Exhibit 10.3

 

 

 

 

J. C. PENNEY CORPORATION, INC.

CHANGE IN CONTROL PLAN

 

 
Effective February 28, 2007

 

J. C. PENNEY CORPORATION, INC.
CHANGE IN CONTROL PLAN

TABLE OF CONTENTS
 
 

Article                                    Page

ARTICLE ONE    
INTRODUCTION....................................................................................1

 
ARTICLE TWO      
DEFINITIONS.........................................................................................2

ARTICLE THREE    ELIGIBILITY AND
PARTICIPATION..................................................8

ARTICLE
FOUR     BENEFITS.................................................................................................9

ARTICLE FIVE       AMENDMENT AND
TERMINATION..................................................18

ARTICLE SIX        
MISCELLANEOUS.................................................................................19

APPENDIX I           PARTICIPATING
EMPLOYERS............................................................25

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J. C. PENNEY CORPORATION, INC.
CHANGE IN CONTROL PLAN

ARTICLE ONE

INTRODUCTION

1.01
Purpose Of Plan

 The J.C. Penney Corporation, Inc. Change in Control Plan (the "Plan") consists
primarily of (i) severance benefits, (ii) other benefits after termination of
employment under or outside of the non-qualified retirement plans maintained by
the Corporation and (iii) a cash amount payable at termination of employment
equal to the Corporation’s cost of health and welfare benefits the associate
participated in immediately prior to the Change in Control. The purpose and
intent of the Plan is to attract and retain key associates and to improve
associate productivity by reducing distractions resulting from a potential
Change in Control situation, all of which are in the best interest of the
Corporation, and J.C. Penney Company, Inc. and its stockholders.

Capitalized terms used throughout the Plan have the meanings set forth in
Article Two except as otherwise defined in the Plan, or the context clearly
requires otherwise.
 
1.02
Plan Status

The Plan is intended to be a plan providing Severance Pay and certain retirement
and other benefits following a Change in Control. The Plan is intended to be a
top hat plan for a select group of management or highly compensated executives,
subject only to the administration and enforcement provisions of ERISA.

1.03
Entire Plan

This document, including any Appendix hereto, and any documents incorporated by
reference set forth the provisions of the Plan effective as of the Effective
Date, except as otherwise provided herein.
 
1.04 
Administration 

The Human Resources and Compensation Committee of the Board (“Committee”) shall
administer the Plan, provided, however, that none of the members of the
Committee will be a Participant. The powers and duties of the Committee in
administering the Plan are set forth in Article Six.
 
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ARTICLE TWO

DEFINITIONS

2.01  
For purposes of this Plan the following terms shall have the following meanings:

Accounting Firm means a nationally recognized accounting firm, or actuarial,
benefits or compensation consulting firm, (with experience in performing the
calculations regarding the applicability Section 280G of the Code and of the tax
imposed by Section 4999 of the Code) selected by a Participant in his/her sole
discretion.

Board means the Board of Directors of J.C. Penney Company, Inc.
 
Change in Control means the occurrence of any of the following events:
 

(i)  
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a “Person”) becomes the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
the combined voting power of the then-outstanding Voting Stock of the Company or
Corporation; provided, however, that:

 

(1)  
for purposes of this Section (i)(1), the following acquisitions shall not
constitute a Change in Control: (A) any acquisition of Voting Stock of the
Company or Corporation directly from the Company or Corporation that is approved
by a majority of the Incumbent Directors, (B) any acquisition of Voting Stock of
the Company or Corporation by the Company or any Subsidiary, (C) any acquisition
of Voting Stock of the Company or Corporation by the trustee or other fiduciary
holding securities under any employee benefit plan (or related trust) sponsored
or maintained by the Company or any Subsidiary, and (D) any acquisition of
Voting Stock of the Company or Corporation by any Person pursuant to a Business
Transaction that complies with clauses (A), (B) and (C) of Section (iii) below;

 

(2)  
if any Person becomes the beneficial owner of 20% or more of combined voting
power of the then-outstanding Voting Stock of the Company or Corporation as a
result of a transaction described in clause (A) of Section (i)(1) above and such
Person thereafter becomes the beneficial owner of any additional shares of
Voting Stock of the Company or Corporation representing 1% or more of the
then-outstanding Voting Stock of the Company or Corporation,

 
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other than in an acquisition directly from the Company or Corporation that is
approved by a majority of the Incumbent Directors or other than as a result of a
stock dividend, stock split or similar transaction effected by the Company or
Corporation in which all holders of Voting Stock are treated equally, such
subsequent acquisition shall be treated as a Change in Control;

 

(3)  
a Change in Control will not be deemed to have occurred if a Person becomes the
beneficial owner of 20% or more of the Voting Stock of the Company or
Corporation as a result of a reduction in the number of shares of Voting Stock
of the Company or Corporation outstanding pursuant to a transaction or series of
transactions that is approved by a majority of the Incumbent Directors unless
and until such Person thereafter becomes the beneficial owner of any additional
shares of Voting Stock of the Company or Corporation representing 1% or more of
the then-outstanding Voting Stock of the Company or Corporation, other than as a
result of a stock dividend, stock split or similar transaction effected by the
Company or Corporation in which all holders of Voting Stock are treated equally;
and

 

(4)  
if at least a majority of the Incumbent Directors determine in good faith that a
Person has acquired beneficial ownership of 20% or more of the Voting Stock of
the Company or Corporation inadvertently, and such Person divests as promptly as
practicable but no later than the date, if any, set by the Incumbent Directors a
sufficient number of shares so that such Person beneficially owns less than 20%
of the Voting Stock of the Company or Corporation, then no Change in Control
shall have occurred as a result of such Person’s acquisition; or

 

(ii)  
a majority of the board of the Company or of the Corporation ceases to be
comprised of Incumbent Directors; or

 

(iii)  
the consummation of a reorganization, merger or consolidation, or sale or other
disposition of all or substantially all of the assets of the Company or the
Corporation, or the acquisition of the stock or assets of another corporation,
or other transaction (each, a “Business Transaction”), unless, in each case,
immediately following such Business Transaction (A) the Voting Stock of the
Company outstanding immediately prior to such Business Transaction continues to
represent (either by remaining outstanding or by being converted into Voting
Stock of the

 
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surviving entity or any parent thereof), more than 50% of the combined voting
power of the then outstanding shares of Voting Stock of the entity resulting
from such Business Transaction (including, without limitation, an entity which
as a result of such transaction owns the Company, Corporation or all or
substantially all of the Company’s or Corporation’s assets either directly or
through one or more subsidiaries), (B) no Person (other than the Company, such
entity resulting from such Business Transaction, or any employee benefit plan
(or related trust) sponsored or maintained by the Company or any Subsidiary or
such entity resulting from such Business Transaction) beneficially owns,
directly or indirectly, 20% or more of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from such Business
Transaction, and (C) at least a majority of the members of the Board of
Directors of the entity resulting from such Business Transaction were Incumbent
Directors at the time of the execution of the initial agreement or of the action
of the Board providing for such Business Transaction; or

 

(iv)  
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company, except pursuant to a Business Transaction that
complies with clauses (A), (B) and (C) of Section (iii).

 
Code shall mean the Internal Revenue Code of 1986, as amended and the proposed,
temporary and final regulations promulgated thereunder. Reference to any section
or subsection of the Code includes reference to any comparable or succeeding
provisions of any legislation that amends, supplements or replaces such section
or subsection.

Company shall mean J. C. Penney Company, Inc., a Delaware corporation, or any
successor company.

Compensation shall mean the annual base salary rate of a Participant, plus the
Participant’s target annual incentive compensation (at $1.00 per unit), under
the Corporation's Management Incentive Compensation Plan (or any successor plans
thereto) for the fiscal year, all at the greater of the amount in effect on the
date of the Change in Control or as of his/her Employment Termination date, or
immediately prior to the event that constitutes grounds for a Constructive
Termination. As applied to a Participant employed by an affiliate or Subsidiary
of the Corporation, Compensation shall include the same elements of pay to the
extent the affiliate or Subsidiary maintains similar or comparable pay
arrangements.

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Constructive Termination shall mean a resignation from employment with the
Corporation or an affiliate or Subsidiary (as appropriate) after any of the
actions listed below directed at a Participant:

(a)  decrease in salary or incentive compensation opportunity (as compared with
the incentive compensation opportunity in effect immediately prior to the Change
in Control), or

(b)  failure by the Corporation to pay the Participant any portion of his/her
current base salary, or incentive compensation within seven days of its due
date, or

(c)  adverse change in reporting responsibilities, duties, or status as compared
with pre-Change in Control responsibilities, duties, or status, or

(d)  the Corporation requires the Participant to have the Participant’s
principal location of work changed to a location more than 50 miles from the
location thereof immediately prior to the Change in Control, or

(e)  discontinuance of the Participant’s participation in, or discontinuance of
any material employee paid time off policy, fringe benefit, welfare benefit,
incentive compensation, equity compensation, or retirement plan (without
equivalent compensating remuneration or replacement by a plan providing
substantially similar benefits) or any action that materially reduces such
Participant’s benefits or payments under such plans, as in effect immediately
before the Change in Control.

Corporation shall mean J. C. Penney Corporation, Inc., a Delaware corporation,
or any successor company.

Effective Date shall mean February 28, 2007.

Employment Termination shall be deemed to have occurred for a Participant when
he/she ceases to be an employee of the Corporation or an affiliate or Subsidiary
within two years after a Change in Control (or prior to a Change in Control if
the Participant has reasonably demonstrated that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control, or (ii) otherwise arose in connection
with or in anticipation of a Change in Control) because of either a Constructive
Termination or a termination by the Corporation other than as a result of a
Summary Dismissal. An Employment Termination shall not include a termination by
reason of the Participant’s death, disability, voluntary quit other than a
Constructive Termination, or Normal Retirement.
 
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ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder. Reference to any section or
subsection of ERISA includes reference to any comparable or succeeding
provisions of any legislation that amends, supplements or replaces such section
or subsection.
 
Exchange Act means the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder. Reference to any section or subsection of
the Exchange Act includes reference to any comparable or succeeding provisions
of any legislation that amends, supplements or replaces such section or
subsection.

Excise Tax shall mean, collectively, (i) the tax imposed by Section 4999 of the
Code by reason of being “contingent on a change in ownership or control” of the
Company, within the meaning of Section 280G of the Code, or (ii) any similar tax
imposed by state or local law, or (iii) any interest or penalties with respect
to any excise tax described in clause (i) or (ii).
 
Incumbent Directors means the individuals who, as of the Effective Date hereof,
are Directors of the Company or the Corporation, as the context requires, and
any individual becoming a Director subsequent to the date hereof whose election,
nomination for election by the Company’s or Corporation’s stockholders, or
appointment, was approved by a vote of at least two-thirds of the then Incumbent
Directors (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director, without
objection to such nomination); provided, however, that an individual shall not
be an Incumbent Director if such individual’s election or appointment to the
Board occurs as a result of an actual or threatened election contest (as
described in Rule 14a-12(c) of the Exchange Act) with respect to the election or
removal of Directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
 
Normal Retirement shall mean retirement at or after a Participant’s normal
retirement date as determined in accordance with the J. C. Penney Corporation,
Inc. Pension Plan as in effect immediately prior to a Change in Control.

Participant shall mean each person appointed by the Board to the Executive Board
allowing them to participate in the Plan as provided in Article Three and who
continues to be an Executive Board member immediately prior to a Change in
Control.

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Participating Employer shall mean the Corporation and any Subsidiary or
affiliate of the Corporation which is designated as a Participating Employer
under the Plan by the Board, excluding, however, any division of the Corporation
or of a Subsidiary or affiliate that is designated by the Board as ineligible to
participate in the Plan. Appendix I contains a list of the Participating
Employers currently participating in the Plan that have adopted the Plan
pursuant to Article Six.

Severance Pay shall mean the cash severance payments payable to a Participant
pursuant to Section 4.01 of the Plan.

Severance Benefits shall mean Severance Pay and the other benefits described in
Article Four of the Plan payable to a Participant.

Subsidiary shall mean any entity in which the Company, directly or indirectly,
beneficially owns 50% or more of the Voting Stock.

Summary Dismissal shall mean a termination due to:

(a) any willful or negligent material violation of any applicable securities
laws (including the Sarbanes-Oxley Act of 2002);

(b) any intentional act of fraud or embezzlement from the Corporation or
Company;

(c) a conviction of or entering into a plea of nolo contendere to a felony that
occurs during or in the course of the Participant’s employment with the
Corporation;

(d) any breach of a written covenant or agreement with the Corporation, which is
material and which is not cured within 30 days after written notice thereof from
the Corporation; and

(e) willful and continued failure of the Participant to substantially perform
his/her duties for the Corporation (other than as a result of incapacity due to
physical or mental illness) or to materially comply with Corporation or Company
policy after written notice, in either case, from the Corporation and a 30-day
opportunity to cure.

For purposes hereof, an act, or failure to act, shall not be deemed to be
“willful” or “intentional” unless it is done, or omitted to be done, by the
Participant in bad faith or without a reasonable belief that the action or
omission was in the best interests of the Corporation.

Voting Stock means securities entitled to vote generally in the election of
directors.
 
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ARTICLE THREE

ELIGIBILITY AND PARTICIPATION

3.01    Eligibility on the Effective Date

Each person who has been appointed to the Executive Board of the Corporation
(“Executive Board”) by the Board as of the Effective Date will be a Participant
in the Plan.

3.02    Future Eligibility

Each person who is appointed to the Executive Board by the Board after the
Effective Date and prior to the occurrence of a Change in Control will be a
Participant in the Plan.

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ARTICLE FOUR

BENEFITS

4.01     Severance Pay

Upon an Employment Termination, a Participant shall become entitled to Severance
Pay in accordance with the following schedule.

Title                                                 Severance Pay Period

Chief Executive Officer and direct reports                                3
years
Other Executive Vice Presidents              2.5 years
Senior Vice Presidents                           2 years
 
Severance Pay will be computed by multiplying the Participant’s Compensation
times the number of years (including any fraction of a year) in the
Participant’s Severance Pay Period, plus a cash amount equal to the aggregate
Corporation’s premium cost for active associate Medical, Dental and Life
Insurance Plans coverage, if any, provided to the Participant on the date of the
Change in Control, or if higher, the amount in effect at Employment Termination,
times the number of years (including any fraction of a year) in the Severance
Pay Period. Such lump sum Corporation contribution toward Medical, Dental and
Life Insurance Plans coverage for the Severance Pay Period will be grossed-up
for federal income taxes using the applicable federal income tax rate that
applied to the Participant for his/her prior year’s Compensation.

Except as provided in subpart 4.01A, Severance Pay shall be paid in a lump sum
within 30 days after Employment Termination.

In the event a Participant is entitled to any cash severance payments that are
payable in the event of termination of employment pursuant to a written contract
("contract payments") between the Participant and the Corporation or an
affiliate or Subsidiary, Severance Pay otherwise payable to the Participant
under this Section 4.01 shall be reduced by the amount of such contract
payments. Notwithstanding the foregoing, if the Participant receives payments
and benefits pursuant to this Section 4.01, the Participant shall not be
entitled to any severance pay or benefits under any severance plan, program or
policy of the Company or an affiliate or Subsidiary, unless otherwise
specifically provided therein in a specific reference to this Plan.

A. Section 409A
 
To the extent applicable, it is intended that this Plan comply with the
provisions of Code Section 409A. This Plan shall be administered in a manner
consistent with this intent and any provision that would cause this
 

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Plan to fail to satisfy Code Section 409A shall have no force and effect until
amended to comply with Code Section 409A (which amendment may be retroactive to
the extent permitted by Code Section 409A and may be made by the Corporation
without the consent of Participants). Notwithstanding anything to the contrary
in this Section 4.01, if any portion of Severance Pay constitutes a “deferral of
compensation,” that portion of the Severance Pay will be paid on the latest of
(i) the date specified in this Plan, (ii) the Participant’s “separation from
service,” or (iii) if the Participant is a “specified employee,” six months
after the Participant’s separation from service. “Deferral of compensation,”
“separation from service” and “specified employee” have the meanings ascribed to
such phrases in Code Section 409A.
 
4.02     Prorated Incentive Compensation 

A Participant who is covered under the Management Incentive Compensation Program
and who becomes entitled to Severance Pay under this Plan shall be paid a lump
sum equal to the Participant’s pro-rated target annual incentive compensation
(at $1.00 per unit), under the Corporation's Management Incentive Compensation
Program (or any successor plans thereto) for the fiscal year; provided, however,
if the Employment Termination occurs on the last day of the Corporation’s fiscal
year the Participant shall be paid the higher of (a) target annual incentive
compensation (at $1.00 per unit) or (b) the actual annual incentive compensation
earned under the Corporation’s Management Incentive Compensation Program. Such
lump sum to be paid with the Severance Pay payable under Section 4.01.

4.03     Retiree Medical and Dental Coverage

 
For the purposes of determining eligibility for retiree coverage under the J. C.
Penney Corporation, Inc. Voluntary Employees’ Beneficiary Association Medical
Benefit Plan and Dental Benefit Plan (collectively “Health Care Plans”), a
Participant who is covered under the Health Care Plans and who becomes entitled
to Severance Pay under this Plan shall be provided with up to 12 months of
additional age and service credit under the Health Care Plans to reach a
critical age, date or points for retiree eligibility purposes the same as any
other involuntary termination resulting from a reduction in force would receive
under the terms of the Health Care Plans.

 
4.04
Associate-Paid Retiree Term Life Insurance and Gold Card Program

 

 
Notwithstanding any provision of the J. C. Penney Corporation, Inc. Voluntary
Employees’ Beneficiary Association (“VEBA”) Life and Disability Benefit Plan or
the Gold Card Program to the contrary, if a Participant becomes entitled to
Severance Pay under this Plan, he/she shall be provided with up to 12 months of
additional age and service credit under the terms of the life insurance portion
of the VEBA Life and Disability Benefit Plan or Gold Card Program to reach a
critical age, date or points for retiree eligibility

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    purposes the same as any other involuntary termination resulting from a
reduction in force would receive under the terms of such plans.
    Retiree life insurance benefits shall be paid solely from the insurance
policy or policies provided under said plan.

4.05     Non-Qualified Retirement Plans

If a Participant becomes entitled to Severance Pay under this Plan he/she will
receive an immediate lump sum payment within 30 days after Employment
Termination, subject to subpart 4.01A, of any incremental benefit provided
outside the terms of the applicable retirement plan calculated as follows, if
he/she,

(a)  
is a participant in the Corporation’s Supplemental Retirement Plan for
Management Profit-Sharing Associates (“SRP”), he/she will receive a benefit
equal to the number of years in the Participant’s Severance Pay Period as years
of additional age and additional service credit, if applicable, to make him/her
eligible for a benefit, and if eligible, to provide him/her with the highest
benefit available as though the entire amount of his/her benefit were provided
under such plan (including any offsets under such plan or offsets calculated
under (b) or (c) of this Section 4.05) and using the higher of his/her
Compensation or actual Average Final Compensation under the SRP, as his/her
Average Final Compensation for purposes of such calculation; and/or

(b)  
is a participant in the Corporation’s Benefit Restoration Plan (“BRP”), he/she
will receive a benefit equal to the number of years in the Participant’s
Severance Pay Period as years of additional age and additional service credit,
if applicable, to make him/her eligible for a benefit, and if eligible, to
provide him/her with the highest benefit available as though the entire amount
of his/her benefit were provided under such plan and using the higher of his/her
Compensation or actual Average Final Pay under the BRP, as his/her Average Final
Pay for purposes of such calculation; and/or

(c)  
is a participant in the Corporation’s Mirror Savings Plan, he/she will receive
benefit equal to the Corporation’s match under such plan for each year in the
Participant’s Severance Pay Period, and assuming the same Corporation
contribution rate as in effect at the time of the Change in Control to provide
him/her with the highest benefit available using his Compensation for each year
of the Severance Pay Period to determine his/her contribution and the
Corporation’s matching contribution as though the entire amount of his/her
benefit were provided under such plan;

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provided, however, that if and to the extent a Participant is otherwise entitled
to receive any additional age and/or service credit under any such plan as a
result of Employment Termination, the additional age and/or service credit
otherwise provided under this Section 4.05 shall not be counted twice for
purposes of determining eligibility.

4.06     Legal Fees

All expenses of a Participant incurred in enforcing his/her rights and/or to
recover his/her benefits under this Article Four, including but not limited to,
attorney's fees, court costs, arbitration costs, and other expenses shall be
paid by the Corporation. The Corporation shall pay, or reimburse the Participant
for such fees, costs and expenses, promptly upon presentment of appropriate
documentation, but only if, to the extent and at the earliest date(s) such
reimbursements are determined to be permitted without violating Code Section
409A.

4.07     Outplacement Services/Financial Counseling

Following an Employment Termination, a Participant will be paid a lump sum
payment in cash of $25,000 to allow the Participant to pay for outplacement and
financial counseling services. Such lump sum to be paid with the Severance Pay
payable under Section 4.01.

4.08     Special Bonus Hours

In the event of an Employment Termination, a Participant will be paid for
Special Bonus Hours, if he/she is also a participant in the Paid Time Off Policy
(“PTO Policy”) the same as any other involuntary termination resulting from a
reduction in force would receive under the terms of the PTO Policy. Such payment
will be determined in accordance with the provisions of the PTO Policy and paid
within 30 days after the Participant’s Employment Termination date.

4.09     Gross-Up Payments To Make Participants Whole if Excise Tax Applies 

Anything in the Plan to the contrary notwithstanding, but subject to paragraph
(g) below, if it shall be determined (as hereafter provided) that any payment or
distribution by the Corporation or an affiliate or Subsidiary to or for the
benefit of the Participant, whether paid or payable or distributed or
distributable pursuant to the terms of the Plan or otherwise pursuant to or by
reason of any other agreement, policy, plan, program or arrangement, including
without limitation any stock option, stock appreciation right or similar right,
or the lapse or termination of any restriction on or the vesting or
exercisability of any of the foregoing (a “Payment”), would be subject to the
Excise Tax, then the Participant shall be entitled to receive an additional

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payment or payments (a “Gross-Up Payment”) in an amount such that, after payment
by the Participant of all taxes (including any interest or penalties imposed
with respect to such taxes other than interest and penalties imposed by reason
of the Employee’s failure to timely file a tax return or pay taxes shown due on
his/her return), including any Excise Tax imposed upon the Gross-Up Payment, the
Participant retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. No Gross-Up Payment will be made with respect to the
Excise Tax, if any, attributable to (a) any incentive stock option, as defined
by Section 422 of the Code (“ISO”) granted prior to the commencement of a
Participant’s eligibility under the Plan (unless a comparable Gross-Up Payment
has theretofore been made available with respect to such option), or (b) any
stock appreciation or similar right, whether or not limited, granted in tandem
with any ISO described in clause (a) above.

(a) Subject to the provisions of paragraph (e) hereof, all determinations
required to be made under Section 4.09 of the Plan, including whether an Excise
Tax is payable by the Participant and the amount of such Excise Tax and whether
a Gross-Up Payment is required to be paid by the Corporation to the Participant
and the amount of such Gross-Up Payment, shall be made by the Accounting Firm.
The Accounting Firm shall make an initial determination at the time of a change
in control (as defined in Section 409A) of any Gross-Up Payment required to be
paid taking into account current payments and estimated future payments that
might affect the amount of the Gross-Up Payment. In addition, the Participant
shall direct the Accounting Firm to submit its determination and detailed
supporting calculations to both the Corporation and the Participant within
15 calendar days after the date of the Participant’s Employment Termination, if
applicable, and any other such time or times as may be requested by the
Corporation or the Participant; notwithstanding the foregoing, the first two
Gross-Up Payments, if otherwise required, shall be made at a time that would
satisfy the requirements of Section 409A in relation to a change in control (as
defined in Section 409A) and the Employment Termination of the Participant, if
applicable. If the Accounting Firm determines that any Excise Tax is payable by
the Participant, the Corporation shall pay the required Gross-Up Payment to the
Participant within five business days after the receipt of such determination
and calculations. If the Accounting Firm determines that no Excise Tax is
payable by the Participant, it shall, at the same time as it makes such
determination, furnish the Participant with an opinion that he/she has
substantial authority not to report any Excise Tax on his/her federal, state,
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 and other applicable provisions of the Code (or any
successor provisions thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments that shall
not have been made by the Corporation should have been made (an “Underpayment”),
consistent with the

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calculations required to be made hereunder. In the event that the Corporation
exhausts or fails to pursue its remedies pursuant to paragraph (e) hereof and
the Participant thereafter is required to make a payment of any Excise Tax, the
Participant shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Corporation and the Participant as promptly
as possible. Any such Underpayment shall be promptly paid by the Corporation to,
or for the benefit of, the Participant within five business days after receipt
of such determination and calculations.

(b) The Corporation and the Participant shall each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the Corporation or the Participant, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determination contemplated
by paragraph (a) hereof. Any reasonable determination by the Accounting Firm as
the amount of the Gross-Up Payment (and supported by the calculations done by
the Accounting Firm) shall be binding upon the Corporation and the Participant.

(c) The federal, state and local income or other tax returns filed by the
Participant shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax, if any,
payable by the Participant. The Participant shall make proper payment of the
amount of any Excise Tax, and at the request of the Corporation, provide to the
Corporation true and correct copies (with any amendments) of his/her federal
income tax return as filed with the Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the Corporation,
evidencing such payment. If prior to the filing of Participant’s federal income
tax return, or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up Payment should be
reduced, the Participant shall within five business days pay to the Corporation
the amount of such reduction.

(d) The fees and expenses of the Accounting Firm for its services in connection
with the determinations and calculations contemplated by paragraphs (a) and (c)
hereof shall be borne by the Corporation. If such fees and expenses are
initially paid by the Participant, the Corporation shall reimburse the
Participant the full amount of such fees and expenses within five business days
after receipt from the Participant of a statement therefore and reasonable
evidence of this payment thereof.

(e) The Participant shall notify the Corporation in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Corporation of a Gross-Up Payment. Such notification shall be given

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as promptly as practicable but no later than 10 business days after the
Participant actually receives notice of such claim and the Participant shall
further apprise the Corporation of the nature of such claim and the date on
which such claim is requested to be paid (in each case, to the extent known by
the Participant). The Participant shall not pay such claim prior to the earlier
of (i) the expiration of the 30-calendar-day period following the date on which
he gives such notice to the Corporation and (ii) the date that any payment of
amount with respect to such claim is due. If the Corporation notifies the
Participant in writing prior to the expiration of such period that it desires to
contest such claim, the Participant shall:

(1) provide the Corporation with any written records or documents in his/her
possession relating to such claim reasonably requested by the Corporation;

(2) take such action in connection with contesting such claim as the Corporation
shall reasonably request in writing from time to time, including without
limitation accepting legal representation with respect to such claim by an
attorney competent in respect to the subject matter and reasonably selected by
the Corporation;

(3) cooperate with the Corporation in good faith in order effectively to contest
such claim; and

(4) permit the Corporation to participate in any proceedings relating to such
claim;

provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Participant, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
paragraph (e), the Corporation shall control all proceedings taken in connection
with the contest of any claim contemplated by this paragraph (e) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Participant may participate therein at
his/her own cost and expense) and may, at its option, either direct the
Participant to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Participant agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Corporation shall
determine; provided, however, that if the Corporation directs the Participant to
pay the tax claimed and sue for a refund, the Corporation shall pay to the
Participant the amount of such tax (including

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interest and penalties) and shall indemnify and hold the Participant harmless,
on an after-tax basis, from any Excise Tax or directly related income tax or
other tax, including interest or penalties imposed with respect to such payment;
and provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Participant with
respect to which the contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Corporation’s control of any such
contested claim shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Participant shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

(f) If the Participant receives any refund with respect to such contested claim
filed at the Corporation’s request under paragraph (e), the Participant shall
(subject to the Corporation’s complying with the requirements of paragraph (e)
hereof) promptly pay to the Corporation the amount of such refund (together with
any interest paid or credited thereon after any taxes applicable thereto). If a
determination is made that the Participant shall not be entitled to any refund
with respect to such claim and the Corporation does not notify the Participant
in writing of its intent to contest such denial prior to the expiration of 30
calendar days after such determination, then the amount paid to the Participant
by the Corporation as provided in paragraph (e) shall not be required to be
repaid and, the amount of such payment, shall be an offset to the amount of
Gross-Up Payment required to be paid pursuant to this Section 4.09.

(g) Notwithstanding any provision of this Plan to the contrary, but giving
effect to any redetermination of the amount of Gross-Up Payments otherwise
required by this Section 4.09, if (1) but for this sentence, the Corporation
would be obligated to make a Gross-Up Payment to the Participant and (2) the
aggregate “present value” of the “parachute payments” to be paid or provided to
the Participant under this Plan or otherwise does not exceed 1.10 multiplied by
2.99 times the Participant’s “base amount,” then the payments and benefits to be
paid or provided under this Plan will be reduced (or repaid to the Corporation,
if previously paid or provided) to the minimum extent necessary so that no
portion of any payment or benefit to the Participant, as so reduced or repaid,
constitutes an “excess parachute payment.” For purposes of this paragraph (g),
the terms “excess parachute payment,” “present value,” “parachute payment,” and
“base amount” will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in or repayment of such
payments or benefits to be provided under this Plan is required pursuant to this
paragraph (g) will be made at the expense of the Corporation, if requested by
the Participant or the Corporation, by the Accounting Firm. Appropriate
adjustments will be made to amounts previously paid to the Participant, or to
amounts not paid pursuant to this paragraph (g), as the case may be, to reflect
 

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properly a subsequent determination that the Participant owes more or less
Excise Tax than the amount previously determined to be due. In the event that
any payment or benefit intended to be provided under this Plan or otherwise is
required to be reduced or repaid pursuant to this paragraph (g), the Participant
will be entitled to designate the payments and/or benefits to be so reduced or
repaid in order to give effect to this paragraph (g). The Corporation will
provide the Participant with all information reasonably requested by the
Participant to permit the Participant to make such designation. In the event
that the Participant fails to make such designation within 10 business days
prior to the Employment Termination date or other due date, the Corporation may
effect such reduction or repayment in any manner it deems appropriate.
 
(h) Notwithstanding the foregoing provisions of this Section 4.09, Gross-Up
Payments will be made only in the manner and to the extent (and at the earliest
date(s) permitted) such that Code Section 409A will not be violated.

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ARTICLE FIVE

AMENDMENT AND TERMINATION

5.01     Amendment

The Plan may be amended by the Board at any time; provided, however, that
 
(a)  any amendment which would have an adverse effect on any Participant’s Plan
benefits and/or rights, except as may be otherwise required to comply with
changes in applicable laws or regulations, including, but not limited to, Code
Section 409A, or
 
(b)  any amendment within one year before or two years after a Change in
Control,

cannot be applied to any Participant who would be adversely affected by such
amendment without such Participant’s consent. After a Change in Control, any
amendment shall also require the consent of the Committee.

5.02     Termination

The Plan shall continue indefinitely after the Effective Date, unless the Board
shall decide to terminate the Plan by duly adopting resolutions terminating the
Plan; provided, however, following the commencement of any discussion with a
third party that ultimately results in a Change in Control, the Plan shall
continue subject to Section 5.01, until such time as the Corporation and each
affiliate or Subsidiary (as appropriate) shall have fully performed all of their
obligations under the Plan with respect to all Participants, and shall have paid
all Severance Benefits under the Plan in full to all Participants.

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ARTICLE SIX

MISCELLANEOUS

6.01     Participant Rights

The Corporation and each affiliate or Subsidiary intend this Plan to constitute
a legally enforceable obligation between (a) the Corporation or an affiliate or
Subsidiary (as appropriate) and (b) each Participant.

It is also intended that the Plan shall confer vested and non-forfeitable rights
for each Participant to receive benefits to which the Participant is entitled
under the terms of the Plan with Participants being third party beneficiaries.

Except as provided in the definitions of Summary Dismissal or Constructive
Termination, nothing in this Plan shall be construed to confer on any
Participant any right to continue in the employ of the Corporation or an
affiliate or Subsidiary or to affect in any way the right of the Corporation or
an affiliate or Subsidiary to terminate a Participant’s employment without prior
notice at any time for any reason or no reason.

6.02     Authority of Committee

The Committee will administer the Plan and have the full authority and
discretion necessary to accomplish that purpose, including, without limitation,
the authority and discretion to: (i) resolve all questions relating to the
eligibility of Executive Board members to become or continue as Participants,
(ii) determine the amount of benefits, if any, payable to Participants under the
Plan and determine the time and manner in which such benefits are to be paid,
(iii) engage any administrative, legal, tax, actuarial, accounting, clerical, or
other services it deems appropriate in administering the Plan, (iv) construe and
interpret the Plan, supply omissions from, correct deficiencies in and resolve
inconsistencies or ambiguities in the language of the Plan, resolve
inconsistencies or ambiguities between the provisions of this document, and
adopt rules for the administration of the Plan which are not inconsistent with
the terms of the Plan document, (v) compile and maintain all records it
determines to be necessary, appropriate or convenient in connection with the
administration of the Plan, and (vi) resolve all questions of fact relating to
any matter for which it has administrative responsibility. The Committee shall
perform all of the duties and may exercise all of the powers and discretion that
the Committee deems necessary or appropriate for the proper administration of
the Plan, and shall do so in a uniform, nondiscriminatory manner. Any failure by
the Committee to apply any provisions of this Plan to any particular situation
shall not represent a waiver of the Committee’s authority to apply such
provisions thereafter. Every interpretation, choice, determination or other
exercise of any power or discretion given either expressly or by implication to

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the Committee shall be conclusive and binding upon all parties having or
claiming to have an interest under the Plan or otherwise directly or indirectly
affected by such action, without restriction, however, on the right of the
Committee to reconsider and redetermine such action. Any decision rendered by
the Committee and any review of such decision shall be limited to determining
whether the decision was so arbitrary and capricious as to be an abuse of
discretion. The Committee may adopt such rules and procedures for the
administration of the Plan as are consistent with the terms hereof.

6.03     Claims Procedure

A. Allocation of Claims Responsibility: With respect to any claim for benefits
which are provided exclusively under this Plan, the claim shall be approved or
denied by the Committee within 60 days following the receipt of the information
necessary to process the claim. In the event the Committee denies a claim for
benefits in whole or in part, it will give written notice of the decision to the
claimant or the claimants authorized representative, which notice will set forth
in a manner calculated to be understood by the claimant, stating the specific
reasons for such denial, make specific reference to the pertinent Plan
provisions on which the decision was based, and provide any other additional
information, as applicable, required by 29 Code of Federal Regulations Section
2560.503-1 applicable to the Plan.

With respect to any claim for benefits which, under the terms of the Plan, are
provided under another employee benefit plan maintained by the Corporation
(i.e., Health Care Plans, Gold Card, life insurance, PTO/MTO Policy, Pension,
Savings, Mirror Savings, BRP, and SRP benefits), the Committee shall determine
claims regarding the Participant's eligibility under the Plan in accordance with
the preceding paragraph, but the administration of any other claim with respect
to such benefits (including the amount of such benefits) shall be subject to the
claims procedure specified in such other employee benefit plan or program.

B. Litigation or Appeal In the event the Committee denies a claim in whole or in
part for benefits which are provided exclusively under the Plan, or denies a
claim regarding the claimant’s eligibility under the Plan, Participants will
then be allowed to file a lawsuit in Federal Court as provided under ERISA.

Appeals with respect to any claim for benefits which, under the terms of the
Plan, are provided under another employee benefit plan maintained by the
Corporation (i.e., Health Care Plans, Gold Card, life insurance, PTO/MTO Policy,
Pension, Savings, Mirror Savings, BRP, and SRP benefits), shall be subject to
the claims and appeals procedure specified in such other employee benefit plan.

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6.04     Records and Reports 

The Committee will maintain adequate records of all of their proceedings and
acts and all such books of account, records, and other data as may be necessary
for administration of the Plan. The Committee will make available to each
Participant upon his request such of the Plan's records as pertain to him for
examination at reasonable times during normal business hours.

6.05     Reliance on Tables, Etc. 

In administering the Plan, the Committee is entitled to the extent permitted by
law to rely conclusively upon all tables, valuations, certificates, opinions and
reports which are furnished by accountants, legal counsel or other experts
employed or engaged by the Committee. The Committee will be fully protected in
respect of any action taken or suffered by the Committee in good faith reliance
upon all such tables, valuations, certificates, reports, opinions or other
advice. The Committee is also entitled to rely upon any data or information
furnished by a Participating Employer or by a Participant as to any information
pertinent to any calculation or determination to be made under the provisions of
the Plan, and, as a condition to payment of any benefit under the Plan the
Committee may request a Participant to furnish such information as it deems
necessary or desirable in administering the Plan.

6.06     Availability of Plan Information and Documents

Any Participant having a question concerning the administration of the Plan or
the Participant's eligibility for participation in the Plan or for the payment
of benefits under the Plan may contact the Committee and request a copy of the
Plan document. Each Participating Employer will keep copies of this Plan
document, exhibits and amendments hereto, and any related documents on file in
its administrative offices, and such documents will be available for review by a
Participant or a designated representative of the Participant at any reasonable
time during regular business hours. Reasonable copying charges for such
documents will be paid by the requesting party.

6.07
Expenses 

All Plan administration expenses incurred by the Committee shall be paid by the
Corporation and all other administration expenses incurred by the Corporation or
an affiliate or Subsidiary shall be paid by the Corporation or an affiliate or
Subsidiary (as appropriate).

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6.08
Adoption Procedure for Participating Employer 

Any Subsidiary or affiliate of the Corporation may become a Participating
Employer under the Plan provided that (i) the Board approves the adoption of the
Plan by the Subsidiary or affiliate and designates the Subsidiary or affiliate
as a Participating Employer in the Plan and (ii) by appropriate resolutions of
the board of directors or other governing body of the Subsidiary or affiliate,
the Subsidiary or affiliate agrees to become a Participating Employer under the
Plan and also agrees to be bound by any other terms and conditions which may be
required by the Board or the Committee, provided that such terms and conditions
are not inconsistent with the purposes of the Plan. A Participating Employer may
withdraw from participation in the Plan, subject to approval by the Committee,
by providing written notice to the Committee that withdrawal has been approved
by the board of directors or other governing body of the Participating Employer;
provided, however, following the commencement of any discussion with a third
party that ultimately results in a Change in Control, the Committee shall have
no authority to approve the withdrawal of any Participating Employer until such
time as the Corporation and each affiliate or Subsidiary (as appropriate) shall
have fully performed all of their obligations under the Plan with respect to all
Participants, and shall have paid all Severance Benefits under the Plan in full
to all Participants. The Board may at any time remove a Participating Employer
from participation in the Plan by providing written notice to the Participating
Employer that it has approved removal; provided, however, following the
commencement of any discussion with a third party that ultimately results in a
Change in Control, the Board shall have no authority to remove or approve the
withdrawal of any Participating Employer until such time as the Corporation and
each affiliate or Subsidiary (as appropriate) shall have fully performed all of
their obligations under the Plan with respect to all Participants, and shall
have paid all Severance Benefits under the Plan in full to all Participants. The
Board will act in accordance with this Article pursuant to unanimous written
consent or by majority vote at a meeting.

6.09     Effect on Other Benefits

Except as otherwise provided herein, the Plan shall not affect any Participant’s
rights or entitlement under any other retirement or employee benefit plan
offered to him/her by the Corporation or an affiliate or Subsidiary (as
appropriate) as of his/her Employment Termination.

6.10     Successors

The Plan shall be binding upon any successor in interest of the Corporation or
an affiliate or Subsidiary (as appropriate) and shall inure to the benefit of,
and be enforceable by, a Participant’s assigns or heirs.

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6.11     Severability

The various provisions of the Plan are severable and any determination of
invalidity or unenforceability of any one provision shall not have any effect on
the remaining provisions.

6.12     Construction

In determining the meaning of the Plan, words imparting the masculine gender
shall include the feminine and the singular shall include the plural, unless the
context requires otherwise. Headings of sections and subsections of the Plan are
for convenience only and are not intended to modify or affect the meaning of the
substantive provisions of the Plan.

6.13     References to Other Plans and Programs

Each reference in the Plan to any plan, policy or program, the Plan or document
of the Corporation or an affiliate or Subsidiary, shall include any amendments
or successor provisions thereto without the necessity of amending the Plan for
such changes.
 
6.14    Notices
 

(a)  
General. Notices and all other communications contemplated by this Plan shall be
in writing and shall be deemed to have been duly given when personally delivered
or when mailed by U.S. registered or certified mail, return receipt requested
and postage prepaid. In the case of the Participant, (i) mailed notices shall be
addressed to the Participant at the Participant’s home address which was most
recently communicated to the Corporation in writing or (ii) in the case of a
Participant who is an employee, distributed to the employee at his or her place
of employment in compliance with 29 CFR Section 2520.104b-1(c). In the case of
the Corporation, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its General
Counsel at J.C. Penney Corporation, Inc., 6501 Legacy Drive, Plano, Texas 75024.

(b)  
Notice of Termination. Any notice of Summary Dismissal by the Corporation or by
the Participant for Constructive Termination shall be communicated by a notice
of termination to the other party given in accordance with this Section 6.14.
Such notice shall indicate the specific termination provision in this Plan
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide the basis for termination under the provision so indicated,
and shall specify the Employment Termination date.

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6.15     No Duty to Mitigate

The Participant shall not be required to mitigate the amount of any payment
contemplated under this Plan, nor shall such payment be reduced by any earnings
that the Participant may receive from any other source.

6.16     Employment Taxes

All payments made pursuant to this Plan shall be subject to withholding of
applicable income and employment taxes.

6.17     Governing Law

Except to the extent that the Plan may be subject to the provisions of ERISA,
the Plan will be construed and enforced according to the laws of the State of
Texas, without giving effect to the conflict of laws principles thereof. Except
as otherwise required by ERISA, every right of action by an Associate with
respect to the Plan shall be barred after the expiration of three years from the
date of termination of employment or the date of receipt of the notice of denial
of a claim for benefits or eligibility, if earlier. In the event ERISA's
limitation on legal action does not apply, the laws of the State of Texas with
respect to the limitations of legal actions shall apply and the cause of action
must be brought no later than four years after the date the action accrues.
 

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APPENDIX I

Participating Employers

J.C. Penney Corporation, Inc.

J.C. Penney Company, Inc.

JCP Publications Corp.

JCP Overseas Services, Inc.

J.C. Penney Puerto Rico, Inc.

JCP Logistics L. P.

JCP Media L.P.

JCP Procurement L.P.

J.C. Penney Private Brands, Inc.

JCP Ecommerce L.P.

JCP Construction Services, Inc.

The Original Arizona Jean Company
 
 
 
 
 
 
 
 
 
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