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Settlement Agreement, General Release and Covenant Not to Sue - Zale Corp., Zale Delaware Inc. and Beryl B. Raff

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                              SETTLEMENT AGREEMENT,
                     GENERAL RELEASE AND COVENANT NOT TO SUE


         This Settlement Agreement, General Release and Covenant Not to Sue
("Agreement") is made and entered into as of the 11th day of February, 2001, by
and between BERYL B. RAFF ("Employee") and ZALE CORPORATION AND ZALE DELAWARE,
INC. (collectively "Zale"), hereinafter collectively referred to as the
"parties."


                                    RECITALS

         WHEREAS, Employee has been employed by Zale as Chairman and CEO;

         WHEREAS, Employee and Zale executed an Employment Agreement on August
1, 1998 as amended October 8, 1998 and September 7, 1999, which covered the
terms and conditions of Employee's employment with Zale ("Employment
Agreement");

         WHEREAS, Employee voluntarily resigned her employment with Zale as
Chairman and CEO effective February 12th, 2001 (the "Termination Date"); and

         WHEREAS, the parties desire to settle fully and finally, in the manner
set forth herein, all differences between them which have arisen, or which may
arise, prior to, or at the time of, the execution of this Agreement, including,
but in no way limited to, any and all claims and controversies arising out of
the employment relationship between Employee and Zale, including, but not
limited to, the Employment Agreement, and Employee's resignation of her
employment with Zale;

         NOW, THEREFORE, in consideration of the Recitals and the mutual
promises, covenants and agreements set forth herein, the parties covenant and
agree as follows:

         1. Employee, for herself and on behalf of her attorneys, heirs,
assigns, successors, executors, and administrators IRREVOCABLY AND
UNCONDITIONALLY RELEASE, ACQUIT, AND FOREVER DISCHARGE Zale, its current and
former parent, subsidiary, affiliated, and related corporations, firms,
associations, partnerships, and entities, their successors and assigns, and the
current and former owners, shareholders, directors, officers, employees, agents,
attorneys, representatives, and insurers of said corporations, firms,
associations, partnerships, and entities, and their guardians, successors,
assigns, heirs, executors, and administrators (hereinafter collectively referred
to as the "Releasees") from any and all claims, complaints, grievances,
liabilities, obligations, promises, agreements, damages, causes of action,
rights, debts, demands, controversies, costs, losses, and expenses (including
attorneys' fees and expenses) whatsoever, other than any arising under this
Agreement, under any municipal, local, state, or federal law, common or
statutory -- including, but in no way limited to, claims arising under the
Employment Agreement between the parties, the AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, 29 U.S.C. Section 621, et. seq.; TITLE VII OF THE CIVIL RIGHTS ACT
OF 1964, 42 U.S.C. Section 2000e et. seq., as amended.; and, the TEXAS
COMMISSION ON HUMAN RIGHTS ACT, Tex. Labor Code Section 21.001, et. seq. -- for
any actions or omissions whatsoever, whether known or unknown and whether
connected with the employment of



SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 1


<PAGE>   2

Employee by Zale, or the resignation therefrom, or not, which existed or may
have existed prior to, or contemporaneously with, the execution of this
Agreement.

         2. Zale, for itself and on behalf of its current and former parent,
subsidiary, affiliated and related corporations, firms, associations,
partnerships, and entities, their successors and assigns, and the current and
former owners, shareholders, directors, officers, employees, agents, attorneys,
representatives, and insurers of said corporations, firms, associations,
partnerships, and entities, and their guardians, successors, assigns, heirs,
executors, and administrators hereby IRREVOCABLY AND UNCONDITIONALLY RELEASES,
ACQUITS, AND FOREVER DISCHARGES Employee, from any and all claims, complaints,
grievances, liabilities, obligations, promises, agreements, damages, causes of
action, rights, debts, demands, controversies, costs, losses, and expenses
(including attorneys' fees and expenses) whatsoever, other than any arising
under this Agreement, under any municipal, local, state, or federal law, common
or statutory -- including, but in no way limited to, claims arising under the
Employment Agreement between the parties-- for any actions or omissions
whatsoever, whether known or unknown and whether connected with the employment
of Employee by Zale, or the resignation therefrom, or not, which existed or may
have existed prior to, or contemporaneously with, the execution of this
Agreement.

         3. Employee, for herself and on behalf of her attorneys, heirs,
assigns, successors, executors, and administrators, COVENANTS NOT TO SUE, OR
OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION AGAINST any of the Releasees,
based upon any of the claims released in paragraph 1 of this Agreement.

         4. Zale, for itself and on behalf of all Releasees, COVENANTS NOT TO
SUE, OR OTHERWISE CONSENT TO PARTICIPATE IN ANY ACTION AGAINST Employee, based
upon any of the claims released in paragraph 2 of this Agreement.

         5. The parties agree that they will keep the terms, amount, reasons for
and existence of this Agreement STRICTLY AND COMPLETELY CONFIDENTIAL, and that
they will not communicate or otherwise disclose to any employee of Zale (past,
present, or future), or to a member of the general public, the terms, amount,
reasons for and existence of this Agreement, except as may be required by law or
compulsory process. If asked about any of such matters, Employee's and Zale's
response shall be that they do not care to discuss any of such matters. In the
event of a breach of this paragraph of the Agreement by Employee, Zale may
suspend any payments due under this Agreement pending the outcome of litigation
or arbitration regarding such claimed breach of this Agreement by Employee.

         6. Employee waives and releases forever any right or rights she might
have to employment, reemployment, or reinstatement with Zale or any of the other
Releasees.

         7. Employee agrees that in addition to resigning as Chairman and CEO of
Zale, she shall also resign, effective February 12th, 2001 from any other
positions she holds as a director, officer with any of the Releasees, including,
but not limited to, her membership on the Board of Directors of Zale Corporation
and Zale Delaware, Inc. Employee agrees that execution of this Agreement
constitutes her written resignations. Employee and Zale agree that the last day
of Employee's employment as a salaried employee of Zale will end March 8, 2001.


SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 2


<PAGE>   3


         8. Employee and Zale specifically agree that following the execution of
this Agreement, neither party shall be bound by any of the terms of the
Employment Agreement.

         9. Following the expiration of seven (7) days from Employee's execution
of this Agreement, the parties agree as follows:

         (a) Zale agrees to pay Employee her Annual Base Salary of $700,000
("Salary") for a period of thirty-six (36) months ("Severance Period") which is
the equivalent of Two Million One Hundred Thousand Dollars ($2,100,000)
("Severance Payments"), less agreed deductions and less deductions required by
law, in consideration for the promises, covenants, agreements, and releases, set
forth herein. The Severance Payments described in this paragraph shall be paid
to Employee at Zale's regular pay periods during the Severance Period by
continuing the direct deposit in effect at present.

         (b) In the event participants in the Zale Executive Bonus Plan receive
any payment pursuant to the Bonus Plan for fiscal year 2001, Employee will be
treated on the same basis as such participants for fiscal year 2001 only. If the
CEO, President and Executive Vice-Presidents at Zale receive a bonus payment
outside of the Zale Executive Bonus Plan for fiscal year 2001, Employee will be
treated on the same basis as such executives.

         (c) Zale agrees that certain unvested options and restricted stock
which have been granted to Employee under the Zale Corporation Omnibus Stock
Incentive Plan (the "Plan"), as fully and completely set forth on Exhibit A
hereto, shall vest on February 12th , 2001. In all other respects, the options
and restricted stock listed on Exhibit A shall be governed by the terms of the
Plan and the grant agreements. Zale and Employee agree that, except for the
options and restricted stock listed on Exhibit A, Employee shall have no right,
interest or title to any other stock option or restricted stock grant under the
Plan. Nothing in this Agreement affects Employee's rights to previously vested
stock options; except that nothing in this Agreement affects Employee's rights
to previously vested stock options.

         (d) Zale agrees that benefits Employee has accrued under the Zale
Delaware, Inc. Supplemental Employee Retirement Plan shall fully and completely
vest upon execution of this Agreement and Zale shall pay Employee a lump sum
payment equal to the present value of such vested value.

         (e) Zale agrees to provide Employee and her family medical benefits for
which she was entitled at the time of her resignation for a period of
twenty-four (24) months, in accordance with the requirements of COBRA, at Zale's
expense. Zale will also continue employee's term life and disability insurance
(separate policy to be purchased by Zale) on the same basis as it exists as of
the date of this agreement for a period of twenty-four (24) months. In addition,
Zale will provide Employee with the following benefits:

         (i)   Annual financial planning (capped at $7,500.00 per year);

         (ii)  Annual MERP payments (capped at $4050.00 per year);

         (iii) Twenty-four (24) months of Executive Automobile Program benefits;

         (iv)  Annual Executive Physical Program at UTSW Medical Center (capped
               at $400.00 per year).


SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 3


<PAGE>   4


         In the event that Employee becomes eligible to receive medical,
disability and life insurance benefits from another employer during the
twenty-four month period, she shall promptly notify Zale in writing, and Zale's
obligation to provide medical, disability and life insurance benefits under this
agreement shall cease. Employee's current split dollar life insurance policy
shall terminate immediately upon execution of this agreement. The benefits set
forth in Section 9(e)(i), (ii), and (iv) shall continue for twenty-four months
(24) without regard to whether Employee secures new employment or comparable
benefits.

         (f) Employee agrees never to return to Zale's corporate offices without
invitation or appointment as of the date of the execution of this Agreement, and
further agrees to return to Zale or its attorneys her employee identification
badge, keys and Company-owned equipment by February 12th, 2001.

         (g) In the event that Employee secures new employment during the
Severance Period, she shall promptly notify Zale of that fact in writing. Zale's
obligation to pay the Severance Payments required by paragraph 9(a) and
9(e)(iii) shall be offset by any monies earned by Employee during the Severance
Period regardless of the amount of monies earned. If Employee's new position
pays her the equivalent of her Salary or greater, Zale's obligation to pay the
Severance Payments shall cease. There shall be an exception to the offset
requirement of this paragraph 9 (g) as follows: In the event Employee's new
employment during the Severance Period is with any company not engaged in the
specialty jewelry retail business including a nationally recognized department
store company (such as Federated Department Stores, Dillard's, J. C. Penney, May
Company, Nordstroms, Sears, Dayton-Hudson, and the like) the offset provisions
of this paragraph 9 (g) shall not apply and Employee shall receive the benefits
set forth in paragraph 9 (a) above without regard to amounts earned from such
new employment. Otherwise, any employment, engagement as a consultant,
independent contractor, advisor, owner, or investor (in an amount over 5% of the
value of the company) accepted by employee during the Severance Period, in any
way related to a specialty jewelry retail business (such as Sterling Jewelers,
Whitehall Jewelers and the like) automatically invokes and/or restores the
offset requirements of this agreement so that Zale's obligation to pay the
Severance Payments shall cease or be reduced by the monies earned or received by
Employee.

         (h) Zale agrees to pay Employees professional fees associated with the
preparation of the Agreement up to a total of twenty-three thousand dollars
($23,000).

         10. Zale and only Zale shall issue a press release to announce
Employee's resignation from Zale. The press release will include information
indicating Employee resigned "to devote more time to her family." Employee
specifically agrees not to issue any public statement concerning her employment
at Zale and her resignation from such employment.

         11. Nothing in this Agreement is intended to release any rights
Employee has regarding claims respecting matters for which the Employee is
entitled to be indemnified under the Zale Certificate of Incorporation or
By-Laws, respecting third party claims asserted or third party litigation
pending or threatened against the Employee. Such indemnification rights cannot
be revoked in the future.



SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 4

<PAGE>   5


         12. Employee acknowledges that she has had access to and become
familiar with various trade secrets and proprietary and confidential information
of Zale, its subsidiaries and affiliates, including, but not limited to,
processes, computer programs, compilations of information, records, sales
procedures, customer requirements, pricing techniques, customer lists, methods
of doing business, identities and compensation levels of employees in key
positions, and other confidential information (collectively, referred to as
"Trade Secrets") which are owned by Zale, its subsidiaries and/or affiliates and
regularly used in the operation of its business, and as to which Zale, its
subsidiaries and/or affiliates take precautions to prevent dissemination to
persons other than certain directors, officers and employees. Employee
acknowledges and agrees that the Trade Secrets (1) are secret and not known in
the industry; (2) give the Company or its subsidiaries and/or affiliates an
advantage over competitors who do not know or use the Trade Secrets; (3) 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 (4) are
valuable and special and unique assets of Zale or its subsidiaries and/or
affiliates, the disclosure of which could cause substantial injury and loss of
profits and goodwill to Zale or its subsidiaries and/or affiliates. Employee may
not use in any way or disclose any of the Trade Secrets, directly or indirectly,
at any time in the future, except as 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 Employee. All files,
records, documents, information, data, and similar items relating to the
business of Zale, whether prepared by Employee or otherwise coming into her
possession, will remain the exclusive property of Zale, and in any event must be
promptly delivered to Zale upon execution of this Agreement. Employee agrees
upon her 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, Employee shall timely notify and promptly hand deliver a
copy of the subpoena, process or other request to Zale.

         13. Employee acknowledges and agrees that she shall not for two (2)
years following her resignation from Zale on her own behalf or on behalf of any
other person, partnership, association, corporation, or other entity, hire,
employ, solicit or in any manner attempt to influence or induce any employee of
Zale or its subsidiaries or affiliates (known by the Employee to be such) to
leave the employment of Zale or its subsidiaries or affiliates, nor shall she
use or disclose to any person, partnership, association, corporation, or other
entity any information obtained while an employee of Zale concerning the names,
addresses, salaries, or performance evaluations of Zale's employees.

         14. Employee agrees to cooperate fully with Zale, specifically
including any attorney retained by Zale, in connection with any pending or
future litigation, business, or investigatory matter. The parties acknowledge
and agree that such cooperation may include, but shall in no way be limited to,
Employee's making herself available for interview by Zale, or any attorney
retained by Zale, and providing to Zale any documents in her possession or under
her control relating to the litigation, business, or investigatory matter. Zale
agrees to provide Employee with reasonable notice of the need for assistance
when feasible. Zale additionally agrees to schedule such assistance in such a
manner as not to interfere with any alternative employment obtained by Employee
when possible. If the request for assistance occurs after the cessation of
payments contemplated by paragraph 9 above, Employee shall be reimbursed for the
reasonable cost of her time. Employee will be reimbursed for her reasonable
expenses.


SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 5

<PAGE>   6


         15. The parties hereto recognize that, by entering into this Agreement,
the parties do not admit, and do specifically deny, any violation of any
contract, local, state, or federal law, common or statutory. The parties further
recognize that this Agreement has been entered into in release and compromise of
any claims which might be asserted by the parties against one another in
connection with the Employment Agreement, Employee's employment by Zale, or the
resignation thereof, or any other matter or claim, and to avoid the expense and
burden of any litigation related thereto.

         16. The parties acknowledge and agree that, in the event either party
to this Agreement breaches any provision of this Agreement, the Party claiming
breach will be entitled to such relief as is available to it at law or equity.
Zale may suspend any payments due under this Agreement pending the outcome of
litigation or arbitration regarding any claimed breach of this Agreement. The
prevailing party in any litigation or arbitration resulting from any such claim
shall be entitled to recover attorney's fees and expenses of litigation or
arbitration from the losing party.

         17. The parties agree that the exclusive remedy or method of resolving
all disputes or questions arising out of or related to this Agreement shall be
arbitration. Arbitration shall be held in Dallas, Texas, by three arbitrators,
one to be appointed by Zale, a second to be appointed by Employee, and a third
to be appointed by those two arbitrators. The third arbitrator shall act as
chairman. Any arbitration may be initiated by either party upon written notice
("Arbitration Notice") to the other party, specifying the subject of the
requested arbitration and appointing that party's arbitrator.

         (a) If (i) the non-initiating party fails to appoint an arbitrator by
written notice to the initiating party within ten days after the Arbitration
Notice, or (ii) the two arbitrators appointed by the Parties fail to appoint a
third arbitrator within ten days after the date of the appointment of the second
arbitrator, the American Arbitration Association, upon application of the
initiating party, shall appoint an arbitrator to fill that position.

         (b) The arbitration proceeding shall be conducted in accordance with
the rules of the American Arbitration Association. A determination or award made
or approved by at least two of the arbitrators shall be the valid and binding
action of the arbitrators. The costs of arbitration (inclusive of the expense in
obtaining and presenting evidence and attending the arbitration and of the fees
and expenses of legal counsel to a party) shall be borne by the Party receiving
substantially the relief sought by her in the arbitration, whether by
settlement, award, or judgment; otherwise, the costs shall be borne equally
between the Parties. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered and
enforced in any court of competent jurisdiction.

         18. One or more waivers of a breach of any covenant, term, or provision
of this Agreement by any party shall not be construed as a waiver of a
subsequent breach of the same covenant, term, or provision, nor shall it be
considered a waiver of any other then existing or subsequent breach of a
different covenant, term, or provision.


SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 6

<PAGE>   7


         19. If any provision or term of this Agreement is held to be illegal,
invalid, or unenforceable, such provision or term shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised 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 from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision or term there shall be added automatically
as a part of this Agreement another provision or term as similar to the illegal,
invalid, or unenforceable provision, as may be possible and that is legal,
valid, and enforceable.

         20. Employee may revoke this Agreement by notice to Zale, in writing,
within seven (7) days of the date of its execution by Employee (the "Revocation
Period"). Employee agrees that she will not receive the benefits provided by
this Agreement if she revokes this Agreement. Employee also acknowledges and
agrees that if Zale has not received from her written notice of her revocation
of this Agreement prior to the expiration of the Revocation Period, Employee
will have forever waived her right to revoke this Agreement and this Agreement
shall thereafter be enforceable and have full force and effect.

         21. This Agreement constitutes the entire Agreement of the parties, and
supersedes all prior and contemporaneous negotiations and agreements, oral or
written. All prior and contemporaneous negotiations and agreements are deemed
incorporated and merged into this Agreement and are deemed to have been
abandoned if not so incorporated. No representations, oral or written, are being
relied upon by either party in executing this Agreement other than the express
representations of this Agreement. This Agreement cannot be changed or
terminated without the express written consent of the parties.

         22. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, except where preempted by federal law.

         23. By executing this Agreement, Employee acknowledges that (a) this
Agreement has been reviewed with her by a representative of Zale; (b) she has
had at least twenty-one (21) days to consider the terms of this Agreement and
has considered its terms for that period of time or has knowingly and
voluntarily waived her right to do so; (c) she has been advised by Zale to
consult with an attorney regarding the terms of this Agreement; (d) she has
consulted with, or has had sufficient opportunity to consult with, an attorney
of her own choosing regarding the terms of this Agreement; (e) any and all
questions regarding the terms of this Agreement have been asked and answered to
her complete satisfaction; (f) she has read this Agreement and fully understands
its terms and their import; (g) except as provided by this Agreement, she has no
contractual right or claim to the benefits described herein; (h) the
consideration provided for herein is good and valuable; and (i) SHE IS ENTERING
INTO THIS AGREEMENT VOLUNTARILY, OF HER OWN FREE WILL, AND WITHOUT ANY COERCION,
UNDUE INFLUENCE, THREAT, OR INTIMIDATION OF ANY KIND OR TYPE WHATSOEVER.



SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 7


<PAGE>   8



        EXECUTED in Dallas, Texas this 11th day of February, 2001.






                                          /s/ BERYL B. RAFF
                                          ----------------------------------
                                          BERYL B. RAFF

THE STATE OF TEXAS            )
                              )
COUNTY OF DALLAS              )


               BEFORE ME, the undersigned, a Notary Public, on this day
personally appeared BERYL B. RAFF, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that she executed
the same for the purposes and consideration therein expressed.


               GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11th day of February,
2001.


                                          /s/ CONNIE OWENS
                                          ----------------------------------
                                          Notary Public, State of Texas





/s/ JIM A. WATSON
----------------------------------
Jim A. Watson
Vinson & Elkins
Attorney for Beryl B. Raff



SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 8
<PAGE>   9



EXECUTED in Dallas, Texas this 11th day of February, 2001.


                                             ZALE DELAWARE, INC.


                                             By: /s/ SUSAN LANIGAN
                                                -------------------------------


                                             Its: Sr. V.P.; General Counsel
                                                 ------------------------------




THE STATE OF TEXAS                 )
                                   )
COUNTY OF DALLAS                   )


               BEFORE ME, the undersigned, a Notary Public, on this day
personally appeared Susan Lanigan of ZALE DELAWARE, INC., known to me to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me that she executed the same as the act of ZALE DELAWARE, INC. for the purposes
and consideration therein expressed.


               GIVEN UNDER MY HAND AND SEAL OF OFFICE this 11th day of February,
2001.

                                                 /s/ CONNIE OWENS
                                                -------------------------------
                                                Notary Public, State of Texas





SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 9

<PAGE>   10






                                    EXHIBIT A

<TABLE>
<CAPTION>
         GRANT DATE                GRANT TYPE                    NO. VESTING                  OPTION PRICE
-------------------------  ----------------------------  ----------------------------  ----------------------------
<S>                           <C>                        <C>                            <C>
          07/17/97                  Incentive                       4,584                      $ 21.81250
-------------------------  ----------------------------  ----------------------------  ----------------------------
          07/17/97                Non-qualified                    10,416                      $ 21.81250
-------------------------  ----------------------------  ----------------------------  ----------------------------
          07/09/98                Non-qualified                    62,500                      $ 33.43750
-------------------------  ----------------------------  ----------------------------  ----------------------------
          02/25/99              Restricted Stock                   12,981                      $ 00.00000
-------------------------  ----------------------------  ----------------------------  ----------------------------
          07/15/99                Non-qualified                    25,000                      $ 43.50000
-------------------------  ----------------------------  ----------------------------  ----------------------------
          07/12/00                Non-qualified                    37,500                      $ 43.03125
-------------------------  ----------------------------  ----------------------------  ----------------------------
</TABLE>


SETTLEMENT AGREEMENT, GENERAL RELEASE, AND COVENANT NOT TO SUE  - PAGE 10