<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 240.14a-12
J.C. Penney Company, Inc.
------------------------------------------
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:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
- -------------------------------- J. C. Penney Company, Inc.
- -------------------------------- Notice of Annual Meeting of Stockholders
and Proxy Statement
- ---------------------------------------------------- 2000
<PAGE>
JCPenney James E.
Oesterreicher
Chairman of the Board
and Chief Executive
Officer
April 14, 2000
Dear Stockholders:
On behalf of your Board of Directors and your management, I cordially invite
you to attend the Annual Meeting of Stockholders of your Company. It will be
held on Friday, May 19, 2000, at 10:00 A.M., local time, at the JCPenney
Catalog Fulfillment Center, 10500 Lackman Road, Lenexa, Kansas 66250-0001.
You will find information regarding the matters to be voted on at the
meeting in the formal Notice of Meeting and Proxy Statement which are included
on the following pages of this booklet.
The vote of each and every stockholder is most important to us. We are
gratified that so many of you have in the past exercised your right to vote
your shares.
Whether or not you plan to attend, please sign and return the enclosed proxy
in the accompanying envelope, or vote via telephone as set forth in the proxy,
as soon as possible so that your shares will be voted at the meeting.
Please note that your completed proxy will not prevent you from attending
the meeting and voting in person should you so choose. We look forward to
seeing you at this meeting. If you plan to attend, please so indicate in the
appropriate box on your proxy. As in the past, there will be a report on
operations, an opportunity to meet your Company's directors and officers, as
well as time for questions.
Thank you for your cooperation and continued support and interest in
JCPenney.
Regards,
/s/ James E. Oesterreicher
Any stockholder having a disability requiring special assistance who would
like to attend the Annual Meeting should call the Secretary of the Company at
(972) 431-1201 and reasonable accommodations will be made to meet such needs.
------------------------------------------
Customer Service is Our Number One Priority
------------------------------------------
J. C. Penney Company, Inc. . P.O. Box 10001 . Dallas, TX 75301-0001
Home Office . 6501 Legacy Drive . Plano, TX 75024-3698
<PAGE>
J. C. PENNEY COMPANY, INC.
6501 Legacy Drive, Plano, Texas
75024-3698
Notice of Annual Meeting of Stockholders
To Be Held on May 19, 2000
The Annual Meeting of Stockholders of J. C. Penney Company, Inc. will be held
at the JCPenney Catalog Fulfillment Center, 10500 Lackman Road, Lenexa, Kansas
66250-0001 on Friday, May 19, 2000, at 10:00 A.M., local time, for the
following purposes:
1. to elect three directors for a three-year term as described in the ac-
companying proxy materials;
2. to approve the employment of KPMG LLP as auditors to audit the accounts
of the Company for the fiscal year ending January 27, 2001;
3. to act upon a resolution which the Company has been informed will be
proposed by a stockholder of the Company regarding classification of the
Board;
4. to act upon a resolution which the Company has been informed will be
proposed by a stockholder of the Company regarding amendment of the
Company's Bylaws to reorganize itself into one class of directors; and
5. to transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 20, 2000, are
entitled to vote at the meeting. A complete list of those stockholders will be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours at the JCPenney Catalog Fulfillment
Center located at 10500 Lackman Road, Lenexa, Kansas 66250-0001, for a period
of 10 days prior to the meeting.
Plano, Texas
April 14, 2000 /s/ C. R. Lotter
C. R. Lotter, Secretary
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE, & RETURN YOUR PROXY CARD OR VOTE BY TELEPHONE
<PAGE>
Proxy Statement
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of proxies in the accompanying form.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE (OR FOLLOW THE
INSTRUCTIONS SET FORTH ON THE ENCLOSED PROXY CARD TO VOTE YOUR PROXY BY
TELEPHONE) IN ORDER TO BE SURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING.
You may revoke your proxy at any time before it is exercised at the meeting
by submitting a written revocation, a subsequently dated proxy (either by
telephone or by mail), or by personal vote at the meeting.
A separate voting instruction card is also being furnished to each
participant who beneficially owns Voting Stock (as defined below) in the trust
under the Company's Savings, Profit-Sharing and Stock Ownership Plan ("LESOP")
or the trust under the Genovese Retirement and Savings Plan.
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, certain directors, officers, and employees of the
Company may solicit proxies in person, by telephone, telegraph, or mail. The
Company has also retained, on behalf of the Board of Directors, Morrow & Co.,
Inc. to aid solicitation by mail, telephone, telegraph, and personal
interview, for a fee of approximately $30,000, plus reasonable expenses, which
will be paid by the Company. The Company may also reimburse brokers and other
persons holding shares in their names, or in the names of nominees, for their
expenses in sending proxy material to principals and obtaining their proxies.
The complete mailing address of the Company's principal executive offices is
J. C. Penney Company, Inc., P. O. Box 10001, Dallas, Texas 75301-0001. The
approximate date on which this proxy statement and the form of proxy were
first sent or given to stockholders was April 14, 2000.
Voting Rights
Stockholders of record at the close of business on March 20, 2000, the record
date for the Annual Meeting, are entitled to vote at the meeting. At the close
of business on such date, 261,168,573 shares of Common Stock of 50c par value
("Common Stock"), and 727,356 shares of Series B ESOP Convertible Preferred
Stock ("ESOP Preferred Stock") having a Common Stock voting equivalent of 20
votes per share for a combined total voting equivalent of 275,715,693 shares
("Voting Stock"), were outstanding and entitled to vote. As of the record
date, the trust maintained under the LESOP held all of the shares of ESOP
Preferred Stock and 33,574,730 shares of Common Stock, which together
represent approximately 17.5% of the Voting Stock. All of the shares of Voting
Stock held by the trust are held of record by State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110, as Trustee
("Trustee"). The Trustee and the LESOP trust have disclaimed beneficial
ownership of these shares of Voting Stock.
1
<PAGE>
The following table sets forth, as of December 31, 1999, certain information
with respect to each stockholder known to the Company to own beneficially more
than 5% of its Common Stock.
<TABLE>
<CAPTION>
Percent of Percent of
Common Voting Stock as
Name and address Shares of Common Stock Stock of
of beneficial owner beneficially owned outstanding March 20, 2000(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Research and Man-
agement Company 33,612,100(2) 12.9 12.2
333 South Hope Street
Los Angeles, CA 90071
Sanford C. Bernstein &
Co., Inc. 15,952,536(3) 6.1 5.8
767 Fifth Avenue
New York, NY 10153
- -------------------------------------------------------------------------------
</TABLE>
(1) Percentages are calculated based on the shares of Common Stock
beneficially owned as of December 31, 1999.
(2) Capital Research and Management Company ("Capital Research") has informed
the Company that it has sole dispositive power with respect to 33,612,100
shares of Common Stock in its capacity as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. Capital Research has disclaimed beneficial ownership with
respect to such shares.
(3) Sanford C. Bernstein & Co., Inc. ("Sanford Bernstein") has informed the
Company that it is the beneficial owner of 15,952,536 shares of Common
Stock held for the accounts of discretionary clients. Of such shares,
Sanford Bernstein has sole voting power with respect to 10,217,477 shares,
shared voting power with respect to 1,038,922 shares, and sole dispositive
power with respect to 15,952,536 shares.
The Company's Bylaws require an affirmative vote of the holders of a
majority of the shares of the Voting Stock outstanding and entitled to vote as
of the record date for approval of each proposal presented in this proxy
statement with the exception of the election of directors, which requires a
plurality of the votes cast. Abstentions and broker nonvotes are counted only
for purposes of determining whether a quorum is present at the meeting.
Governance of the Company
Board of Directors. The Board of Directors is responsible for establishing
broad corporate policies and for overseeing the general performance of the
Company. In keeping with its long-standing practice, the Company's Board
continues to be an independent board. The Company's Board structure is
designed to assure that there is independent review and oversight as well as
approval of significant strategic and management decisions affecting the
Company. The Board currently has eight meetings scheduled for fiscal 2000.
Committees of Board of Directors. The Board of Directors carries out many of
its functions through six principal standing committees, which are described
on pages 3 and 4. One of these committees, the Corporate Governance Committee,
which is composed entirely of directors who are not employees of the Company,
selects and recommends to the Board nominees for director on the basis of
their recognized experience and achievements, both in commerce and society,
and for their ability to bring a wide diversity of skills and experience to
the deliberations of the Board. Stockholders also may make recommendations of
nominees for director, as explained in greater detail on page 26.
Confidential Voting. In casting their votes, stockholders are also assured
that their votes are accorded confidential voting treatment as provided in the
Company's confidential voting policy described on pages 26 to 27.
Executive Compensation. The Personnel and Compensation Committee of the Board
of Directors, which is composed entirely of non-employee directors, approves,
among other things, the annual salaries of executive officers and recommends
to the full Board for its approval the annual salaries of employee directors.
Please see the Report of Personnel and Compensation Committee on Executive
Compensation, which begins on page 10.
2
<PAGE>
Classes of Board of Directors. The Company's Restated Certificate of
Incorporation, as amended, and its Bylaws provide for a Board of not less than
three directors as fixed, from time to time, by the Board, and further provide
for three classes of directors to be as nearly equal in number as possible,
with each class serving a three-year term and with one class being elected
each year. Currently, the Board consists of ten members, with one class
consisting of four directors and two classes consisting of three directors
each. Of the ten current directors, one is currently a Company employee and
nine have principal occupations or employment which are and have been outside
the Company.
Each director is required to be a stockholder of the Company.
Board Meetings. During fiscal 1999, ten meetings of the Board were held.
Attendance at such meetings for current directors averaged approximately 94%.
In addition to membership on the Board, directors also serve on one or more of
the principal standing committees of the Board. During fiscal 1999, these
committees held a total of 23 meetings; no current director attended fewer
than 79% of the aggregate total of meetings of the Board and committees on
which he or she served.
Committees
The following describes the principal standing committees of the Board of
Directors:
Audit Committee. The Audit Committee's responsibilities include recommending
to the Board of Directors for stockholder approval the independent auditors
for the annual audit of the Company's consolidated financial statements. The
Committee reviews the independent auditors' audit strategy and plan, scope,
fees, audit results, and non-audit services and related fees, internal audit
reports on the adequacy of internal controls, the Company's ethics program,
status of significant legal matters, the scope of the internal auditors' plans
and budget and results of their audits, and the effectiveness of the Company's
program for correcting audit findings.
During fiscal 1999, this Committee met five times. Its members are V. E.
Jordan, Jr., A. W. Richards, Francisco Sanchez-Loaeza, C. S. Sanford, Jr., and
M. A. Burns, who serves as its Chair.
Benefit Plans Review Committee. This Committee's responsibilities include
reviewing and administering the Company's retirement and welfare plans and
reviewing annually the financial condition and investment performance results
of the Company's retirement plans, annual actuarial valuation reports for the
Company's Pension Plan, and the financial condition, investment performance
results, and actuarial valuation aspects of the Company's welfare plans.
During fiscal 1999, this Committee met one time. Its members are M. A.
Burns, J. C. Pfeiffer, A. W. Richards, and R. G. Turner, who serves as its
Chair.
Corporate Governance Committee. The Corporate Governance Committee considers
matters of corporate governance and reviews developments in the governance
area as they affect relations between the Company and its stockholders. Its
responsibilities also include making recommendations to the Board with respect
to the composition, organization, and responsibilities of the Board and its
directors, the qualifications of directors, candidates for election as
directors, and the compensation of directors.
During fiscal 1999, this Committee met three times. Its members are M. A.
Burns, J. C. Pfeiffer, C. S. Sanford, Jr., R. G. Turner, and V. E. Jordan,
Jr., who serves as its Chair.
Stockholders may propose nominations for directors in accordance with the
procedures described on page 26.
3
<PAGE>
Finance Committee. The Finance Committee is responsible for reviewing the
Company's financial policies, strategies, and capital structure.
During fiscal 1999, this Committee met seven times. Its members are M. A.
Burns, T. J. Engibous, J. E. Oesterreicher, Francisco Sanchez-Loaeza, and C.
S. Sanford, Jr., who serves as its Chair.
Personnel and Compensation Committee. This Committee's responsibilities
include reviewing and administering the Company's annual and long-term
incentive compensation plans, making recommendations in areas concerning
personnel relations, and taking action or making recommendations with respect
to the compensation of executive officers, including those who are directors.
During fiscal 1999, this Committee met five times. Its members are T. J.
Engibous, K. B. Foster, Francisco Sanchez-Loaeza, C. S. Sanford, Jr., and J.
C. Pfeiffer, who serves as its Chair.
Public Affairs Committee. The responsibilities of the Public Affairs Committee
include identifying, analyzing, and bringing to the attention of the Board
social and environmental trends, community affairs, and public policy issues
which may have a potential impact on the business performance and investment
character of the Company, and assuring that Company policy and performance
reflect a sensitivity toward the social and physical environments in which the
Company does business and that such policy and performance are in accord with
the public interest.
During fiscal 1999, this Committee met two times. Its members are T. J.
Engibous, K. B. Foster, V. E. Jordan, Jr., R. G. Turner, and A. W. Richards,
who serves as its Chair.
The mailing address for all of these committees is c/o C. R. Lotter,
Secretary, J. C. Penney Company, Inc., P. O. Box 10001, Dallas, Texas 75301-
0005.
Election of Directors (Proposal 1)
As indicated on page 3, under "Classes of Board of Directors", the Board of
Directors has been divided into three classes with one class consisting of
four directors and two classes consisting of three directors each. At the
meeting, three directors will be elected to hold office for a three-year term
expiring at the 2003 Annual Meeting of Stockholders. Other directors will
continue in office, in accordance with their previous election, until the
expirations of the terms of their classes at the 2001 or 2002 Annual Meeting
of Stockholders, as the case may be.
Brief statements setting forth certain information as of March 20, 2000, as
to the Board of Directors' nominees for directors for the three-year term
expiring at the 2003 Annual Meeting of Stockholders and as to each current
director in the classes continuing in office are shown on pages 5 to 7. Each
of the nominees is currently a director of the Company.
If properly executed and timely returned (or properly voted by telephone),
the accompanying proxy will be voted for all three nominees for a term
expiring at the 2003 Annual Meeting of Stockholders, except where authority so
to vote is withheld. If any nominee should become unavailable for election for
any presently unforeseen reason, the persons designated as proxies will have
full discretion to cast votes for another person designated by the Board,
unless the Board reduces the number of directors.
The Board of Directors recommends a vote FOR each of the nominees for
director.
4
<PAGE>
Nominees for Directors for Three-Year Term Expiring 2003
Vernon E. Jordan, Jr., 64
[PHOTO OF Managing Partner, investment banking firm of Lazard Freres & Co.
VERNON E. and Of Counsel, law firm of Akin, Gump, Strauss, Hauer & Feld,
JORDAN] L.L.P. since 2000; Senior Partner from 1992 to 1999 and Partner
from 1982 to 1992, Akin, Gump, Strauss, Hauer & Feld, L.L.P.;
President from 1977 to 1981 and Executive Director from 1972 to
1977 of the National Urban League; Director of American Express
Company, AMFM Inc., Callaway Golf Company, Dow Jones & Company,
Inc., Revlon Group Incorporated, Revlon, Inc., Ryder System,
Inc., Sara Lee Corporation, Union Carbide Corporation, and Xerox
Corporation; Trustee of Howard University; Director of the
Company since 1973.
Jane C. Pfeiffer, 67
[PHOTO OF Independent management consultant; Chairman of the Board of
JANE C. National Broadcasting Company, Inc. from 1978 to 1980;
PFEIFFER] Independent management consultant from 1976 to 1978; Vice
President of Communications and Government Relations of
International Business Machines Corporation from 1972 to 1976;
Director of Ashland Inc., International Paper Company, and The
Mutual Life Insurance Company of New York; Trustee of The
Conference Board and of the University of Notre Dame; Director
of the Company since 1977.
[PHOTO OF R. Gerald Turner, 54
R. GERALD President of Southern Methodist University since 1995;
TURNER] Chancellor of the University of Mississippi from 1984 to 1995;
Chairman, President's Commission, the National Collegiate
Athletic Association, from 1991 to 1992; Director of AMFM Inc.
and ChemFirst Inc.; Director of the Company since 1995.
5
<PAGE>
Members of Board of Directors Continuing in Office
Term Expiring 2001
M. Anthony Burns, 57
[PHOTO OF Chairman since 1985, Chief Executive Officer since 1983, and a
M. ANTHONY director since 1979 of Ryder System, Inc. (a provider of
BURNS] transportation and logistics services), with which he has served
in positions of increasing importance since 1974, including its
President from 1979 to 1999; Director of The Chase Manhattan
Bank, N. A., The Chase Manhattan Corporation, Pfizer, Inc., and
Boy Scouts of America; Trustee of the University of Miami; Co-
Chairman of The Business Roundtable; Member of the Policy
Committee of The Business Roundtable and a member of The
Business Council; Director of the Company since 1988.
James E. Oesterreicher, 58
[PHOTO OF Chairman of the Board of the Company since 1997 and Chief
JAMES E. Executive Officer of the Company since 1995; Vice Chairman of
OESTER- the Board of the Company from 1995 to 1997; President, JCPenney
REICHER] Stores and Catalog, from 1992 to 1995; Associated with the
Company since 1964; Director of Brinker International, Inc., TXU
Corp, March of Dimes Birth Defects Foundation, National Retail
Federation, National Retail Institute, and Dallas Citizens
Council; Member, Executive Board, Southern Methodist University
Cox School of Business; Member, Board of Trustees, Circle Ten
Council -- Boy Scouts of America, The Conference Board, National
Urban League, and Texas Health Resources; Member, Board of
Governors, Spina Bifida Association of America; Member, American
Society of Corporate Executives, Dallas Roundtable, Governor's
Business Council, and the Domestic Strategy Group of the Aspen
Institute; Director of the Company since 1995.
[PHOTO OF Francisco Sanchez-Loaeza, 54
FRANCISCO Chairman of the Board since 1994, and Chief Executive Officer
SANCHEZ- and a director since 1992, of Panamerican Beverages, Inc. (soft
LOAEZA] drink bottling operations in Latin America), with which he has
served in positions of increasing importance since 1980; Member
of The Conference Board and the World Economic Forum; Director
of the Company since 1998.
[PHOTO OF
CHARLES S. Charles S. Sanford, Jr., 63
SANFORD] Retired Chairman of the Board and Chief Executive Officer of
Bankers Trust New York Corporation and its principal subsidiary,
Bankers Trust Company, from 1987 to 1996, with which he served
in positions of increasing importance since 1961, including its
Deputy Chairman from 1986 to 1987 and President from 1983 to
1986; Member of The Business Council and the Foundation Board of
Trustees of the University of Georgia; Overseer of The Wharton
School, University of Pennsylvania; Director of the Company
since 1992.
6
<PAGE>
Members of Board of Directors Continuing in Office
Term Expiring 2002
Thomas J. Engibous, 47
[PHOTO OF Chairman of the Board since 1998, and President and Chief
THOMAS J. Executive Officer and a director since 1996, of Texas
ENGIBOUS] Instruments Incorporated (electronics), with which he has served
in positions of increasing importance since 1976, including as
an Executive Vice President from 1993 to 1996; Director of
Catalyst and Dallas Citizens Council; Trustee of Southern
Methodist University; Member of The Business Council and The
Business Roundtable; Director of the Company since March 1999.
Kent B. Foster, 56
[PHOTO OF President and Chief Executive Officer, and a director, of Ingram
KENT B. Micro Inc. (computer wholesaler) since 2000; President of GTE
FOSTER] Corporation (telecommunications) from 1995 to 1999; Vice
Chairman of the Board of Directors of GTE Corporation from 1993
to 1995; President of GTE Telephone Operations Group from 1989
to 1995; Director of Campbell Soup Company, New York Life
Insurance Company, the Dallas Symphony Orchestra and its Board
of Governors Council, and the Dallas Opera Executive Board;
Trustee of the Dallas Museum of Art and the GTE Foundation;
Director of the Company since 1998.
[PHOTO OF Ann W. Richards, 66
ANN W. Senior Advisor, law firm of Verner, Liipfert, Bernhard,
RICHARDS] McPherson & Hand since 1995; Governor of Texas from 1991 to
1995; State Treasurer, State of Texas, from 1983 to 1991; Chair,
Democratic National Convention, 1992; Director of the Aspen
Institute and Brandeis University; Director of the Company since
1995.
7
<PAGE>
Management Ownership of Common Stock and ESOP Preferred Stock
The following table shows, as of March 20, 2000, the beneficial ownership of
shares of Voting Stock by each present director and by the five most highly
compensated executive officers serving during the last fiscal year (the "Named
Executive Officers"), and by all present directors and all executive officers
of the Company as a group. The information includes shares held under certain
restrictions and, in the case of executive officers, also includes the number
of shares of Voting Stock credited to their accounts under the Company's
LESOP. As shown in the last two columns, substantial portions of the shares
indicated as beneficially owned are actually unissued shares attributable to
unexercised and unexpired options for Common Stock. The combined beneficial
ownership of shares of Common Stock and Common Stock voting equivalents of
each director and Named Executive Officer and of all directors and executive
officers as a group (not including shares attributable to unexercised and
unexpired options) constitutes less than 1% of the total Voting Stock as of
March 20, 2000.
<TABLE>
<CAPTION>
Number
of shares Number
included in of options
previous column included in
attributable previous
to unexercised column
Number and unexpired exercisable
of shares options for within
beneficially Common 60 days of
Name or Group owned Stock March 20, 2000
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Directors:
M. A. Burns 15,300 8,800 8,800
T. J. Engibous 1,800 0 0
K. B. Foster 2,235(1) 0 0
V. E. Jordan, Jr. 19,033 12,000 12,000
J. E. Oesterreicher 610,362 523,640 333,640
J. C. Pfeiffer 18,420 10,800 10,800
A. W. Richards 5,748 2,400 2,400
F. Sanchez-Loaeza 3,300 0 0
C. S. Sanford, Jr. 12,300 4,800 4,800
R. G. Turner 5,885 1,600 1,600
Named Executive Officers(2):
V. J. Castagna 269,500 216,500 0
T. D. Hutchens 110,733 78,851 78,851
C. R. Lotter 155,564 106,000 64,000
F. A. Newman 191,277 88,000 19,000
All present directors and execu-
tive officers as a group(3) 2,111,765 1,575,989 761,447
- -------------------------------------------------------------------------------
</TABLE>
(1) Includes 322 shares held by a family limited partnership with respect to
which Mr. Foster has shared voting and dispositive power, but as to which
he disclaims beneficial ownership.
(2) In addition to Mr. Oesterreicher who also serves as a director.
(3) Excludes shares beneficially owned by Mr. Hutchens, who is retired from
the Company.
Directors' Fees
Company employees are not paid additional amounts for serving as directors.
Directors who are not Company employees ("Non-Associate Directors") are paid
an annual retainer of $26,400, plus $1,200 for attendance at each meeting of
the Board and $1,000 for attendance at each meeting of any committee of the
Board. Non-Associate Directors also receive $1,200 for each written consent of
directors in lieu of a meeting of the Board, and $1,000 for each written
consent of directors in lieu of a meeting of a committee of the Board, if any.
In fiscal 1999, no such written consents of the Board were
8
<PAGE>
executed and one such written consent of each of the Benefit Plans Review
Committee and the Personnel and Compensation Committee were executed. The
chair of the Audit Committee and the Personnel and Compensation Committee of
the Board are each paid an additional annual fee of $4,500; the chair of the
Benefit Plans Review Committee, the Corporate Governance Committee, the Public
Affairs Committee, and the Finance Committee of the Board are each paid an
additional annual fee of $4,000. Directors are also reimbursed for expenses
incurred for attending any meeting which they attend in their official
capacities as directors. Directors who are Representatives under an
Indemnification Trust Agreement between the Company and The Chase Manhattan
Bank, as trustee, (currently Directors Jordan and Pfeiffer), are paid an
annual retainer of $5,000, plus $600 for each meeting of the Representatives
and are reimbursed for expenses of meeting attendance. During fiscal 1999, no
such meetings were held. Non-Associate Directors are also paid $800 for each
full day of service to the Company in addition to those services which they
perform in connection with Board and committee responsibilities, and are
reimbursed for expenses in connection with their performance of such services.
During fiscal 1999, Non-Associate Directors Jordan, Pfeiffer, and Sanford were
each paid $800, and Non-Associate Directors Burns, Foster, Richards, Sanchez-
Loaeza and Turner were each paid $400, for such services. In addition, Non-
Associate Directors Burns, Foster, Jordan, Pfeiffer, and Sanford each received
$1,000 in 1999 for a meeting of a special committee of the Board. A director
may elect to defer payment of all or part of any of the above fees under the
terms of a deferred compensation plan for directors. As of the end of fiscal
1999, two directors had elected such deferral.
During fiscal 1999, each Non-Associate Director was granted a stock award of
900 shares of restricted Common Stock under the Company's 1997 Equity
Compensation Plan. Pursuant to a retirement plan for Non-Associate Directors,
a director serving as of February 12, 1997, and any person who served as a
Company director prior to such date, who is not entitled to receive benefits
under the Company's Pension Plan, will be paid a retirement benefit after
serving as a member of the Board for a period of not less than five years,
unless such Non-Associate Director elected to discontinue participation in the
retirement plan. For such director retiring on his or her normal retirement
date, as defined in the retirement plan, annualized benefits will equal the
annual retainer for directors from time to time then in effect. No current
director who was serving as of February 12, 1997 has elected to remain in the
retirement plan. Non-Associate Directors elected or appointed to the Company's
Board after February 12, 1997 are not eligible to receive retirement benefits.
Pursuant to the Company's Bylaws, no person may continue to serve as a
director after the Company's annual meeting of stockholders in the calendar
year in which such person attains age 70.
Directors are eligible to participate in the Company's Directors' Charitable
Award Program ("Charitable Award Program"). The Charitable Award Program is
designed to acknowledge the service of directors and to benefit and recognize
the mutual interest of directors and the Company in supporting worthy
charitable and educational institutions. In addition, it enhances the
Company's ability to attract and retain directors of the highest caliber and
experience. Pursuant to the Charitable Award Program, the Company has
purchased joint life insurance policies on groups of directors. Each group
generally consists of two directors with the Company named as the beneficiary
of each joint life policy. With respect to each group, the Company will
receive a $1,000,000 death benefit upon the death of the second director of
the group. The Company in turn has informally agreed to donate a total of
$1,000,000; $500,000 upon the earlier of (i) five years after the date of
death of the first director of the group to die or (ii) the death of the
second director of the group, and an additional $500,000 upon the death of the
second director of the group, to one or more charitable organizations as
recommended by the individual directors. Because all charitable deductions
accrue solely to the Company, the individual directors derive no financial
benefits from this Program. The Board may, at any time, without the consent of
any participating director, amend, suspend, or terminate this Program. Seven
of the current directors have elected to participate in the Charitable Award
Program.
9
<PAGE>
Report of Personnel and Compensation Committee on Executive Compensation
The Company's compensation policies are established and implemented by the
Personnel and Compensation Committee of the Board of Directors ("Committee"),
which is composed entirely of non-employee directors. In addition to
determining and approving annual salaries of officers who are not directors
and making recommendations to the full Board regarding the annual salaries of
associate directors, the Committee determines and approves payments under the
Company's incentive compensation programs and makes awards under the Company's
1997 Equity Compensation Plan ("Equity Plan"). In carrying out these
responsibilities, the Committee is advised by outside consultants with respect
to the competitiveness of the Company's executive compensation policies and
programs and, as needed, meets with these consultants without any Company
representative being present.
As discussed more fully below, the Company's cash incentive awards are
determined by overall Company results. Due to weaker overall results in 1999,
as well as changes to the Company's compensation programs for 1999 also
discussed below, the Company's executive officers received significantly
smaller incentive awards in 1999 than in past years.
Compensation Philosophy. Since the Company's founding in 1902 by James Cash
Penney and as set forth in the Penney Idea adopted in 1913, the JCPenney
compensation philosophy has been based on the following: To reward the men and
women in our organization through participation in what the business produces.
Compensation is tied directly to the achievement of the Company's annual and
long-term performance goals. In this manner, the Company believes it can
attract and retain executives who are most able to contribute to the long-term
success of the Company and the enhancement of stockholder value. In general,
an executive's compensation package consists of: (1) base salary, (2) annual
incentive compensation, and (3) long-term incentive compensation in the form
of stock. (See "Summary Compensation Table" on page 16.) As an executive's
Position Responsibility Level ("PRL") increases, a greater portion of his or
her compensation is linked to Company performance.
Base Salary and Incentive Compensation Payments. Total annual cash
compensation consists of base salary and incentive compensation. Total annual
cash compensation targets are set by the Committee from a range determined by
the officer's PRL, which reflects the market value of an officer's job as well
as its value to the Company. In determining annual cash compensation targets,
consideration is given to the following factors: job responsibilities and
tasks; knowledge, skills, and experience required for successful job
performance; and competitive positioning, both within and outside the Company.
No specific weighting is given to any of these factors. The Company believes
it competes with the companies constituting the S&P 500 Retail Index for
department stores and other major retailers in the United States as well as
selected Fortune 200 companies for executive talent. In setting annual cash
compensation targets, the Committee compares the Company's cash compensation
package with the cash compensation packages of these selected companies. The
Company targets its total cash compensation package for its executive officers
as a group, and its Chairman of the Board and Chief Executive Officer ("CEO"),
at or near the 50th percentile of competitive pay for comparable executives
when Company performance goals are "met" and at or near the 75th percentile
when Company performance "exceeds" pre-established targets. The Committee
regularly reviews cash compensation levels to determine if salary increases
are merited.
Annual profit incentive compensation can be earned by eligible management
associates of the Company under the Company's 1989 Management Incentive
Compensation Program ("Incentive Program"). In 1999, the Company revised the
design of its executive pay programs to improve competitiveness and to better
link reward to performance. In the past, the Company provided base salary at a
level that was significantly below market and incentive compensation levels
that were higher than market practice. As we disclosed in last year's proxy
statement, effective February 1, 1999, to
10
<PAGE>
better align the Company's compensation programs with market practice the
Company moved a portion of the incentive payment into base salary and adjusted
incentive targets to provide for total cash opportunity around the 50th
percentile of the market. The Incentive Program was modified to have a
structure that ties incentive compensation directly to Company performance
with a real opportunity to earn no incentive for performance well below plan
and up to 300% of incentive targets for superior results. The goals for the
Incentive Program are set at the beginning of the fiscal year consistent with
the Company's business plan.
For fiscal 1999, the amount of the Incentive Program award was based on the
number of profit incentive units credited to a particular PRL and the value
assigned to each unit. The number of profit incentive units credited is a
given percentage, based on PRL, of base salary. A unit value was determined
for the total Company based on Total Company performance against Economic
Value Added (EVA(R)) growth targets. EVA is a company's or other operating
division's after-tax net operating profit minus a charge for the capital
employed (both debt and equity) for a given fiscal year. The annual unit value
is determined by a formula which measures the Company's actual EVA dollar
performance against the annual target. Unit values were also determined for
each of the Company's major operating divisions based on performance for the
year. For executive officers with broad Company responsibility, 1999 unit
values were based 50% on Total Company EVA results and 50% on a blended unit
value called "Company Management". The Company Management unit value was based
40% on JCPenney Stores, Catalog, and International sales and profit results,
30% on Total Company EVA results, 20% on Eckerd Drugstores sales, profit, and
EVA results, and 10% on JCPenney Direct Marketing Services revenue, income,
and EVA results.
Eligible Eckerd Corporation ("Eckerd") associates, including Mr. Newman,
participate in the Eckerd Corporation Key Management Bonus Plan ("KMBP"), a
compensation plan in place at Eckerd prior to the Company's acquisition of
Eckerd. The KMBP is also a performance based annual incentive compensation
program, which pays a cash bonus to participants generally based on the extent
to which identified Eckerd financial objectives for the fiscal year, including
earnings before interest and taxes, Eckerd EVA results, and sales, have been
achieved. There are six levels of KMBP participation and the participation
level of each eligible Eckerd associate is determined by his or her title. At
each participant level, payout percentages are determined for each of the
financial objectives based on Eckerd's actual performance relative to its plan
for the fiscal year. The various financial objectives for each participant are
weighted and the participant's actual payout percentage, which is a percentage
of eligible base salary, represents the sum of the weighted payout percentages
for each financial objective. As an executive officer of the Company, a
portion of Mr. Newman's incentive compensation under the KMBP is based on
Total Company EVA results.
Incentive compensation may also be earned by eligible management associates
of the Company and its subsidiaries, including Eckerd, under the Company's EVA
Performance Plan ("EVA Performance Plan"). Each EVA Performance Plan
participant is granted a number of performance units calculated by multiplying
the sum of base salary and profit incentive compensation valued at $1.00 per
unit (or, in the case of Eckerd, at target) by a given percentage, based on
PRL. The value of each performance unit for a given fiscal year is determined
by the Committee and is based on the change in the Company's EVA from the
previous fiscal year, measured against predetermined EVA growth targets. The
aggregate value of each participant's performance units for the fiscal year,
which may be positive or negative based on the Company's performance, is added
to a "bonus reserve account" established for such participant. Annual payments
to participants under the EVA Performance Plan are made from each
participant's bonus reserve account in amounts equal to up to 100% of the
participant's target award for such fiscal year (i.e., the number of
performance units granted for the fiscal year at $1.00 per unit), to the
extent that the bonus reserve account balance is positive, plus 50% of any
remaining positive balance. Since a participant's bonus reserve account
balance may be
- --------
EVA(R) is a registered trademark of Stern Stewart & Co.
11
<PAGE>
negative it is possible that a participant would not receive a cash award
under the EVA Performance Plan in a given fiscal year, even if EVA were
positive for such year.
The Company's compensation programs, as revised in February 1999, moved a
portion of the Incentive Program payment into base salary. As a result of the
Company's weaker performance in fiscal 1999, actual bonus payments for the
Named Executive Officers (other than Ms. Castagna) under the Incentive Program
and the EVA Performance Plan amounted to only 0% to 2.9% of base salary,
depending on the executive's PRL and primary area of responsibility. If the
Company had met its planned financial objectives for the year, such payments
would have equalled 77% to 107% of base salary, depending on the executive's
PRL, with payments in excess of those percentages for results above plan.
Pursuant to the terms of her employment agreement, annual incentive
compensation for Ms. Castagna under the Incentive Program and the EVA
Performance Plan equalled 83% of her base salary for fiscal 1999. For a
description of Ms. Castagna's employment agreement, see pages 13 to 14.
Equity Awards. The Company makes equity awards to eligible associates to align
their interests with stockholders. Generally, an executive's participation in
the Equity Plan and the size of the award are a function of the executive's
PRL. The Committee does not consider the amounts and terms of prior grants of
stock options when determining equity awards. To date, stock options and stock
awards have been granted under the Equity Plan.
As of February 28, 2000, options covering approximately 3,180,000 shares of
Common Stock under the Equity Plan (to approximately 25,000 management
associates of the Company and its subsidiaries) were granted at an option
price of $16.00 per share. Approximately 2,738,000 of those shares were
awarded under a one-time special stock option grant to all management
associates. The remaining shares were pro rata grants made in connection with
the 1999 Multiple Stock Option grant which provides for incremental grants in
2000 and 2001 to associates who are newly eligible, receive a promotion, or
change store assignments. The 2000 grants generally become exercisable in
2002. All executive level participants in the Equity Plan are subject to
certain minimum Company stock ownership guidelines. (See "Associate Stock
Ownership Guidelines" on page 20).
The Company has never reduced the exercise prices of outstanding stock
options under the present or any prior option plan.
1999 Compensation. In 1999, the total Company unit value under the Incentive
Program was zero as compared to $0.76 in 1998 and $1.49 in 1997. (As
previously noted, effective February 1, 1999, the Company modified the
Incentive Program by moving a portion of the incentive payment into base
salary and adjusting incentive targets, resulting in an incentive compensation
payout calculation that differs from pre-1999 incentive payout calculations).
Also, as noted previously, no associate's 1999 incentive compensation was
based solely on the total Company performance measurement. The 1999 Incentive
Program unit value for Messrs. Oesterreicher, Hutchens, and Lotter was
$0.0525. Mr. Newman's 1999 payout percentage under the KMBP was 0% of his
eligible base salary.
The performance unit value under the EVA Performance Plan for 1999 was
negative $2.03. Each participant's bonus reserve account was credited with an
amount equal to negative 203% of the participant's target award and no annual
payments were made to participants. The negative balances in the bonus reserve
accounts will be carried forward and will offset any future payments to be
made under the plan.
CEO Compensation. As shown in the Summary Compensation Table, the CEO's base
salary for 1999 was $1,056,457. For 1999, cash incentive awards for the CEO
approximated 2.9% of his base salary. As discussed above, the CEO received no
payment for 1999 under the EVA Performance Plan and his bonus reserve account
was credited with an amount equal to negative $1,100,505. The CEO's
compensation was based on the same performance factors applicable to all
executive officers, as discussed in the preceding paragraphs. No unique
evaluation factors are utilized with respect to determining the CEO's
compensation.
12
<PAGE>
As discussed above, the Company's executive compensation philosophy
emphasizes incentive compensation tied to Company performance. The
deductibility of executive compensation is limited in certain circumstances by
Section 162(m) of the Internal Revenue Code. The Company's Equity Plan
satisfies the requirements of Section 162(m) regarding stock option grants.
With respect to the Company's other compensation programs, the Committee
believes that these programs provide the necessary incentives and flexibility
to promote the Company's performance-based compensation philosophy while being
consistent with Company culture and objectives and, accordingly, has
determined not to amend these plans at this time. For fiscal 1999, the
limitations of Section 162(m) did not apply to compensation paid to any
Company executive.
Personnel and Compensation Committee
J. C. Pfeiffer, Chair Francisco Sanchez-Loaeza
T. J. Engibous C. S. Sanford, Jr.
K. B. Foster
Compensation Committee Interlocks and Insider Participation
The Personnel and Compensation Committee is composed entirely of persons who
are neither employees nor former or current officers of the Company. T. J.
Engibous, K. B. Foster, J. C. Pfeiffer, Francisco Sanchez-Loaeza, and C. S.
Sanford, Jr. served as members of the Committee during the Company's 1999
fiscal year.
Mr. Jordan is currently of counsel at, and prior to January 2000 was a
senior partner of, Akin, Gump, Strauss, Hauer & Feld, L.L.P., which is one of
a number of firms which have provided or will provide legal services to the
Company and its subsidiaries.
In connection with its acquisition of Eckerd Corporation, the Company
requested that Mr. Newman, Eckerd's Chairman, President and Chief Executive
Officer, enter into an amendment to his existing employment agreement to
guarantee his continued employment with Eckerd for at least three years after
the acquisition. As amended, the agreement, which provides for an initial base
salary of $575,000, has a three-year term beginning February 27, 1997, after
which it is automatically renewed annually until terminated by the Company or
Mr. Newman. Upon involuntary termination of his employment, other than for
cause, Mr. Newman is entitled to a severance payment of two times his then
current annual base salary, payable in monthly installments over a two year
period. In addition, upon termination by the Company within two years, or
termination by Mr. Newman for Good Reason (as defined therein) at least one
year but less than two years, after a Change of Control (as defined therein),
he will receive a lump sum severance payment of 2.9 times base salary and all
previously granted incentive awards will vest immediately. Unless terminated
for cause, Mr. Newman will also receive a pro rata portion of his applicable
bonus compensation and, subject to certain limitations, the Company will
continue certain insurance and medical benefits for two years. Mr. Newman has
resigned from the Company, effective June 2, 2000.
The Company has entered into an employment agreement with Ms. Castagna,
effective August 1, 1999 ("Agreement"), pursuant to which Ms. Castagna serves
as the Company's Executive Vice President and Chief Operating Officer of
JCPenney Stores, Catalog and Merchandising. The Agreement provides for an
initial base salary of $550,000 per year and an initial term of five years,
subject to earlier termination by either party. For fiscal 1999 (on a prorated
basis) and fiscal 2000, Ms. Castagna's minimum bonus awards under the
Incentive Program and the EVA Performance Plan have been set at 48% of base
salary for the Incentive Program and 23.5% of the sum of base salary and
incentive compensation at 48% of base salary for the EVA Performance Plan.
Pursuant to the Agreement, Ms. Castagna received a supplemental cash payment
of $800,000 on September 3, 1999. She is entitled to receive additional
supplemental cash payments of $600,000 on
13
<PAGE>
each of August 1, 2000 and August 1, 2001 provided that she has not terminated
her employment voluntarily or been terminated by the Company for cause prior
to such dates. Additionally, Ms. Castagna has been granted 43,000 shares of
Common Stock which will vest in one-third increments on the third, fifth and
tenth anniversaries of her start date, 1,000 restricted stock units which will
vest in shares of Common Stock on the third anniversary of her start date, an
option to purchase 57,000 shares of Common Stock which will become exercisable
on the third anniversary of her start date, and an option to purchase 150,000
shares of Common Stock which will vest in 20% increments beginning on the
first anniversary of her start date, subject to accelerated vesting if the
actual performance results of Ms. Castagna's areas of responsibility exceed
planned results by certain specified percentages. Ms. Castagna is further
eligible to participate in the Company's employer sponsored benefit plans,
including the Company's Mirror Savings Plan, which is described on page 20,
and is entitled to five weeks of vacation.
If Ms. Castagna's employment is terminated by the Company other than for
cause, or by Ms. Castagna for Good Reason (as defined in the Agreement), she
will be entitled to receive her unpaid salary and vacation to the date of
termination, a prorated portion of her target bonus under the Incentive
Program and the EVA Performance Plan for the fiscal year in which termination
occurs, a lump sum payment equal to two times the total of her base salary and
her target awards under the Incentive Program and EVA Performance Plan, the
continuation of employee welfare benefits for a period of 24 months from the
date of termination, outplacement services in an amount up to $30,000, and any
other payments under applicable plans or programs to which she is entitled. In
addition, upon such termination, all restrictions on shares of Common Stock
will immediately lapse, all unvested stock options will become immediately
vested and any supplemental cash payments not yet paid will be paid. If Ms.
Castagna's employment is terminated by the Company for cause, or by Ms.
Castagna other than for Good Reason, she will be entitled to receive only her
unpaid salary and vacation to the date of termination. Ms. Castagna also
participates in the Company's Separation Allowance Program which is described
in "Change of Control Arrangements" on pages 22 to 23.
14
<PAGE>
FIVE-YEAR TOTAL STOCKHOLDER RETURN COMPARISON
The following is a line-graph presentation comparing cumulative five-year
stockholder returns on an indexed basis with the S&P 500 Stock Index and the
S&P 500 Retail Index for department stores. A list of these companies follows
the graph below:
{Performance graph appears here]
S&P DEPARTMENT STORES:
JCPenney, Dillard's, Federated, Kohls, May, Nordstrom
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney 100 111 119 175 106 53
-----------------------------------------------------------------------------------
S&P 500 100 133 169 218 289 311
-----------------------------------------------------------------------------------
S&P Dept. Stores 100 110 124 164 163 128
</TABLE>
The stockholder returns shown are neither determinative nor indicative of
future performance.
15
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
---------------------------------------- ------------------------ -------
Securities
Restricted Underlying
Other Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation Award(s) SARs Payouts Compensation
Principal Position Year ($) ($) ($)(1) ($) (#)(2) ($)(3) ($)(4)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oesterreicher, J. E. 1999(5) 1,056,457 30,783 -- -- 180,000 -- 24,563
(Chairman of the 1998 612,235 449,886 271,478 -- 120,000 -- 81,470
Board and Chief 1997 560,826 792,784 -- -- 60,000 406,823 79,773
Executive Officer)
Castagna, V. J.* 1999 275,000 1,027,645(6) -- 1,925,000(7) 207,000 -- --
(Executive Vice
President and Chief
Operating Officer,
JCPenney Stores,
Merchandising, and
Catalog)
Hutchens, T. D.** 1999(5) 523,095 13,182 -- -- 57,000 -- 11,187
(President and 1998 324,427 188,208 98,686 -- 19,000 -- 36,395
Chief Operating Officer, 1997 304,968 337,261 -- -- 19,000 147,300 40,210
International)
Lotter, C. R. 1999(5) 472,524 11,411 -- -- 36,000 -- 9,882
(Executive Vice 1998 292,517 158,383 83,173 -- 12,000 -- 31,631
President, Secretary and 1997 279,396 291,019 -- -- 12,000 119,693 33,653
General Counsel)
Newman, F. A.*** 1999 668,307 0(8) -- -- (9) 69,000 -- 13,873
(Chairman, President 1998 609,760 123,781(8) 163,550 -- 19,000 -- 18,276
and Chief Executive 1997 595,079(10) 207,200(11) -- -- -- (12) 245,088 40,398
Officer, Eckerd
Corporation)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ms. Castagna joined the Company on August 1, 1999.
** Mr. Hutchens retired from the Company on February 29, 2000.
*** Mr. Newman resigned from the Company, effective June 2, 2000.
(1) The amounts shown for 1998 represent termination payments from the
Company's 1984 Performance Unit Plan ("PUP") in recognition of
contributions made by associates during the portion of the PUP award cycle
already completed when the PUP program ended at the end of fiscal 1997.
(2) No SARs have been granted since 1987.
(3) For 1997, this amount reflects long-term incentive plan payments made
pursuant to the PUP.
(4) Represents Company contributions or allocations on behalf of the following
executive officers under the LESOP and the Mirror Savings Plan, which, for
the last fiscal year, were, respectively: Mr. Oesterreicher, $2,257 and
$22,306; Mr. Hutchens, $2,257 and $8,930; Mr. Lotter, $2,212 and $7,670;
and Mr. Newman, $2,257 and $11,616. The allocations presently made under
the Mirror Savings Plan were, prior to 1999, made under the Benefit
Restoration Plan. For a description of the Mirror Savings Plan, see page
20. For a description of the Benefit Restoration Plan, see "Retirement
Income" on pages 20 to 22. In the case of Mr. Newman, the amounts shown
for 1998 and 1997 represent allocations made by Eckerd pursuant to the
Eckerd Profit-Sharing Plan and the Eckerd Executive Excess Plan. Effective
January 1, 1999, Mr. Newman became a participant in the LESOP and Mirror
Savings Plan.
(5) To better align the Company's compensation programs with market practice,
effective February 1, 1999, the Company moved a portion of the Incentive
Program payment into base salary and adjusted incentive targets to provide
for total cash opportunity around the 50th percentile of the market. For a
discussion of these changes, see "Report of Personnel and Compensation
Committee on Executive Compensation" on pages 10 to 13.
(6) Pursuant to the terms of Ms. Castagna's employment agreement, the amount
shown represents the sum of specified minimum payments under the Incentive
Program and the EVA Performance Plan of $132,000 and $95,645,
respectively, and a supplemental cash payment of $800,000 paid to Ms.
Castagna on September 3, 1999. For a description of the terms of Ms.
Castagna's employment agreement, see pages 13 to 14.
(7) In connection with Ms. Castagna's employment, she received 43,000 shares
of restricted Common Stock which will vest in one-third increments on the
third, fifth and tenth anniversaries of her start date, and 1,000
restricted stock units which will
16
<PAGE>
vest in shares of Common Stock on the third anniversary of her start date.
The value of these awards shown in the table is based on the closing price
of the Company's Common Stock on July 30, 1999, the last trading day prior
to Ms. Castagna's start date, which was $43.75. The value of such awards
as of January 28, 2000, the last trading day prior to the end of the
fiscal year, was $805,750. The future value realized on such shares upon
actual disposition may differ from the values reported here. Dividends are
paid on the shares of restricted Common Stock and stock units from the
date of grant.
(8) As an executive officer of the Company and of Eckerd, Mr. Newman's 1999
and 1998 incentive compensation was comprised of payments under both
Eckerd's Key Management Bonus Plan ("KMBP") and the Company's 1989
Management Incentive Compensation Program ("Incentive Program"). For
descriptions of the KMBP and the Incentive Program, see "Report of
Personnel and Compensation Committee on Executive Compensation" on pages
10 to 13.
(9) Mr. Newman received a grant of performance units under the JCPenney Drug
Store Partner Incentive Award ("PIA") Program. Based on Eckerd's results
for fiscal 1999, no shares were credited pursuant to this award. For a
description of the PIA Program, see page 20.
(10) In connection with its acquisition of Eckerd, the Company requested that
Mr. Newman enter into an amendment to his existing employment agreement.
For a description of the terms of Mr. Newman's employment agreement, as
amended, see page 13.
(11) This amount reflects payments made to Mr. Newman pursuant to the KMBP.
Mr. Newman did not participate in the Incentive Program in 1997.
(12) Pursuant to the terms of the Company's acquisition of Eckerd, each share
of Eckerd common stock was converted into .6604 of a share of the
Company's Common Stock, and each option to purchase shares of Eckerd
common stock was converted into an option to purchase shares of Company
Common Stock at the same ratio. As a result, Mr. Newman's holdings of
Eckerd common stock and stock options were converted into 4,424 shares of
Common Stock and 120,192 options to purchase shares of the Company's
Common Stock, respectively. Mr. Newman did not receive any grant of stock
options under the Company's or Eckerd's equity plans in 1997.
17
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options granted to
the Named Executive Officers during fiscal 1999. Except as otherwise noted,
such options are exercisable after three years from the date of the grant. The
values assigned to each reported option are shown using arbitrarily assumed
annualized rates of stock price appreciation of 5% and 10% over the full 10-
year term of the options, which would result in a stock price of $58.74 and
$93.54, respectively, with respect to grants to the Named Executive Officers
other than Ms. Castagna. In the case of the grants to Ms. Castagna, the
assumed annualized rates of stock price appreciation would result in a stock
price of $72.18 and $114.93, respectively. In assessing these values it should
be kept in mind that regardless of the theoretical value that is placed on a
stock option on the date of grant, its ultimate value will be dependent on the
market value of the Company's Common Stock at a future date, and as a result
of the efforts of such executives to contribute to the creation of sustainable
stockholder wealth.
<TABLE>
<CAPTION>
Individual Grants
- ------------------------------------------------------------------------
Number of Potential Realizable
Securities % of Total Value at
Underlying Options/SARs Exercise Assumed Annual
Options/SARs Granted to or Base Rates of Stock
Granted Employees in Price Expiration Price Appreciation
Name (#)(1) Fiscal Year ($/Sh) Date for Option Term(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
Oesterreicher, J. E. 180,000 3.6 36.0625 2/28/09 $4,081,950 $10,345,950
(Chairman of the Board
and
Chief Executive Officer)
Castagna, V. J.* 150,000(3) 3.0 44.3124 7/31/09 $4,180,140 $10,592,640
(Executive Vice
President and 57,000 1.1 44.3124 7/31/09 $1,588,453 $ 4,025,203
Chief Operating Officer,
JCPenney
Stores, Merchandising,
and Catalog)
Hutchens, T. D.** 57,000(4) 1.1 36.0625 2/28/09 $1,292,618 $ 3,276,218
(President and Chief
Operating
Officer, International)
Lotter, C. R. 36,000 0.7 36.0625 2/28/09 $ 816,390 $ 2,069,190
(Executive Vice
President,
Secretary and General
Counsel)
Newman, F. A.*** 69,000 1.4 36.0625 2/28/09 $1,564,748 $ 3,965,948
(Chairman, President and
Chief Executive Officer,
Eckerd Corporation)
- -----------------------------------------------------------------------------------------------
</TABLE>
* Ms. Castagna joined the Company on August 1, 1999.
** Mr. Hutchens retired from the Company on February 29, 2000.
*** Mr. Newman resigned from the Company, effective June 2, 2000.
(1) No SARs were granted in the last fiscal year.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's stock price.
(3) In connection with her employment, Ms. Castagna received a grant of
150,000 options which vest in 20% increments beginning with the first
anniversary of her start date, which was August 1, 1999. Vesting of these
options may be accelerated, however, if the actual performance results of
Ms. Castagna's areas of responsibility exceed planned results as follows:
30% vesting if results exceed plan by up to 1%, 40% vesting if results
exceed plan by more than 1% up to 2%, and 50% vesting if results exceed
plan by more than 2%. The total vesting percentage for this grant cannot
exceed 100%.
(4) Upon his retirement as a full-time employee of the Company, Mr. Hutchens'
1999 multiple stock option grant was prorated to reflect the number of
full months he served up to his retirement date. Accordingly, 20,583
options became vested and immediately exercisable upon his retirement and
the remainder of his 1999 grant expired.
18
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
The following table shows stock option exercises by Named Executive Officers
during fiscal 1999, including the aggregate value of gains on the date of
exercise. In addition, this table includes the number of shares covered by
both exercisable and non-exercisable stock options at fiscal year-end. Also
reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the fiscal 1999 year-end price of the Company's Common Stock.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($)(1) Unexercisable Unexercisable(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oesterreicher, J. E. 3,412 45,907 291,640(E) -0-
(Chairman of the Board 222,000(U) -0-
and Chief Executive
Officer)
Castagna, V. J.* -- -- -0-(E) -0-
(Executive Vice
President 207,000(U) -0-
and Chief Operating
Officer,
JCPenney Stores,
Merchandising, and
Catalog)
Hutchens, T. D.** -- -- 57,872(E) -0-
(President and Chief
Operating 57,000(U) -0-
Officer, International)
Lotter, C. R. -- -- 64,000(E) -0-
(Executive Vice
President, 36,000(U) -0-
Secretary and General
Counsel)
Newman, F. A.*** 98,693 2,268,021 19,000(E) -0-
(Chairman, President and 69,000(U) -0-
Chief Executive Officer,
Eckerd Corporation)
- -----------------------------------------------------------------------------------------
</TABLE>
* Ms. Castagna joined the Company on August 1, 1999.
** Mr. Hutchens retired from the Company on February 29, 2000.
*** Mr. Newman resigned from the Company, effective June 2, 2000.
(1) Since most shares reported here continue to be held by participants, and
considering certain shares have holding period requirements, the future
value realized on such shares upon actual disposition may differ from the
value reported here on the exercise date.
(2) Value is based on the closing price on the last trading day of the fiscal
year, which, as of January 28, 2000, was $18.3125.
19
<PAGE>
JCPenney Drug Store Partner Incentive Award Program. Effective March 12, 1997,
the Committee approved the JCPenney Drug Store Partner Incentive Award Program
to motivate and reward key Eckerd associates for the achievement of aggressive
profit plans for 1997-1999. Under this program, Partner Incentive Awards
("PIAs") were granted to participants in each of the three years in the
measurement period but were only credited after the close of each fiscal year,
if at all, based on Eckerd's actual operating income results for such fiscal
year compared to planned operating income for the period. For fiscal 1999, as
well as the other years in the measurement period, no PIAs were credited. This
program terminated at the end of fiscal 1999.
Associate Stock Ownership Guidelines. The Company has adopted a Stock
Ownership Guidelines Program for certain of its management employees and store
managers. The Guidelines were enacted to further encourage and support a
"stakeholder" mentality among these employees in order to align their
interests with other Company stockholders. Pursuant to the Guidelines, all
participants in the Company's Equity Plan are required to own a minimum amount
of Common Stock based upon a multiple (the "Ownership Multiple") of base
salary. Under the Guidelines, the Ownership Multiples range from seven times
base salary for the CEO to one-half times base salary for non-officers and
store managers. Employees subject to the Guidelines may sell Common Stock only
if their holdings are in excess of the Guidelines.
Mirror Savings Plan. Participant contributions to qualified savings plans were
limited in 1999 by a $160,000 compensation limit imposed by the Internal
Revenue Service. The Board of Directors of the Company approved the J. C.
Penney Company, Inc. Mirror Savings Plan as a vehicle for associates earning
more than the compensation limit to defer a portion of their base salary and
incentive compensation payments exceeding the compensation limit as a means of
saving for retirement. Participants in the Mirror Savings Plan elect to defer
a percentage of their compensation each year. Deferred amounts are generally
payable upon a participant's retirement, death, or other separation from the
Company.
Retirement Income. The following table shows various estimated maximum
aggregate annual retirement incomes payable to the Company's management
employees who receive profit incentive compensation and retire at age 60 (the
age at which most management personnel currently voluntarily retire).
ESTIMATED RETIREMENT INCOME TABLE
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------
Average
Final
Compensation 15 20 25 30 35 40
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 250,000 $ 87,500 $100,000 $112,500 $ 125,000 $ 131,250 $ 137,500
500,000 175,000 200,000 225,000 250,000 262,500 275,000
750,000 262,500 300,000 337,500 375,000 393,750 412,500
1,000,000 350,000 400,000 450,000 500,000 525,000 550,000
1,250,000 437,500 500,000 562,500 625,000 656,250 687,500
1,500,000 525,000 600,000 675,000 750,000 787,500 825,000
1,750,000 612,500 700,000 787,500 875,000 918,750 962,500
2,000,000 700,000 800,000 900,000 1,000,000 1,050,000 1,100,000
Each additional
$ 50,000 17,500 20,000 22,500 25,000 26,250 27,500
- -----------------------------------------------------------------------------
</TABLE>
Average Final Compensation for pension formula purposes generally includes
"Salary", "Bonus", and prior to 1998, payments under the Company's Performance
Unit Plan included in "LTIP Payouts", as reported under these columns of the
Summary Compensation Table on page 16.
20
<PAGE>
The present annual pension benefit payable after normal retirement (age 65
or later) to participants in the Company's Pension Plan ("Pension Plan") with
service after December 31, 1988, generally is equal to the sum of .75% times
the "average final compensation" up to the "Average Social Security Wage Base"
plus 1.25% times the "average final compensation" in excess of the "Average
Social Security Wage Base" multiplied by the number of years of "credited
service" up to a maximum of 35 such years. In addition to this annual pension
benefit, a participant may receive an annual retirement benefit generally
equal to 0.25% of his or her average final compensation times his or her years
of credited service that exceed 25 years of credited service, but do not
exceed 35 such years. "Average final compensation" is the average of the
highest five consecutive full calendar years of compensation out of the
employee's last ten years in the Pension Plan. "Average Social Security Wage
Base" is the average of the 35 consecutive years of wages subject to the
Social Security Tax, ending with the year an employee qualifies for unreduced
Social Security retirement benefits. The Pension Plan contains provisions for
early retirement and optional forms of benefit payments.
A Supplemental Retirement Program for Management Profit-Sharing Associates
("Supplemental Retirement Program") provides certain supplemental retirement
benefits, including Social Security substitute payments until age 62, to
certain management employees, including executive officers, who voluntarily
retire prior to age 65 in accordance with the Supplemental Retirement Program
and whose aggregate retirement and estimated Social Security benefits would
otherwise be below specified minimum retirement income levels. Participation
in the Supplemental Retirement Program is limited to associates eligible for
participation on or prior to December 31, 1995.
The Internal Revenue Code ("Code") imposes certain limitations on the
maximum benefits that may be earned under "qualified" retirement plans, such
as the Pension Plan and the LESOP. In 1995, the Company adopted the J. C.
Penney Company, Inc. Benefit Restoration Plan ("Benefit Restoration Plan"),
which provides to impacted management associates certain benefits which, under
the Code, cannot be earned under the Pension Plan and LESOP. Effective January
1, 1999, the benefits which, under the Code, could not be earned under the
LESOP and, therefore, were provided pursuant to the Benefit Restoration Plan,
will be provided under the Mirror Savings Plan. Eligible management associates
must make an annual election to participate in the Mirror Savings Plan.
Estimated annual retirement incomes reflected in the table are assumed for
this purpose to comprise the total of (i) the benefit under the Pension Plan,
(ii) the value at retirement of the aggregate of Company contributions made to
the Company's LESOP and predecessor plans and the Company's Mirror Savings
Plan, and earnings thereon, (iii) the benefit under the Benefit Restoration
Plan, and (iv) the benefit under the Supplemental Retirement Program, assuming
the payment of all such benefits in the form of a straight life annuity. The
Named Executive Officers (other than Ms. Castagna and Messrs. Hutchens and
Newman) currently have, respectively, the following years of "credited
service" and approximate assumed "average final compensation" recognized for
calculation of benefits under the Supplemental Retirement Program: Mr.
Oesterreicher, 35 years, $1,504,415; and Mr. Lotter, 27 years, $645,483. Upon
his retirement as a full-time employee of the Company, Mr. Hutchens became
entitled to an annual retirement income of $412,430. Upon the completion of
one year of "credited service", Ms. Castagna will become eligible to
participate in the Company's Pension Plan.
Effective January 1, 1999, Mr. Newman became a participant in the Company's
Pension Plan and the Benefit Restoration Plan. Since Mr. Newman is not a
participant in the Company's Supplemental Retirement Program, his annual
retirement income from the Company's defined benefit plans is comprised of the
total of (i) the benefit under the Pension Plan and (ii) the benefit under the
Benefit Restoration Plan. Upon his resignation from the Company, Mr. Newman
became entitled to an annual retirement income of $14,985 at age 65 under the
Company's defined benefit plans.
Prior to January 1, 1999, Mr. Newman was an active participant in the Eckerd
Corporation Pension Plan ("Eckerd Pension Plan") and the Eckerd Corporation
Executive Excess Plan ("Excess
21
<PAGE>
Plan"), both of which were frozen as of December 31, 1998. Upon his resignation
from the Company, Mr. Newman became entitled to an annual retirement benefit of
$82,501 at age 65 under the Eckerd Pension Plan and the Excess Plan. This
annual retirement benefit is a single life annuity amount and is not subject to
any deduction for Social Security or other offset amounts, and includes the
income which could be provided by a monthly annuity for life purchased with the
Eckerd Profit Sharing Plan vested account balance.
Mr. Newman also participates in the Eckerd Corporation First Executive
Supplemental Benefit Plan ("ESBP"), which was in place at the time the Company
acquired Eckerd and has not been frozen. The ESBP is a non-qualified,
noncontributory plan that provides for supplemental retirement and death
benefits for the executive officers and other key management employees of
Eckerd.
The following table sets out the estimated annual benefits payable under the
ESBP at age 65 for the noted levels of midpoint salaries:
<TABLE>
<CAPTION>
Annual
Covered Benefit
Salary Payable
------------------
<S> <C>
$100,000 $ 25,000
200,000 50,000
300,000 75,000
400,000 100,000
500,000 125,000
600,000 150,000
700,000 175,000
------------------
</TABLE>
Under the ESBP, Eckerd is obligated to pay a participant an annual amount equal
to 25% of the participant's covered salary in equal monthly installments for
fifteen years commencing at age 65. The annual benefit shown assumes that the
sum of the participant's age and the number of years of service (which cannot
be less than five) is at least 70. If it is less than 70, then the annual
benefit is prorated pursuant to a prescribed formula. The covered salary is the
midpoint of a salary range for a particular executive position as calculated by
Eckerd. For purposes of the ESBP, Mr. Newman's 1999 covered salary was $613,160
and he has six years of service. Upon his resignation from the Company,
Mr. Newman became entitled to an annual benefit of $51,915 at age 65 under the
ESBP. The ESBP also provides that, in the event of the death of a participant
prior to retirement, the participant's beneficiary is entitled to receive
either (a) a lump sum payment equal to four times the participant's covered
salary, or (b) an amount equal to 90% of the participant's covered salary for
the first year after death plus 45% of the covered salary annually for the next
nine years.
Change of Control Arrangements. In July 1999, the Board of Directors adopted
the 1999 Separation Allowance Program for profit-sharing management and bonus
eligible employees of the Company and its subsidiaries, including executive
officers. This action was taken in order to enable the Company to remain
competitive in attracting and retaining valued employees, particularly in light
of the uncertainties of the current retail environment; to allay job security
fears and concerns of associates; to improve morale and dedication; to increase
associate productivity by eliminating extraneous distractions and anxieties;
and to help ensure that associates receive the benefits they legitimately earn
in the normal course of their employment.
Benefits under the separation allowance program will be provided in the event
of involuntary termination or constructive discharge of an eligible participant
within two years after a change of control of the Company. The benefits include
lump sum severance payments of from six to 24 months' "compensation" depending
on length of service, lump sum payments under the Company's incentive
compensation programs, eligibility for term life insurance, eligibility for
medical and dental plan coverage, extension of exercise periods for
nonqualified stock options, enhanced benefits under the Supplemental Retirement
Program described on page 21, and certain additional incidental benefits. No
amounts have been accrued or paid under the program.
22
<PAGE>
The program is effective for an initial period of five years and will
automatically be renewed for subsequent five-year periods, unless the Board
terminates the program. If a change of control of the Company occurs during
the term of the program, the program may not be terminated or amended until
all obligations under the program have been met.
In the alternative, upon a change of control of the Company the Company's
current executive officers may elect to voluntarily terminate employment and
receive benefits under a separate severance arrangement. The benefits under
the alternative arrangement include a lump sum severance payment equal to
three times the officer's total cash compensation in lieu of the lump sum
severance payment payable under the separation allowance program, together
with the other benefits under the separation allowance program described
above. This alternative arrangement, which has a one-year term to be renewed
annually unless terminated earlier by the Board of Directors, is designed to
encourage management continuity for a reasonable period of time following a
change of control. The election to receive the benefits under this alternative
arrangement must be made by the executive officer within six months after a
change of control. If such election is not made, the officer would be entitled
to the benefits of the separation allowance program but only in the event of
involuntary termination or constructive discharge within two years after the
change of control.
Approval of Auditors (Proposal 2)
KPMG LLP, independent certified public accountants, and members of the SEC
Practice Section of the AICPA Division for CPA firms, have been auditors of
the Company's consolidated financial statements since 1916. Their employment
for the purpose of auditing the Company's financial statements for the fiscal
year ending January 27, 2001, has been authorized by the Board, upon the
recommendation of the Audit Committee. Stockholder approval of such employment
is requested.
It is anticipated that a representative of KPMG LLP will attend the meeting,
will be available to respond to appropriate questions, and will have an
opportunity to make a statement should he or she so desire.
The total amount paid to KPMG LLP for all services related to the fiscal
1999 audit of the Company's consolidated financial statements was
approximately $3,420,000.
The Board recommends a vote FOR this proposal.
Stockholder Resolutions
The Company has been informed that Evelyn Y. Davis, Watergate Office Building,
2600 Virginia Avenue, N.W., Suite 215, Washington, D.C. 20037, a recordholder
of 100 shares of Common Stock, intends to submit a resolution for adoption at
the Annual Meeting, as follows:
Stockholder Resolution Number One (Proposal 3)
Resolution and Reasons Stated by Submitting Stockholder
RESOLVED: "That the stockholders of J. C. Penney recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the stagger system which was recently adopted."
REASONS: "Until recently, directors of J. C. Penney were elected annually by
all shareholders."
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year."
"This insures that ALL directors will be more accountable to ALL shareholders
each year and to a certain extent prevents the self-perpetuation of the
Board."
"Last year the owners of 123,243,098 shares, representing approximately 55.3%
of shares voting, voted FOR this proposal."
23
<PAGE>
"If you AGREE, please mark your proxy FOR this resolution."
The Board Of Directors Opposes This Proposal.
Prior to the 1985 Annual Meeting of Stockholders, directors were elected
annually for a one-year term. At the 1985 meeting, stockholders by a
substantial majority approved amendments to the Company's Restated Certificate
of Incorporation, as amended, and to its Bylaws providing, among other things,
that the Board be divided into three classes of directors serving staggered
three-year terms with each class being as nearly equal in number as possible
("Classified Board Amendments").
In the proxy statement for that meeting, which contained a detailed
discussion of the reasons for the Board's recommendation, the Board stated
that the overall purpose of the Classified Board Amendments was to assure
continuity and stability in the Company's operations. With a classified Board,
it is more likely that a majority of the directors at any time will have had
prior experience as directors of the Company, thereby facilitating continuity
and planning for the Company's business.
While it has been suggested that a classified board discourages potential
acquirors, the existence of a classified Board actually encourages potential
acquirors to negotiate directly with the Board, which is in the best position
to negotiate advantageously on behalf of all stockholders. The directors do
not believe that the classified status of the Board results in the directors
being less accountable to stockholders or results in the self-perpetuation of
the Board. For these reasons, the Board believes that a classified Board
protects the interests of stockholders.
It should be noted that adoption of this proposal would not in itself
"reinstate" the annual election of directors but would simply amount to a
request that the Board consider taking the "necessary steps" to accomplish
such reinstatement. If the Board were to consider such a request desirable, it
would then have to present a formal amendment repealing the classified Board
provision to the Company's stockholders for their approval at a meeting of
stockholders.
A stockholder proposal virtually identical to this proposal was defeated by
the votes of Company stockholders at the 1999, 1998, 1997, 1996, 1995, 1994,
1993, 1992, 1991, 1990, 1989, and 1988 Annual Meetings of Stockholders.
Accordingly, the Board continues to recommend a vote AGAINST this proposal.
The Company has been informed that the California Public Employees'
Retirement System, P.O. Box 942708, Sacramento, California 94229-2708, a
recordholder of 1,430,100 shares of Common Stock, intends to submit a
resolution for adoption at the Annual Meeting, as follows:
Stockholder Resolution Number Two (Proposal 4)
Resolution and Reasons Stated by Submitting Stockholder
J.C. Penney Company, Inc.
PROPOSAL FOR DE-CLASSIFIED BOARD
RESOLVED, that the stockholders of J.C. Penney, Inc. amend the Company's
Bylaws, in compliance with applicable law, to reorganize itself into one
class. The reorganization shall be done in a manner that does not affect the
unexpired terms of directors previously elected.
SUPPORTING STATEMENT
Is accountability by the board of directors important to shareholders? As a
trust fund with more than 1 million participants, and as the owner of
approximately 1,430,100 shares of the Company's common stock, the California
Public Employees' Retirement System (CalPERS) thinks accountability is of
paramount importance. This is why we are sponsoring this proposal which, if
passed, would urge
24
<PAGE>
the board to reorganize itself so that each director stands before the
shareholders for re-election each year. We hope to eliminate the Company's so-
called "classified board", whereby the directors are divided into three
classes, each serving a three-year term. Under the current structure,
shareholders can only vote on one-third of the board at any given time.
By classifying itself, a board insulates its members from immediate
challenge. Insularity may have made sense in the past (e.g., during the
takeover frenzy of the 1980s). But now, we believe that insularity works
primarily to hamper accountability. A classified board can prevent
shareholders from mounting a successful opposition to the entire board,
because only one-third of the directors are up for election in any given year.
By way of contrast, a declassified board would stand for election in its
entirety, every year.
CalPERS believes that corporate governance procedures and practices, and the
level of accountability they impose, are closely related to financial
performance. It is intuitive that, when directors are accountable for their
actions, they perform better.
We--as one shareholder--are dissatisfied with the Company's long-term
financial performance. We seek to improve that performance through this
structural reorganization of the board. If the board acts on our proposal,
shareholders would have the opportunity to register their views at each annual
meeting--on performance of the board as a whole, and of each director as an
individual.
CalPERS urges you to join us in VOTING TO DE-STAGGER the terms of election,
as a powerful tool for management incentive and accountability. We urge your
support FOR this proposal.
The Board Of Directors Opposes This Proposal.
As noted in the Company's response to the prior stockholder proposal, prior to
the 1985 Annual Meeting of Stockholders directors were elected annually for a
one-year term. At the 1985 meeting, stockholders by a substantial majority
approved amendments to the Company's Restated Certificate of Incorporation, as
amended, and to its Bylaws providing, among other things, that the Board be
divided into three classes of directors serving staggered three-year terms
with each class being as nearly equal in number as possible ("Classified Board
Amendments").
In the proxy statement for that meeting, which contained a detailed
discussion of the reasons for the Board's recommendation, the Board stated
that the overall purpose of the Classified Board Amendments was to assure
continuity and stability in the Company's operations. With a classified Board,
it is more likely that a majority of the directors at any time will have had
prior experience as directors of the Company, thereby facilitating continuity
and planning for the Company's business.
As part of their fiduciary duties as mandated by Delaware law, directors are
accountable to stockholders whether or not the board is classified and
regardless of whether one-third or the entire Board is up for election
annually. As previously announced, and as set forth in the Company's Annual
Report, JCPenney's directors and management have taken a number of significant
steps directed at improving financial performance and enhancing stockholder
value. JCPenney's Board has been classified since 1985, a time span that has
included years of outstanding financial performance. The Company believes its
corporate governance profile to be a good one, and is not aware of any link
between the existence of a classified board and financial performance.
Finally, takeover activity is no less prevalent now than in the 1980s. While
it has been suggested that a classified board discourages potential acquirors,
the existence of a classified Board actually encourages potential acquirors to
negotiate directly with the Board, which is in the best position to negotiate
advantageously on behalf of all stockholders.
25
<PAGE>
For these reasons, the Board believes that a classified Board protects the
interests of stockholders. The directors do not believe that the classified
status of the Board results in the directors being less accountable to
stockholders or results in the self-perpetuation of the Board.
It should be noted that adoption of this proposal would not in itself "de-
stagger" the board of directors but would simply amount to a request that the
Board consider such action. If the Board were to consider such a request
desirable, it would then have to decide to present a formal amendment
repealing the classified Board provision in the Restated Certificate of
Incorporation, as amended, to the Company's stockholders for their approval at
a future meeting of stockholders.
Accordingly, the Board recommends a vote AGAINST this proposal.
Requirements, Including Deadlines, for Submission of Proxy Proposals,
Nomination of Directors, and Other Business by Stockholders
Under the rules of the Securities and Exchange Commission, the date by which
proposals of stockholders intended to be presented at the 2001 Annual Meeting
of Stockholders must be received by the Company for inclusion in its proxy
statement and form of proxy relating to that meeting is December 15, 2000.
Under the Company's Bylaws, certain procedures are provided which a
stockholder must follow to nominate persons for election as directors or to
introduce an item of business at an annual meeting of stockholders. These
procedures provide, generally, that stockholders desiring to make nominations
for directors, and/or bring a proper subject of business before the meeting,
must do so by a written notice timely received (not later than 90 days in
advance of such meeting) by the Secretary of the Company containing the name
and address of the stockholder, and a representation that the stockholder is a
holder of record and intends to appear in person or by proxy at the meeting.
If the notice relates to a nomination for director, it must also set forth the
name and address of any nominee(s), all arrangements or understandings between
the stockholder and each nominee and any other person(s) (naming such
person(s)) pursuant to which the nomination(s) are to be made, such other
information regarding each nominee as would have been required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated by the Board, and the
consent of each nominee to serve. Notice of an item of business shall include
a brief description of the proposed business and any material interest of the
stockholder in such business.
The chairman of the meeting may refuse to allow the transaction of any
business not presented, or to acknowledge the nomination of any person not
made, in compliance with the foregoing procedures.
It is currently expected that the 2001 Annual Meeting of Stockholders will
be held on or about May 18, 2001, in which event any advance notice of
nominations for directors and items of business (other than proposals intended
to be included in the proxy statement and form of proxy, which as noted above
must be received by December 15, 2000) must be given by stockholders by
February 17, 2001. The Company does, however, retain the right to change this
date as it, in its sole discretion, may determine. Notice of any change will
be furnished to stockholders prior to the expiration of the 90-day advance
notice period referred to above. Copies of the Company's Bylaws are available
from the Secretary of the Company.
Confidential Voting
The Company, considering it to be in the best interest of stockholders, has a
policy to the effect that all proxy (voting instruction) cards, ballots, and
vote tabulations, including telephone voting, which identify the particular
vote of a stockholder are to be kept secret from the Company, its directors,
officers, and employees. Accordingly, proxy cards are returned in envelopes
addressed to the tabulator, which receives and tabulates the proxies. The
final tabulation is inspected by inspectors of
26
<PAGE>
election who are independent of the Company, its directors, officers, and
employees. The identity and vote of any stockholder shall not be disclosed to
the Company, its directors, officers, or employees, nor to any third party
except (i) to allow the independent election inspectors to certify the results
of the vote to the Company, its directors, officers, and employees; (ii) as
necessary to meet applicable legal requirements and to assert or defend claims
for or against the Company; (iii) in the event of a proxy solicitation based
on an opposition proxy statement filed, or required to be filed, with the
Securities and Exchange Commission; or (iv) in the event a stockholder has
made a written comment on such material.
Other Matters
The Board of Directors does not intend to present any other business at the
meeting and knows of no other matters which will be properly presented.
However, if any other matter calling for a vote of stockholders is properly
presented at the meeting, it is the intention of the persons named in the
accompanying proxy to vote in accordance with their judgment on such matters.
/s/ C. R. Lotter
C. R. Lotter, Secretary
27
<PAGE>
J. C. Penney Company, Inc.
PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
By properly executing this card on the reverse, or by voting via telephone, you
are authorizing M.A. Burns, K.B. Foster and C.S. Sanford, Jr., or any one of
them, with power and substitution in each, to represent and vote the stock owned
of record which you are entitled to vote at the Annual Meeting of Company
Stockholders, to be held at the JCPenney Catalog Fulfillment Center, 10500
Lackman Road, Lenexa, Kansas 66250-0001 on Friday, May 19, 2000, at 10:00 A.M.,
local time, and at any adjournment or postponement thereof ("Meeting"), upon
such business as may come before the Meeting, including the items set forth on
the reverse ("Business").
Nominees for Election of Directors for the term set forth in the Proxy Statement
are (01) V.E. Jordan, Jr., (02) J.C. Pfeiffer, and (03) R.G. Turner. TO
WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, WRITE THAT NOMINEE'S NAME IN THE
SPACE PROVIDED ON THE REVERSE, OR FOLLOW THE TELEPHONE VOTING INSTRUCTIONS.
Your vote is important and cannot be recorded by the proxies unless this card is
properly executed by you and returned, or unless you vote by telephone.
Therefore, please sign, date, and return this card promptly in the envelope
provided, or vote by telephone. No postage is required if this envelope
is mailed in the United States.
(Continued on reverse side)
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-800-840-1208 on a Touch Tone Telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
--
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
<PAGE>
<TABLE>
<CAPTION>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF ALL DIRECTORS
AND FOR PROPOSAL 2 AND AGAINST PROPOSALS 3 AND 4.
<S> <C>
Please mark
your votes as
indicated in [X]
this example
- -----------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the following proposals as described in the Proxy Statement:
- -----------------------------------------------------------------------------------------------------------------------
1. Election of Directors: 2. Approval of Auditors FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominees for Election of Directors for the term set forth in
the Proxy Statement are: 01 V.E. Jordan, Jr.,
02 J.C. Pfeiffer, 03 R.G. Turner
FOR all nominees AUTHORITY WITHHELD
except as noted as to all nominees
[ ] [ ]
- ----------------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
the following proposals as described in the Proxy Statement:
- ----------------------------------------------------------------------------------------
3. Stockholder resolution regarding FOR AGAINST ABSTAIN
classification of Board. [ ] [ ] [ ]
4. Stockholder resolution regarding FOR AGAINST ABSTAIN
amendment of Company's [ ] [ ] [ ]
Bylaws to reorganize Board into
one class of directors.
- ----------------------------------------------------------------------------------------
====================================================================
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ I/we plan to attend [ ]
THE INSTRUCTIONS BELOW *** the meeting.
====================================================================
Signature Signature Date
------------------------------------ ------------------------------------ -----------------------------
Please Sign and Date
Please sign your name or names exactly as stenciled hereon. For a joint account, each joint owner
should sign. Persons signing in a representative capacity should indicate their capacity.
FOLD AND DETACH HERE
-------------------------------------------------------------------------------
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
-------------------------------------------------------------------------------
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
. After dialing the toll-free number listed below, you will be asked to enter
the Control Number which is located in the box in the lower right hand corner
of the proxy instruction card.
- --------------------------------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL proposals: Press 1.
- --------------------------------------------------------------------------------------------------------
When asked, please confirm your vote by Pressing 1.
- --------------------------------------------------------------------------------------------------------
OPTION #2: If you choose to vote on each proposal separately, press 0. You will hear these instructions:
- --------------------------------------------------------------------------------------------------------
Proposal 1: To VOTE FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
When asked, please confirm your vote by Pressing 1.
- --------------------------------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU VOTED BY PHONE.
- --------------------------------------------------------------------------------------------------------
THANK YOU FOR VOTING.
Call Toll Free On a Touch Tone Telephone
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
</TABLE>
<PAGE>
J. C. PENNEY COMPANY, INC.
PROXY/VOTING INSTRUCTION CARD
ALLOCATED AND UNDIRECTED STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
TO PARTICIPANTS IN THE COMPANY'S SAVINGS, PROFIT-SHARING AND STOCK OWNERSHIP
PLAN ("PLAN"):
BY PROPERLY EXECUTING THIS CARD ON THE REVERSE, OR BY VOTING BY TELEPHONE, YOU
ARE INSTRUCTING STATE STREET BANK AND TRUST COMPANY ("TRUSTEE") TO VOTE ON YOUR
BEHALF, IN ACCORDANCE WITH YOUR INSTRUCTIONS, IN PERSON OR BY PROXY, SHARES OF
VOTING STOCK ALLOCATED TO YOUR ACCOUNTS UNDER THE PLAN ("ALLOCATED STOCK"),
REPRESENTED BY THE NUMBER OF EQUIVALENT SHARES SHOWN ON THE REVERSE SIDE OF THIS
CARD, AND A PROPORTIONATE NUMBER OF SHARES OF VOTING STOCK FOR WHICH NO
DIRECTIONS ARE RECEIVED BY THE TRUSTEE ("UNDIRECTED STOCK"), AT THE ANNUAL
MEETING OF COMPANY STOCKHOLDERS, TO BE HELD AT THE JCPENNEY CATALOG FULFILLMENT
CENTER, 10500 LACKMAN ROAD, LENEXA, KANSAS 66250-0001 ON FRIDAY, MAY 19, 2000,
AT 10:00 A.M., LOCAL TIME, AND AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF, UPON
SUCH BUSINESS AS MAY COME BEFORE THE MEETING, INCLUDING THE ITEMS SET FORTH ON
THE REVERSE. IF THIS PROXY/VOTING INSTRUCTION CARD IS NOT RECEIVED BY THE
TRUSTEE, OR IF YOU HAVE NOT VOTED BY TELEPHONE, BY MAY 17, 2000, YOUR ALLOCATED
STOCK WILL BE VOTED IN THE SAME PROPORTION AS INSTRUCTIONS RECEIVED BY THE
TRUSTEE BY THAT DATE FROM THE PLAN PARTICIPANTS WHO HAVE RETURNED THEIR
PROXY/VOTING INSTRUCTION CARDS OR VOTED BY TELEPHONE IN A TIMELY MANNER. YOU MAY
ELECT NOT TO DIRECT THE VOTING OF UNDIRECTED STOCK BY CHECKING THE APPROPRIATE
BOX ON THE REVERSE SIDE OF THIS CARD.
For your information, a copy of the Board of Directors' Proxy Statement for the
meeting is enclosed herewith.
Nominees for Election of Directors for the term set forth in the Proxy Statement
are (01) V.E. Jordan, Jr., (02) J.C. Pfeiffer, and (03) R.G. Turner. TO
WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, WRITE THAT NOMINEE'S NAME IN THE
SPACE PROVIDED ON THE REVERSE, OR FOLLOW THE TELEPHONE VOTING INSTRUCTIONS.
Your voting instructions are important and cannot be followed by the Trustee
unless this card is properly executed by you and received by the Trustee, or
unless you vote by telephone, by MAY 17, 2000. Therefore, please sign, date,
and return this card promptly in the envelope provided, or vote via telephone.
No postage is required if this envelope is mailed in the United States.
(Continued on reverse side)
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call TOLL FREE 1-800-840-1208 on a Touch Tone Telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
--
2. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
<PAGE>
<TABLE>
<CAPTION>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF ALL DIRECTORS
AND FOR PROPOSAL 2 AND AGAINST PROPOSALS 3 AND 4.
<S> <C>
Please mark
your votes as
indicated in [X]
this example
- -----------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the following proposals as described in the Proxy Statement:
- -----------------------------------------------------------------------------------------------------------------------
1. Election of Directors: 2. Approval of Auditors FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominees for Election of Directors for the term set forth in
the Proxy Statement are: 01 V.E. Jordan, Jr.,
02 J.C. Pfeiffer, 03 R.G. Turner
FOR all nominees AUTHORITY WITHHELD
except as noted as to all nominees
[ ] [ ]
- ----------------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST
the following proposals as described in the Proxy Statement:
- ----------------------------------------------------------------------------------------
3. Stockholder resolution regarding FOR AGAINST ABSTAIN
classification of Board. [ ] [ ] [ ]
4. Stockholder resolution regarding FOR AGAINST ABSTAIN
amendment of Company's [ ] [ ] [ ]
Bylaws to reorganize Board into
one class of directors.
- ----------------------------------------------------------------------------------------
====================================================================
*** IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ I elect not to direct the voting of [ ]
THE INSTRUCTIONS BELOW *** undirected shares in the plan.
====================================================================
Signature Date
----------------------------------------------------- -----------------------------
Please Sign and Date
Please sign your name or names exactly as stenciled hereon.
FOLD AND DETACH HERE
-------------------------------------------------------------------------------
VOTE BY TELEPHONE
QUICK *** EASY *** IMMEDIATE
-------------------------------------------------------------------------------
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
. After dialing the toll-free number listed below, you will be asked to enter
the Control Number which is located in the box in the lower right hand corner
of the proxy instruction card.
- --------------------------------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL proposals: Press 1.
- --------------------------------------------------------------------------------------------------------
When asked, please confirm your vote by Pressing 1.
- --------------------------------------------------------------------------------------------------------
OPTION #2: If you choose to vote on each proposal separately, press 0. You will hear these instructions:
- --------------------------------------------------------------------------------------------------------
Proposal 1: To VOTE FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The Instructions are the same for all remaining proposals.
When asked, please confirm your vote by Pressing 1.
- --------------------------------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF YOU VOTED BY PHONE.
- --------------------------------------------------------------------------------------------------------
THANK YOU FOR VOTING.
Call Toll Free On a Touch Tone Telephone
1-800-840-1208 - ANYTIME
There is NO CHARGE to you for this call.
</TABLE>
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
This voting instruction form is requested by The Dreyfus Trust Company in
conjunction with a proxy solicitation by the Board of Directors of
J. C. Penney Company, Inc.
Please read the enclosed Proxy Statement and the Annual Report to Stockholders
for more information.
CONFIDENTIAL VOTING INSTRUCTION FORM
TO: THE DREYFUS TRUST COMPANY
AS TRUSTEE OF THE GENOVESE RETIREMENT AND SAVINGS PLAN
Please fold and detach card at perforation before mailing
The undersigned hereby instructs The Dreyfus Trust Company, as Trustee of the
The Genovese Retirement and Savings Plan, to vote in person or by proxy at the
Annual Meeting of the Stockholders of J. C. Penney Company, Inc. to be held on
May 19, 2000, and at any postponements thereof, all shares of Common Stock of
J. C. Penney Inc., for which the undersigned shall be entitled to instruct, in
the manner specified on the other side hereof.
The Dreyfus Trust Company will vote the shares represented by this Voting
Instruction Form if it is properly completed, signed, and received by The
Dreyfus Trust Company, before 5:00 p.m. EST on May 16, 2000 at P.O. Box 9116,
Hingham, MA 02043. Please note that if this Voting Instruction Form is not
properly completed and signed, or it is not received by The Dreyfus Trust
Company, as indicated above, shares allocated to a participant's account will
not be voted.
The Dreyfus Trust Company makes no recommendation regarding any voting
instruction.
Dated , 2000
------------------
------------------------------
------------------------------
Signature
Please fold and detach card at perforation before mailing
THE BOARD OF DIRECTORS OF J. C. PENNEY COMPANY, INC. RECOMMENDS A VOTE FOR
PROPOSALS 1 AND 2, AND THE BOARD OF DIRECTORS OF J. C. PENNEY COMPANY, INC.
RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
PLEASE VOTE BY MARKING THE APPROPRIATE BOXES BELOW.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
Nominees (noted at left)
01. V.E. Jordan, Jr. [ ] [ ] [ ]
02. J.C. Pfeiffer
03. R.G. Turner
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE
"FOR ALL EXCEPT" BOX AT RIGHT AND WRITE THAT NOMINEE'S NAME BELOW.)
- ---------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of Auditors. [ ] [ ] [ ]
THE BOARD OF DIRECTORS OF J. C. PENNEY COMPANY, INC. RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4.
3. Stockholder resolution regarding classification of Board. [ ] [ ] [ ]
4. Stockholder resolution regarding amendment of Company's Bylaws to reorganize Board [ ] [ ] [ ]
into one class of directors.
5. In their discretion, the Proxies are authorized to vote upon such other business as may
properly come before the meeting.
</TABLE>
Please note: If this Voting Instruction Form is signed but no direction is given
on Proposal #1, The Dreyfus Trust Company will vote "FOR" all nominees listed,
or if no direction is given on Proposal #2, The Dreyfus Trust Company will vote
"FOR" Proposal #2. If no direction is given on Proposals #3 and #4, then The
Dreyfus Trust Company will vote "AGAINST" Proposals #3 and #4.
(Continued and to be dated and signed on the other side)
