exv10wxiiyxaoy



 








EXHIBIT 10(ii)(ao)




			
	  Gary Davis

  Executive Vice President

  Chief Human Resources

  and Administration Officer
	 	







December 22, 2004




Allen I. Questrom

16A Turtle Creek Bend

Dallas, Texas 75204





Dear Allen:




Reference is made to the Employment Agreement (the “Employment Agreement”) dated July 21,
2000 between you and J.C. Penney Corporation, Inc. (formerly J.C. Penney Company, Inc. and
hereafter, the “Company”). This letter (the “Agreement”) will set forth our mutual
understanding as to the rights and obligations of you and the Company in connection with
your ceasing to be employed by the Company, effective as of
December 22, 2004. Capitalized
terms that are used but not defined here shall have the meaning set forth in the Employment
Agreement.




     1.
Termination For Good
Reason. The parties hereby acknowledge that,
effective as of December 1, 2004, you ceased to serve as Chief Executive Officer of the
Company, as a member of the Company’s Board of Directors and as an officer of the
Company and its affiliates. The parties further acknowledge that, effective as of
December 22, 2004, your employment with the Company and its affiliates will cease and
that such cessation of employment constitutes a termination for “Good Reason” for
purposes of the Employment Agreement.




     2.
Payments.




          2.1 Payments. On the date which is six months and one day following the
cessation of your employment, you shall receive the following payments:




               (a) The Company shall pay you a lump sum amount equal to the
sum of (1) the product of (A) your Annual Base Salary and (B) the portion of a full
year remaining in the Term following December 22, 2004 and (2) the product of (X) your
target bonus for 2004 and (Y) 0.66 (which represents the portion of the Company’s fiscal year
from January 30,2005 to September 30, 2005).




               (b) The Company shall pay to you an amount equal to the 2004
annual bonus you would have received had you remained employed through the end of the
Company’s 2004 fiscal year. The amount described in the preceding sentence shall be
determined in accordance with the Company’s regular practice with respect to
determining
annual bonus payments.




               (c) The Company shall pay to you an amount in respect of the
2005 Long-Term Incentive Compensation award which you would have received pursuant
to Section 3(e) of the Employment Agreement had you remained employed through
September 30, 2005, which amount shall equal 240% of the sum of
(1) your current

 
J.C.Penny Company,Inc.

P.O.Box 10001,Dallas,TX 75301-0003

6501 Legacy Drive,Plano,TX 75024-3698



 









 









Annual Base Salary plus (2) the target annual bonus which would have been applicable to you for
the 2005 fiscal year, provided that such amount shall be reduced by the value determined pursuant
to the tenth sentence of Section 3(d) of the Employment Agreement.




           2.2 Equity Awards.




               (a) In accordance with the terms of the Employment Agreement
and the other agreements governing grants of J.C. Penney Company, Inc. (“JCPenney”)
common stock, par value $.50 per share (“Company Stock”) options held by you, all such
outstanding options shall become fully vested and exercisable as of December 22, 2004.
In all other respects, such options shall continue to be governed by the terms of the
applicable agreements and plans.




               (b) In accordance with the terms of the Employment Agreement
and the other agreements governing grants of JCPenney restricted stock units held by you,
all such outstanding restricted stock units shall become fully vested as of December 22,
2004, and the payout of such restricted stock units in shares of Company Stock shall be
made as of such date in accordance with their existing terms. Accordingly, you will
receive, in respect of your restricted stock units, a number of shares of Company Stock
equal to the number of such units, less shares withheld in satisfaction of applicable
withholding taxes.




          2.3 Treatment of Supplemental Retirement Benefit. In accordance
with Section 5 (a) of the Employment Agreement, you will continue to accrue supplemental
retirement benefits pursuant to Section 3(i) of the Employment Agreement as if you had
remained employed with the Company from December 23, 2004 through September 30,
2005. For purposes of the calculation of such supplemental retirement benefit, base salary
plus incentive compensation paid in calendar years 2002, 2003 and 2004 shall be utilized
in determining Final Average Compensation. Payment of such benefits shall commence at
the time and in the manner you previously elected, it being understood that the parties will
work together to take such action (including, but not limited to, revising the timing and/or
form of payment distributions) as may be necessary to ensure that your election to receive
supplemental retirement benefits pursuant to Section 3(i) of the Employment Agreement,
as well as the other terms and conditions applicable to such benefits, comply with all
applicable provisions of Section 409A of the Internal Revenue Code of 1986, as amended
including Notice 2005-1 and any subsequent guidance issued under such Section.




          2.4
Earned and Unpaid Salary; Employee Benefits. On
December 22, 2004, the Company shall pay to you, in a cash lump sum, any portion of your Annual
Base Salary that is earned and unpaid as of December 22, 2004, as well as a cash payment in respect
of accrued and unused vacation pay in accordance with the Company’s policy. The Company shall also
pay or provide to you all compensation and benefits payable to you under the terms of the Company’s
compensation and benefit plans, programs or arrangements as in effect immediately prior to December
22, 2004 and shall provide you with the benefits you participate in at the Company as described in
Section 3(f) of the Employment Agreement (other than benefits under tax-qualified plans and
non-qualified retirement plans) until September 30, 2005.



2









 






          2.5 Business
Expense Reimbursement. The Company shall reimburse you for all reasonable
travel, entertainment or other expenses incurred by you prior to
December 22, 2004, in accordance
with the Company’s expense reimbursement policy.




     3.
Restrictive Covenants. You hereby acknowledge that your obligations
pursuant to Section 8 of the Employment Agreement shall remain in full force and effect in
accordance with their terms and that for purposes of such Section, December 22, 2004
shall be treated as the Date of Termination.




     4.
Release. You hereby acknowledge that the Company’s obligations to
make the payments under Sections 2.1 and 2.4 hereof are contingent upon your execution
of, and failure to revoke, a Waiver and Release Agreement substantially in the form
attached hereto (the “Release”). The date upon which you may no longer effectively
revoke the Release shall be the “Effective Date” for purposes of this Agreement. You
agree that you shall return to the Company any such amounts previously paid to you
hereunder in the event of any such revocation of such Release.




     5.
General Provisions.




          5.1 Severability. 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.




          5.2 Dispute Resolution. Except for the Company’s right to seek
injunctive relief as set forth in Section 8(c) of the Employment Agreement, 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
Plano, Collin County,
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
you. 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




          5.3 Successors and Assigns. This Agreement is personal to you and,
without the prior written consent of the Company, shall not be assignable by you otherwise
than by will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by your legal representatives. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.




          5.4 Governing Law; Captions; Amendment. 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.



3









 






          5.5 Withholding. 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.




To indicate your understanding and acceptance of the terms set forth in this Agreement, please sign
and date this Agreement in the space provided below and return it to me.



	 	 	 	 	 	 	 	 	 
	 	 	Sincerely,	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	J.C.
Penney Corporation, Inc.	 	 	 	 
	 	 	J.C.
Penney Company, Inc.	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	By:
	 	/s/ Gary Davis
	 	 	 	12/22/04
	

	 	 	 	 
	 	 	 	 
	

	 	 	 	Gary Davis,
	 	 	 	Date
	

	 	 	 	Executive Vice President,	 	 	 	 
	

	 	 	 	Chief Human Resources and	 	 	 	 
	

	 	 	 	Administration Officer	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	ACCEPTED AND AGREED:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Allen I. Questrom	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	/s/ Allen I. Questrom	 	 	 	12/22/04
	 	 	 	 	 	 	 
	 	 	 	 	 	 	Date
	 
	 	 	 	 	 	 	 	 
	 	 	Attachment: Waiver and Release Agreement	 	 	 	 










4