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Exhibit 10
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between J. C. Penney Company, Inc., a Delaware
corporation (the "Company"), and Mr. Allen I. Questrom (the "Executive"),
dated July 21, 2000 and effective as of the Effective Date (as hereinafter
defined).
W I T N E S S E T H:
WHEREAS, the Company wishes to provide for the employment by the
Company of the Executive, and the Executive wishes to serve the Company, in
the capacities and on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, it is hereby agreed as follows:
1. TERM. The term of this Agreement (the "Term") shall commence on
September 15, 2000, or such earlier date as the Executive commences
employment with the Company (the "Effective Date") and end on September 30,
2005. The parties hereto agree that the effectiveness of this Agreement
shall be conditioned upon the approval of the Board of Directors of the
Company (the "Board") on or prior to July 28, 2000 and, in the absence of
such approval, this Agreement shall be null and void. The Company shall
submit this Agreement to the Board for its approval as soon as practicable
following the date hereof, but in no event later than July 28, 2000.
2. POSITION AND DUTIES; PURCHASE COMMITMENT. (a) During the Term the
Executive shall serve as the Chief Executive Officer of the Company and as
the Chairman of the Board; in each case with such duties and
responsibilities as are customarily assigned to such positions, and such
other duties and responsibilities not inconsistent therewith as may from
time to time be assigned to him by the Board. As of the Effective Date, the
Company shall cause the Executive to be elected as a member of the Board,
to serve as a member of the class of directors with the longest tenure as
of the Effective Date. Thereafter, while Executive is employed during the
Term, the Company shall cause the Executive to be included in the slate of
persons nominated to serve as directors on the Board and shall use its best
efforts (including, without limitation, the solicitation of proxies) to
have the Executive elected and reelected to the Board for the duration of
the Term. Upon any termination of his employment with the Company, the
Executive shall
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promptly resign from the Board. While Executive is employed during
the Term, the Executive shall report solely to the Board.
(b) During the Term, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive shall devote
his full attention and time during normal business hours to the business
and affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to manage his personal investments or, subject
to the approval of the Board, to serve on corporate, industry, civic or
charitable boards or committees, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an executive officer of the Company in accordance with
this Agreement.
(c) During the Term, the Executive shall be based at the Company's
principal headquarters in Dallas, Texas, except for travel reasonably
required for the performance of the Executive's duties hereunder.
(d) On or prior to the Effective Date, the Executive shall
purchase from the Company for his own account, and the Company shall sell
to the Executive, that number of shares (rounded down to the nearest whole
share) of the Company's common stock, par value $0.50 per share ("Company
Stock"), which, when added to the shares of Company Stock currently owned,
produces a total market value for the shares owned of $1,250,000, based on
the sales price per share described in the succeeding sentence. The sale
price per share shall be the closing price per share of such shares on the
New York Stock Exchange on July 26, 2000. Such shares shall not be sold or
otherwise disposed of during the Executive's employment with the Company.
3. COMPENSATION. (a) BASE SALARY. During the Term, the Executive
shall receive an annual base salary ("Annual Base Salary") of $1,250,000.
The Annual Base Salary shall be payable in accordance with the Company's
regular payroll practice for its senior executives, as in effect from time
to time. During the Term, The Annual Base Salary shall be reviewed by the
Personnel and Compensation Committee of the Board (the "Compensation
Committee") for possible increase at least annually, the first such review
to be undertaken on or about July 1, 2001. Any increase in the Annual Base
Salary shall not limit or reduce any other obligation of the Company under
this Agreement. The Annual Base Salary shall not be reduced
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below any such increased amount, and the term "Annual Base Salary" shall
thereafter refer to the Annual Base Salary as so increased.
(b) ANNUAL CASH BONUS. For fiscal years during the Term, the
Executive shall participate in annual cash incentive compensation plans, as
adopted and approved by the Board or the Compensation Committee from time
to time, with targets determined by the Compensation Committee (in
consultation with the Executive for fiscal years beginning after 2000).
The Executive's annual target bonus opportunity pursuant to such plans
shall equal 100% of the Annual Base Salary in effect for the Executive at
the beginning of such fiscal year, with a maximum potential award equal to
200% of the Annual Base Salary in effect for the Executive at the beginning
of such fiscal year. With respect to the Company's 2000 fiscal year,
unless the Executive is terminated for Cause (as hereinafter defined) prior
to the payment date, the Executive shall receive a minimum cash bonus equal
to 100% of the Annual Base Salary, which bonus shall be reduced by any
amount of annual cash bonus earned by the Executive from his previous
employer in respect of its current fiscal year. Any cash bonuses payable
to the Executive will be paid at the time the Company normally pays such
bonuses to its senior executives.
(c) INITIAL OPTION GRANT. As of the Effective Date, the
Compensation Committee shall grant to the Executive a ten-year nonqualified
option (the "Option") to purchase 3,500,000 shares of Company Stock. The
Option shall have a per share exercise price equal to the closing price of
the Company Stock on the New York Stock Exchange on the date hereof.
Subject to the provisions hereof, the Option shall vest and become fully
exercisable with respect to 20% of the shares subject thereto on each of
the first five anniversaries of the Effective Date. Notwithstanding the
foregoing, the Option will become fully vested and exercisable if, during
the Term, there occurs a "Change of Control" of the Company (as such term
is defined in the Company's 1997 Equity Compensation Plan, hereinafter, a
"Change of Control"), the Executive dies, becomes Disabled (as hereinafter
defined), is terminated by the Company without Cause or the Executive
voluntary resigns either for Good Reason (as hereinafter defined) or with
the approval of the Board. In the event of a termination of the
Executive's employment by the Company for Cause, any unexercised portion of
the Option (whether or not otherwise exercisable) shall immediately
terminate. In the event of a termination of the Executive's employment by
the Executive without Good Reason which is not approved by the Board, (A)
the unvested portion of the Option shall immediately terminate, and (B) the
vested portion of the Option shall remain exercisable for five (5) years
following the Date of Termination (as hereinafter defined). In the event
of a termination of the Executive's employment by the Company without Cause
or by the Executive which is either (x) for Good Reason or (y) approved by
the Board, the Option shall remain exercisable for the remainder of its ten
year term. In the event of a termination of the Executive's
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employment on account of the Executive's death or Disability, the Option
shall remain exercisable for one year following the Date of Termination.
Notwithstanding anything herein to the contrary, in no event will the
Option be exercisable following the tenth anniversary of the Effective
Date. As promptly as practicable after the Effective Date, the Company
shall, at its expense, cause the Company Stock subject to the Option to be
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and registered or qualified under applicable state law, to be freely
resold. The Company shall thereafter use its best efforts to maintain the
effectiveness of such registration and qualification for so long as the
Executive holds the Option (or any portion thereof) or any of the Company
Stock acquired pursuant thereto, or until such earlier date as such Company
Stock may otherwise be freely sold under United States law. The terms of
the Option shall be set forth in, and governed by, an option agreement,
substantially in the form of Exhibit A hereto.
(d) RESTRICTED STOCK UNIT GRANT. As of the Effective Date, the
Compensation Committee shall grant to the Executive an aggregate of
1,000,000 restricted Company Stock units (such units, together with any
additional units credited hereunder, the "Restricted Stock Units"). Each
Restricted Stock Unit shall at all times be deemed to have a value equal to
the then-current fair market value of the Company Stock and shall be
credited with any dividends paid with respect to the Common Stock prior to
the redemption of the Restricted Stock Units. Any such dividends shall be
converted into a number of additional Restricted Stock Units equal to the
aggregate dividend which would have been paid with respect to the number of
Restricted Stock Units then credited to the Executive, divided by the
closing price of the Company Stock on the New York Stock Exchange on the
day on which such dividends are paid. Any such additional Restricted Stock
Units shall be allocated pro rata to the five vesting tranches described
below and shall vest and otherwise be treated in the same manner as the
Restricted Stock Units in such tranche. Subject to the provisions hereof,
20% of the Restricted Stock Units shall vest on each of the first five
anniversaries of the Effective Date. Notwithstanding the foregoing, the
Restricted Stock Units will become fully vested if, during the Term, there
occurs a Change of Control, the Executive dies, becomes Disabled, is
terminated by the Company without Cause or the Executive voluntary resigns
either for Good Reason or with the approval of the Board. Upon any other
termination of the Executive's employment, any unvested Restricted Stock
Units shall be forfeited and, upon a termination of the Executive's
employment for Cause, all Restricted Stock Units,
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whether vested or unvested, shall be forfeited. As soon as practicable
following any termination of the Executive's employment, the Company shall
issue to the Executive, in cancellation of the Restricted Stock Units, a
number of shares of Company Stock equal to the number of vested and
non-forfeited Restricted Stock Units. In the event of any change in the
Company Stock by reason of a stock dividend, stock split, acquisition,
recapitalization, reclassification, merger, consolidation, combination or
exchange of shares, spin-off or distribution to holders of Company Stock
(other than normal cash dividends), the Compensation Committee shall adjust
the Restricted Stock Units to the extent appropriate to prevent the
enlargement or diminution of the Executives rights with respect to such
Restricted Stock Units. Notwithstanding the foregoing, in the event that,
following the date hereof, the Executive receives from his current
employer, any purchaser thereof or any affiliate of such employer or
purchaser any compensation or other payment (whether in cash or other
property), that is directly or indirectly related to any equity awards
granted to the Executive by such employer, or in the event the Executive
receives from any of the foregoing entities any other compensation, payment
or benefits not currently forming a part of his compensation and benefits
package with his current employer, the Executive shall forfeit a number of
Restricted Stock Units with a value equal to the value of such
compensation, payments and benefits (it being understood that any salary
received by the Executive from his current employer with respect to the
period commencing on the date hereof and ending on the Effective Date shall
not be included in the calculation of any such reduction). For purposes of
the preceding sentence, each Restricted Stock Unit shall be deemed to have
a value equal to the closing price of the Company Stock on the New York
Stock Exchange on the date hereof and any forfeiture shall be allocated pro
rata among the five tranches of Restricted Stock Units. The Executive shall
promptly report the receipt of any such additional payment or benefits to
the Company. The Company shall, at its expense, cause the Company Stock to
be issued pursuant to the Restricted Stock Units to be registered under the
Securities Act and registered and qualified under applicable state law, to
be freely resold.
(e) OTHER LONG-TERM INCENTIVE COMPENSATION. Commencing with the
Company's 2002 fiscal year and annually thereafter while the Executive is
employed during the Term, the Company shall grant to the Executive long-
term incentive compensation awards (which may consist of stock options,
long-term cash awards or other forms of long-term incentive compensation)
with a present value (as determined by the Compensation Committee in
consultation with a compensation consultant reasonably acceptable to the
Executive) no less than 240% of the sum of the Executive's then-current
Annual Base Salary plus target annual
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bonus. Such awards shall have terms and conditions (including vesting
schedules and acceleration provisions, if any) generally applicable to
grants of such awards made to other senior Company executives; provided,
however, all such awards shall become fully vested as of September 30, 2005
if the Executive is employed by the Company on such date.
(f) OTHER BENEFITS. While the Executive is employed during the
Term: (1) the Executive shall be entitled to participate in all tax-
qualified and nonqualified savings, employee stock ownership and retirement
plans and shall be entitled to participate in all fringe benefit and
perquisite practices, policies and programs of the Company made available
to the senior officers of the Company or to its Chief Executive Officer and
(2) the Executive and/or the Executive's eligible dependents, as the case
may be, shall be eligible for participation in, and shall receive all
benefits under, all welfare benefit plans, practices, policies and programs
provided by the Company, including, any medical (with COBRA equivalent
premiums paid on a gross-up basis during any waiting period), prescription,
dental, disability, employee life insurance, group life insurance,
accidental death and travel accident insurance plans and programs to the
same extent, and subject to the same terms and conditions, as are made
available to the senior officers of the Company.
(g) VACATION; RELOCATION; TEMPORARY LIVING EXPENSES.
The Executive shall be entitled to 5 weeks paid vacation per year. The
Company shall reimburse the Executive, in accordance with the Company's
relocation policy for senior executives, for expenses incurred in
connection with the relocation of the Executive and his spouse to the
Dallas, Texas area. The Company shall also fully gross-up the Executive
with respect to any taxes imposed on the Executive as a result of his
receipt of the reimbursement described in the preceding sentence and this
sentence. In addition, the Company shall reimburse the Executive for the
reasonable temporary living expenses of the Executive and his spouse in the
Dallas, Texas area, for up to one year from the date hereof.
(h) CHANGE OF CONTROL AGREEMENT. Following the Effective Date,
the Executive and the Company shall enter into a change of control
agreement substantially similar to those which the Company has entered into
with its other senior executives, it being understood that the Executive
shall only receive whatever incremental payments or benefits are provided
under such change of control agreement and that there shall be no
duplication of payments or benefits under this Agreement and such change of
control agreement.
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(i) SUPPLEMENTAL PENSION BENEFIT. (a) As of each of the first five
anniversaries of the Effective Date, the Executive (if employed by the
Company on such anniversary) shall accrue a supplemental pension benefit
(the "Supplemental Pension Benefit") in an annual amount equal to two and
one half percent (2.5%) of the Executive's "Average Final Compensation" (as
such term is defined in the Company's Pension Plan as in effect on the
Effective Date, but disregarding any limitations on compensation imposed by
the Internal Revenue Code). Therefore, if the Executive remains employed
with the Company until the fifth anniversary of the Effective Date, the
Executive's aggregate accrued Supplemental Pension Benefit will be 12.5% of
Average Final Compensation. The Executive shall be immediately vested in
any benefit he accrues under this Section 3(i). The amount of the
Executive's Supplemental Pension Benefit shall be offset by any amounts
payable under any qualified or nonqualified defined benefit plans of the
Company. The Supplemental Pension Benefit shall be payable in such form
and at such time as the benefits payable under the Company's Benefit
Restoration Plan or its qualified defined benefit plan and shall be
actuarially adjusted so as to be the actuarial equivalent of the normal
form of benefit payable under such qualified defined benefit pension plan.
(b) If the Executive's employment terminates by reason of death,
his spouse will receive a spousal annuity for her life equal to the
Supplemental Pension Benefit that would have been payable to the Executive
if he had terminated his employment on the date immediately before his
death and had elected to receive his Supplemental Pension Benefit in the
form of a joint and 50% survivor annuity on the date the spousal annuity
commences. The amount of the spousal annuity will be reduced by the amount
of any preretirement survivor benefit payable under the Company's qualified
and nonqualified defined benefit plans.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's
death during the Term. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Term. "Disability" means that the Executive is disabled within the meaning
of the Company's long-term disability policy or, if there is no such policy
in effect, that (i) the Executive has been substantially unable, for 120
business days within a period of 180 consecutive business days, to perform
the Executive's duties under this Agreement, as a result of physical or
mental illness or injury, and (ii) a physician selected by the Company or
its insurers, and reasonably acceptable to the Executive or the Executive's
legal representative, has determined that the Executive is disabled. A
termina-
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tion of the Executive's employment by the Company for Disability shall be
communicated to the Executive by written notice, and shall be effective on
the 30th day after receipt of such notice by the Executive (the "Disability
Effective Time"), unless the Executive returns to full-time performance of
the Executive's duties before the Disability Effective Time.
(b) TERMINATION BY THE COMPANY. (i) The Company may terminate the
Executive's employment during the Term for Cause or without Cause. "Cause"
means that the Executive (A) has been convicted of a felony involving theft
or moral turpitude, or (B) has engaged in conduct that constitutes willful
gross neglect or willful gross misconduct with respect to his employment
duties which in either case, results in, or can reasonably be expected to
result in, material economic harm to the Company. No act or failure to act
on the part of the Executive shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith and without
reasonable belief that the Executive's action or omission was in the best
interests of the Company.
(ii) A termination of the Executive's employment for Cause shall
not be effective unless it is accomplished in accordance with the
following procedures. The Board shall give the Executive written notice
("Notice of Termination for Cause") of its intention to terminate the
Executive's employment for Cause, setting forth in reasonable detail the
specific conduct of the Executive that it considers to constitute Cause and
the specific provision(s) of this Agreement on which it relies, and stating
the date, time and place of the Special Board Meeting for Cause. The
"Special Board Meeting for Cause" means a meeting of the Board called and
held specifically and exclusively for the purpose of considering the
Executive's termination for Cause, that takes place not less than thirty
business days after the Executive receives the Notice of Termination for
Cause. The Executive shall be given an opportunity, together with counsel,
to be heard at the Special Board Meeting for Cause. The Executive's
termination for Cause shall be effective when and if a resolution is duly
adopted at the Special Board Meeting for Cause stating that, in the good
faith opinion of a majority of the Board (other than the Executive), the
Executive is guilty of the conduct described in the Notice of Termination
for Cause and that such conduct constitutes Cause under this Agreement.
(c) GOOD REASON. (i) The Executive may, without liability to the
Company, terminate employment for Good Reason or without Good Reason.
"Good Reason" shall mean, without the Executive's consent, (a) the
assignment to the Executive of any duties inconsistent in any material
respect with his position
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(including status, offices, titles and reporting relationships), authority,
duties or responsibilities as contemplated by this Agreement, or any other
action by the Company which results in a significant diminution in such
position, authority, duties or responsibilities (excluding any isolated and
inadvertent action not taken in bad faith) unless the action is remedied by
the Company within fifteen (15) days after receipt of notice thereof given
by the Executive; (b) any failure by the Company to comply with any of the
provisions of this Agreement (other than an isolated and inadvertent
failure not committed in bad faith) unless such action is remedied by the
Company within thirty (30) days after receipt of notice thereof given by
the Executive; or (c) the Executive being required to relocate to a
principal place of employment outside of the Dallas metropolitan area.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth in
reasonable detail the specific conduct of the Company that constitutes Good
Reason and the specific provision(s) of this Agreement on which the
Executive relies. A termination of employment by the Executive for Good
Reason shall be effective fifteen (15) days following the date when the
Notice of Termination for Good Reason is given, unless the event
constituting Good Reason is remedied by the Company in accordance with the
foregoing.
(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company 30 days written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date
of the Executive's death, the Disability Effective Time or the date on
which the termination of the Executive's employment by the Company for
Cause or without Cause or by the Executive for Good Reason or without Good
Reason is effective.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN FOR
CAUSE, DEATH OR DISABILITY, OR FOR GOOD REASON. If, during the Term, the
Company terminates the Executive's employment for any reason other than
Cause or Disability, or the Executive terminates his employment for Good
Reason, then, subject to Section 8 hereof and Section 12(h) hereof, the
Company shall pay to the Executive, not later than 30 days following the
Date of Termination, (i) a lump sum equal to the product of (A) the sum of
the Executive's Annual Base Salary immediately prior to the Date of
Termination, plus the greater of (1) the Executive's annual target bonus
for the fiscal year in which the
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Date of Termination occurs or (2) the annual bonus earned by the Executive
from the Company for the fiscal year immediately preceding the fiscal year
in which the Date of Termination occurs and (B) the lesser of (x) 3 and (y)
the number of full and partial years remaining in the Term; (ii) any unpaid
amounts of the Executive's Annual Base Salary and annual bonus for periods
prior to the Date of Termination; and (iii) an amount equal to the product
of (A) the Executive's annual target bonus for the fiscal year in which the
Date of Termination occurs, and (B) a fraction, the numerator of which is
the number of days in such fiscal year through the Date of Termination, and
the denominator of which is 365. In addition, all of the Executive's then
outstanding equity awards (other than the Option and Restricted Stock
Units, which shall be treated in the manner set forth in Section 3 and
Exhibit A hereof, as the case may be) shall be treated in accordance with
the terms of the plan and agreements evidencing such equity awards. The
Company shall also pay or provide to the Executive, in the event of such a
termination (A) subject to Section 8 hereof, the benefits described in
Section 3(f) hereof (other than benefits under tax-qualified plans and
non-qualified retirement plans) for the lesser of three years or the
remainder of the Term, and (B) all compensation and benefits payable to the
Executive under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination. In addition, in the event of such a termination, the
Executive will continue to accrue benefits pursuant to Section 3(i) hereof
as if the Executive had remained employed with the Company for the lesser
of three years or the remainder of the Term and assuming that the
Executive's annual compensation during such period equals the amount
described in Section 5(a)(i)(A) above (and payment of such benefits shall
commence at the end of such period).
(b) DEATH AND DISABILITY. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Term, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if
there is no such beneficiary, to the Executive's estate or legal
representative), in a lump sum in cash within 30 days after the Date of
Termination, any portion of the Executive's Annual Base Salary and bonus
through the Date of Termination that has not yet been paid. The Company
shall also pay or provide to the Executive, in the event of such a
termination, all compensation and benefits payable to the Executive under
the terms of the Company's compensation and benefit plans, programs or
arrangements as in effect immediately prior to the Date of Termination. If
the Executive's employment is terminated by reason of the Executive's death
or Disability during the Term, all of the Executive's then outstanding
equity awards (other than the Option and Restricted
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Stock Units, which shall be treated in the manner set forth in Section 3
and Exhibit A hereof, as the case may be) shall be treated in accordance
with the terms of the plan and agreements evidencing such equity awards.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for
Cause or the Executive voluntarily terminates employment other than for
Good Reason during the Term then, (1) the Company shall pay to the
Executive in a lump sum in cash within thirty (30) days after the Date of
Termination, any portion of the Executive's Annual Base Salary and bonus
earned through the Date of Termination that has not been paid; (2) all
outstanding equity awards (other than the Option and Restricted Stock
Units, which shall be treated in the manner set forth in Section 3 and
Exhibit A hereof, as the case may be) shall be treated according to the
provisions of the plan and agreements under which such awards were granted;
and (3) the Company shall also pay or provide to the Executive all
compensation and benefits payable to the Executive under the terms of the
Company's compensation and benefit plans, programs or arrangements as in
effect immediately prior to the Date of Termination.
(d) EXCISE TAX GROSS UP. If any payments or benefits received
or to be received by the Executive in connection with the Executive's
employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, or any person affiliated
with the Company) (the "Payments"), will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any similar tax that may hereafter be imposed),
the Company shall pay at the time specified below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Payments and any
federal, state and local income tax and Excise Tax upon the payment
provided for by this Subsection 5(d), shall be equal to the Payments. For
purposes of determining whether any of the Payments will be subject to the
Excise Tax and the amount of such Excise Tax, (a) all Payments shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Executive ("tax counsel"), such Payments (in whole or in
part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount
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within the meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (b) the amount of the Payments which shall be
treated as subject to the Excise Tax shall be equal to the lesser of (1)
the total amount of the Payments or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after applying clause
(a), above), and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up Payment,
the Executive shall be deemed to pay federal income taxes at Executive's
highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes
at Executive's highest marginal rate of taxation in the state and locality
of Executive's residence on the Date of Termination (or, if there is no
Date of Termination, the date on which the Excise Tax is determined), net
of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the Excise
Tax is subsequently determined to be less than the amount taken into
account hereunder, the Executive shall repay to the Company at the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal
and state and local income tax imposed on the Gross-Up Payment being repaid
by the Executive) plus interest on the amount of such repayment from the
date the Gross-Up Payment was initially made to the date of repayment at
the rate provided in Section 1274(b)(2)(B) of the Code (the "Applicable
Rate"). In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-
Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest payable with respect to such
excess) at the time that the amount of such excess is finally determined.
Any payment to be made under this paragraph shall be payable within five
(5) days of the determination of tax counsel that such a payment is
required hereunder and, if applicable, within five (5) days of a final
determination that the Excise Tax is greater or less than initially
calculated.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify nor shall anything
in this Agreement limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and
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other amounts that the Executive is otherwise entitled to receive under any
plan, policy, practice or program of, or any contract of agreement with,
the Company or any of its affiliated companies on or after the Date of
Termination shall be payable in accordance with the terms of each such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. Except as provided herein, the Company's
obligation to make the payments provided for in, and otherwise to perform
its obligations under, this Agreement shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced,
regardless of whether the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION; COMPETITION; SOLICITATION. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses
that the Executive obtains during the Executive's employment by the Company
or any of its affiliated companies and that is not public knowledge (other
than as a result of the Executive's violation of this Section 8)
("Confidential Information"). The Executive shall not communicate, divulge
or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written
consent of the Company or as otherwise required by law or legal process.
(b) For a period of two years after the Date of Termination, (if the
Executive resigns without Good Reason or if the Executive is terminated by
the Company with Cause prior to the end of the Term) or for the period
commencing on the Date of Termination and ending on the earlier of (i)
three years following such date or (ii) September 30, 2005 (in the event
the Executive's employment is terminated by the Company other than for
Cause or Disability or the Executive terminates his employment for Good
Reason), the Executive shall not, without the written consent of the Board,
directly or indirectly, (A) engage or be interested in (as owner, partner,
stockholder, employee, director, officer, agent, consultant or otherwise),
with or without compensation, any business which is in competition with any
line of business actively being conducted on the Date of Termination by the
Company or any of its subsidiaries or affiliates which accounted for 20% or
more of the Com-
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pany's consolidated gross revenues for the fiscal year immediately
preceding the Date of Termination; (B) hire any person who was employed by
the Company or any of its subsidiaries or affiliates (other than persons
employed in a clerical or other non-professional position) within the six-
month period preceding the date of such hiring; or (C) solicit, entice,
persuade or induce any person or entity doing business with the Company and
its subsidiaries or affiliates, to terminate such relationship or to
refrain from extending or renewing the same. Nothing herein, however, will
prohibit the Executive from acquiring or holding not more than one percent
of any class of publicly traded securities of any such business; provided
that such securities entitle the Executive to no more than one percent of
the total outstanding votes entitled to be cast by security holders of such
business in matters on which such security holders are entitled to vote.
(c) The Executive agrees that the restrictions set forth in
Section 8(a) and 8(b) hereof are reasonable and necessary to protect the
legal interests of the Company. The Executive further agrees that the
Company shall be entitled to injunctive relief in the event of any actual
or threatened breach of such restrictions. Without limiting the
availability of injunctive relief, the Executive agrees that if the
Executive's employment with the Company is terminated in a manner which
entitles him to benefits under Section 5(a) hereof and it is the decision
of the arbitrators in an arbitration proceeding conducted in accordance
with Section 9 hereof that the Executive has violated any such restriction
during the period commencing on the Date of Termination and ending on the
earlier of (i) three years following such date or (ii) September 30, 2005,
the Executive shall promptly repay to the Company any cash payments made to
him pursuant to Section 5(a)(1) hereof and the benefits described in
Section 3(f) hereof shall cease to be provided following such violation.
9. DISPUTE RESOLUTION. Except for the Company's right to seek
injunctive relief as set forth in Section 8(c), all disputes arising under,
related to, or in connection with this Agreement shall be settled by
expedited arbitration conducted before a panel of three arbitrators sitting
in Dallas, Texas, in accordance with the rules of the American Arbitration
Association then in effect. The decision of the arbitrators in that
proceeding shall be binding on the Company and the Executive. Judgment may
be entered on the award of the arbitrators in any court having
jurisdiction. All expenses of such arbitration, including legal fees, shall
be borne by the non-prevailing party in such arbitration.
10. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be
assignable by the
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Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would have been required to perform it if no
such succession had taken place. As used in this Agreement, the "Company"
shall mean both the Company as defined above and any such successor that
assumes and agrees to perform this Agreement, by operation of law or
otherwise.
11. NO VIOLATIONS. As a material inducement to the Company's
willingness to enter into this Agreement, the Executive represents to the
Company that neither the execution of this Agreement by the Executive, the
employment of the Executive by the Company nor the performance by the
Executive of his duties hereunder will constitute a violation by the
Executive of any employment, non-competition or other agreement to which
the Executive is a party.
12. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified except by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Executive:
Allen I. Questrom
c/o J. C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3699
If to the Company:
J. C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3699
Attention: General Counsel
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 12. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or
of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
and Exhibit A hereto constitute the entire understanding of the parties
with respect to the subject matter hereof and supersede any other prior
agreement or other
16
understanding, whether oral or written, express or implied, between them
concerning, related to or otherwise in connection with, the subject matter
hereof and that, following the date hereof, no such agreement or
understanding shall be of any further force or effect.
(g) The rights and benefits of the Executive under this Agreement
may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate,
assign, sell, transfer, pledge, encumber or charge the same shall be void.
Payments due hereunder shall not be considered assets of the Executive in
the event of insolvency or bankruptcy.
(h) In connection with any termination of the Executive's
employment, the Executive and the Company agree to execute a customary
mutual release (in the form attached hereto as Exhibit B) from liability
and it is understood that no payments shall be made pursuant to Section
5(a)(i) through (a)(iii) hereof prior to the expiration of the required
revocation period with respect to such release.
(i) The Company and the Executive agree to fully cooperate with
respect to the timing and content of any public announcement regarding the
hiring of the Executive or the execution of this Agreement.
(j) To the extent necessary to effectuate the terms of this
Agreement, terms of this Agreement which must survive the termination of
the Executive's employment or the termination of this Agreement shall so
survive.
(k) This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument.
(l) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in connection with the preparation and
negotiation of this Agreement, up to a maximum of $150,000.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization of its Board, the Company has
caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
J. C. PENNEY COMPANY, INC.
By:_____/s/ Jane C. Pfeiffer_______
Title:_____Board Director____________
By:_____/s/ Charles S. Sanford_____
Title:_____Board Director____________
____/s/ A. I. Questrom___________
EXECUTIVE
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