in counterparts, each of which constitutes an
original, but all of which constitutes one document.


 


(f)        Costs.  If
any action at law or in equity is necessary to enforce or interpret the terms
of this Agreement, each party shall bear its own costs and expenses.


 


(g)       Estate.  If
the Executive dies prior to the expiration of the Term or during a period when
monies are owing to him, any monies that may be due him from the Company under
this Agreement as of the date of his death shall be paid to his estate and as
when otherwise payable.


 


(h)       Assignment.  The
Company shall have the right to assign this Agreement to its successors or
assigns. The terms “successors” and “assigns” shall include any person,
corporation, partnership or other entity that buys all or substantially all of
the Company’s assets or all of its stock, or with which the Company merges or
consolidates. The rights, duties and benefits to the Executive hereunder are
personal to him, and no such right or benefit may be assigned by him.


 


(i)        Binding Effect.  This
Agreement is binding upon the parties hereto, together with their respective
executors, administrators, successors, personal representatives, heirs and
permitted assigns.


 


 (j)       Waiver of Breach.  The
waiver by the Company or the Executive of a breach of any provision of this
Agreement by the Executive or the Company may not operate or be construed as a
waiver of any subsequent breach.


 


IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first above
written.


 


 


	
   

  	
  By:

  	
  /s/ John A.
  Zimmermann

  	
   

  
	
   

  	
   

  	
  John A.
  Zimmermann

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ZALE
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Betsy
  Burton

  	
   

  
	
   

  	
   

  	
   

  	
  Betsy Burton

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Interim
  Chief Executive

  	
   

  



 


15