EXHIBIT 10(ii)(ab)
INDEMNIFICATION AGREEMENT
among
▇. ▇. ▇▇▇▇▇▇ COMPANY, INC.,
▇. ▇. PENNEY CORPORATION, INC.
and
________________________
TABLE OF CONTENTS
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1. Services to the Companies ................................................. 6
2. Indemnification ........................................................... 6
3. Partial Indemnification ................................................... 12
4. Determination of Entitlement to Indemnification Pursuant to Section 2(a). . 12
5. Advancement of Costs and Expenses. ........................................ 21
6. Other Rights to Indemnification ........................................... 23
7. Interval Protection Against Premature Enforcement ......................... 24
8. Trust Fund ................................................................ 26
9. Enforcement. .............................................................. 28
10. Duration of Agreement. .................................................... 29
11. Severability .............................................................. 31
12. Identical Counterparts .................................................... 31
13. Headings .................................................................. 32
14. Modification and Waiver ................................................... 32
15. Notification and Defense of Claim ......................................... 32
16. Notices ................................................................... 33
17. Governing Law ............................................................. 34
INDEMNIFICATION AGREEMENT
-------------------------
This INDEMNIFICATION AGREEMENT made and entered into as of the _____ day of
________ 2002 ("Agreement") by and among ▇. ▇. ▇▇▇▇▇▇ COMPANY, INC., a Delaware
corporation, ▇. ▇. PENNEY CORPORATION, INC., a Delaware corporation (formerly
known as ▇. ▇. ▇▇▇▇▇▇ Company, Inc., and now a wholly-owned subsidiary of ▇. ▇.
Penney Company, Inc.) (▇. ▇. ▇▇▇▇▇▇ Company, Inc. and ▇. ▇. Penney Corporation,
Inc. herein collectively called the "Companies"), and
__________________________________ ("INDEMNITEE"):
WHEREAS, competent and experienced persons are becoming more reluctant to
serve as directors or officers of publicly-held corporations unless they are
provided with adequate protection against claims and actions against them for
their activities on behalf or at the request of such corporations, generally
through insurance and indemnification; and
WHEREAS, uncertainties in the interpretations of the statutes and
regulations, laws and public policies relating to indemnification of corporate
directors and officers are such as to make adequate, reliable assessment of the
risks to which directors and officers of publicly held corporations may be
exposed difficult, particularly in light of the proliferation of lawsuits
against directors and officers; and
1
WHEREAS, the Boards of Directors of the Companies, based upon their
business experience, have concluded that the continuation of present trends in
litigation against corporate directors and officers will inevitably make it more
difficult for the Companies to attract and retain directors and officers of the
highest degree of competence committed to the active and effective direction and
supervision of the business and affairs of the Companies and their subsidiaries
and affiliates and the operation of their facilities, and the Boards deem such
consequences to be so detrimental to the best interests of the Companies'
stockholders that they have concluded that the Companies should act to provide
their directors and officers with enhanced protection against inordinate risks
attendant on their positions in order to assure that the most capable persons
otherwise available will be attracted to such positions and, in such connection,
said directors have further concluded that it is not only reasonable and prudent
but necessary for the Companies to contractually obligate themselves to
indemnify to the fullest extent permitted by applicable law their directors and
certain of their officers and certain persons serving other entities at the
request, or on behalf, of the Companies and to assume, to the maximum extent
permitted by applicable law, financial responsibility for expenses and
liabilities which might be incurred by such individuals in connection with
claims lodged against them for their decisions and actions in such capacities;
and
2
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, under which law the Companies are organized, empowers a corporation
organized in Delaware to indemnify persons who serve as directors, officers,
employees or agents of the corporation or persons who serve at the request of
the corporation as directors, officers, employees or agents of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, and further specifies that the indemnification provided by said
section "shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise", and further empowers a
corporation to "purchase and maintain insurance" on behalf of such persons
"against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of" said laws; and
WHEREAS, the Bylaws of the Companies permit indemnification in accordance
with and to the full extent permitted by the laws of the State of Delaware, and
resolutions adopted by the Board of Directors of ▇. ▇. ▇▇▇▇▇▇ Corporation, Inc.
on December 30, 1975, require that directors, officers and employees of the
Companies acting as fiduciaries (within the meaning of the Employee Retirement
Income Security Act of 1974) with respect to any of the Companies' employee
benefit and welfare plans be indemnified in accordance with the
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terms set forth in said resolution; and
WHEREAS, the Companies have (i) reviewed the type of insurance available to
insure the directors and officers of the Companies and of their affiliates
against costs, expenses (including attorneys' fees and disbursements),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding to
which they are, or are threatened to be made, a party by reason of their status
and/or decisions or actions in such positions, (ii) studied the nature and
extent of the coverage provided by such insurance and the cost thereof to the
Companies, (iii) purchased such insurance to the extent reasonably available,
and (iv) concluded, notwithstanding the purchase of such insurance to the extent
reasonably available, that it would be in the best interests of the Companies
and their stockholders for the Companies to enter into agreements to indemnify
certain of such persons in the form of this Agreement, inasmuch as such
insurance is, and is likely to continue to be, subject to certain significant
exclusions and limitations or could cease to be reasonably available on any
basis; and
WHEREAS, to further assure that the directors and officers of the Companies
and persons serving other entities at the request, or on behalf, of the
Companies will obtain the protections contemplated by this Agreement,
notwithstanding future uncertainties, the Companies have concluded that it would
be in the best interests of
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the stockholders for such contractual indemnification to be supported by a trust
fund to be established by the Companies; and
WHEREAS, the Companies desire to have INDEMNITEE serve or continue to serve
as a director or officer of ▇. ▇. Penney Company, Inc. and/or ▇. ▇. ▇▇▇▇▇▇
Corporation, Inc., and/or as a director, officer, employee, partner, trustee,
agent or fiduciary of such other corporations, partnerships, joint ventures,
employee benefit plans, trusts or other enterprises (herein collectively called
"Company Affiliate") of which he or she has been or is serving, or will serve,
at the request of or for the convenience of or to represent the interests of the
Companies, free from undue concern for unpredictable, inappropriate or
unreasonable claims for damages by reason of his or her being a director or
officer of the Companies or a director, officer, employee, partner, trustee,
agent or fiduciary of a Company Affiliate or by reason of his or her decisions
or actions on their behalf; and
WHEREAS, INDEMNITEE is willing to serve, or to continue to serve, or to
take on additional service for, ▇. ▇. Penney Company, Inc. and/or ▇. ▇. ▇▇▇▇▇▇
Corporation, Inc., and/or the Company Affiliates in such aforesaid capacities on
the condition that he or she be indemnified as provided for herein;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Companies and INDEMNITEE do hereby covenant and agree as
follows:
5
1. Services to the Companies. INDEMNITEE will serve and/or continue to
-------------------------
serve as a director and/or officer of either or both of the Companies (in the
case of an officer of either or both, at the will of ▇. ▇. Penney Company, Inc.
and/or ▇. ▇. ▇▇▇▇▇▇ Corporation, Inc., as applicable, or under separate
contract, if any such contract exists or shall hereafter exist) and/or as a
director, officer, employee, partner, trustee, agent or fiduciary of a Company
Affiliate faithfully and to the best of his or her ability so long as he or she
is duly elected and qualified in accordance with the provisions of the Bylaws or
other applicable constitutive documents thereof; provided that INDEMNITEE may at
any time and for any reason resign from such position (subject to any
contractual obligations which INDEMNITEE shall have assumed apart from this
Agreement) and further provided that neither the Companies nor any Company
Affiliate shall have any obligation under this Agreement to continue the
INDEMNITEE in any such position.
2. Indemnification.
---------------
(a) Except as otherwise expressly provided in this Agreement or
prohibited by applicable law, the Companies, within 60 days (or such longer
period, if any, as may be permitted by Section 4(a) hereof) after receipt
of a written statement from INDEMNITEE requesting indemnification and
reasonably evidencing the costs, expenses, judgments, penalties, fines and
amounts in settlement incurred by him or
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her, shall, in accordance with the applicable provisions of this Agreement,
fully indemnify INDEMNITEE if INDEMNITEE is or was made a party or is
threatened to be made a party to any Proceeding (as hereinafter defined) by
reason of the fact that he or she is or was a director, officer, employee,
agent or fiduciary of the Companies or is or was serving at the request of
or for the convenience of or to represent the interests of either or both
of the Companies as a director, officer, employee, partner, trustee, agent
or fiduciary of a Company Affiliate, or by reason of anything done or not
done by him or her in any such capacity (all of the foregoing reasons being
herein collectively called "Qualifying Reasons"), against costs, expenses
(including attorneys' fees and disbursements), judgments, penalties, fines
and amounts in settlement incurred by him or her in connection with such
Proceeding (including, but not limited to, the investigation, defense,
settlement, or appeal thereof). In the event that both the foregoing
sentence and Section 2(b) hereof would be applicable to the indemnification
being sought, the provisions of Section 2(b) shall govern. For purposes of
this Agreement, (i) a "Proceeding" shall mean any threatened, pending or
completed investigation, action, suit, arbitration, alternate dispute
resolution mechanism, or any other proceeding (including any appeals
therefrom), whether civil, criminal, administrative or investigative in
nature and whether in a court or arbitration, or before or involving a
governmental, administrative or
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private entity (including, but not limited to, an investigation initiated
by either or both of the Companies, a Company Affiliate, or the Board of
Directors or fiduciaries of any thereof), (ii) references to "fines" shall
include any excise taxes assessed on INDEMNITEE with respect to any
employee benefit or welfare plan, and (iii) references to "serving at the
request of either or both of the Companies" shall include, without
limitation, any service, while serving as a director, officer, employee,
partner, trustee, agent or fiduciary of either or both of the Companies or
any Company Affiliate which imposes duties on, or involves services by,
INDEMNITEE with respect to any employee benefit or welfare plan of either
or both of the Companies or any Company Affiliate, its participants or
beneficiaries.
(b) Notwithstanding any other provision of this Agreement (except as
set forth in Section 2(c) hereof), and without a requirement for any
determination as described in Section 4(a) hereof, to the extent INDEMNITEE
(i) has prepared to serve or has served as a witness in any Proceeding in
any way relating to either or both of the Companies, any Company Affiliate,
any affiliate (as defined in Rule 405 under the Securities Act of 1933, as
amended) of either or both of the Companies ("Securities Act Affiliate"),
any associate (as defined in said Rule 405) of either or both of the
Companies or of any Securities Act Affiliate or Company Affiliate, or
anything done or not done by INDEMNITEE as a director,
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officer, employee, partner, trustee, agent, or fiduciary of either or both
of the Companiesor any Company Affiliate or (ii) has been successful on the
merits or otherwise (including, without limitation, the dismissal of an
action without prejudice) in defense of any Proceeding arising out of a
Qualifying Reason, or in the defense of any claim, issue or matter involved
therein, whether in the final adjudication, arbitration or alternate
dispute resolution mechanism or on appeal, the Companies shall fully
indemnify him or her against costs and expenses (including attorneys' fees
and disbursements) incurred by him or her in connection therewith
(including, but not limited to, the preparation or service as a witness or
the investigation, defense or appeal in connection with any such
Proceeding) within 30 days after receipt by the Companies from INDEMNITEE
of a statement requesting such indemnification, reasonably evidencing the
expenses and costs so incurred by him or her and averring that they do not
relate to matters of the type described in clauses (i) or (ii) of Section
2(c) hereof.
(c) Notwithstanding anything to the contrary in the foregoing
provisions of this Section 2 (and except as provided in the proviso clause
of this sentence), INDEMNITEE shall not be entitled, as a matter of right,
to indemnification pursuant to this Section 2: (i) except as provided in
Section 4(e) or 9 hereof, against costs and expenses incurred in connection
with any Proceeding commenced by INDEMNITEE against either or both
9
of the Companies, any Company Affiliate, any Securities Act Affiliate, or
any person who is or was a director or officer, in his or her respective
capacity as such, of the Companies, any Company Affiliate or any Securities
Act Affiliate; or (ii) against costs and expenses incurred by INDEMNITEE in
connection with preparing to serve or serving, prior to a Change in Control
(as defined in Section 4(d)(i) hereof), as a witness in cooperation with
any party or entity, who or which has threatened or commenced any
Proceeding against either or both of the Companies, any Company Affiliate
or Securities Act Affiliate, or any director, officer, employee, partner,
trustee, agent or fiduciary of any thereof in his or her respective
capacity as such; or (iii) to the extent that INDEMNITEE has theretofore
received payment pursuant to any directors and officers liability insurance
policy maintained by either or both of the Companies; provided, however,
that indemnification may be provided by either or both of the Companies in
any specific case as contemplated by Section 6 hereof notwithstanding the
applicability of the foregoing clause (i) or (ii).
(d) In the event that INDEMNITEE is serving or has served as a
Representative (as such term is defined in Section 4(a) of the
Indemnification Trust Agreement attached hereto as Exhibit I), then,
notwithstanding any other provision of this Agreement, and without a
requirement for any determination as described in Section 4(a) hereof,
either or both of the
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Companies, within 30 days after receipt of a statement from INDEMNITEE
requesting indemnification and reasonably evidencing the costs, expenses,
judgments, penalties, fines and amounts in settlement incurred by him or
her, shall fully indemnify INDEMNITEE if INDEMNITEE is or was made a party
or is threatened to be made a party to any Proceeding by reason of the fact
that he or she is or was such a Representative or by reason of anything
done or not done by him or her in such capacity, against costs, expenses
(including attorneys' fees and disbursements), judgments, penalties, fines,
and amounts in settlement, incurred by him or her in connection with such
Proceeding, provided that no indemnification shall be made with respect to
(and INDEMNITEE shall state in his or her request that he or she is not
seeking indemnification with respect to) any cost, expense, judgment,
penalty, fine or amount in settlement as to which there has been a final
judicial determination that such amount was incurred as a direct result of
willful misconduct in the course of INDEMNITEE's service as a
Representative.
(e) Notwithstanding any other provision of this Agreement,
indemnification shall also be made to the extent that the Court of Chancery
of the State of Delaware or the court in which a Proceeding was brought
shall determine that INDEMNITEE is fairly and reasonably entitled to
indemnification for such costs and expenses as such court shall deem
proper.
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3. Partial Indemnification. If INDEMNITEE is only partially successful in
-----------------------
the defense of any Proceeding arising out of a Qualifying Reason, or in the
defense of any claim, issue or matter involved therein, whether in the
initial adjudication, arbitration or alternate dispute resolution mechanism
or on appeal, either or both of the Companies shall nevertheless indemnify
INDEMNITEE, as a matter of right pursuant to Section 2(b) hereof, to the
extent INDEMNITEE has been partially successful.
4. Determination of Entitlement to Indemni-
----------------------------------------
fication Pursuant to Section 2(a).
---------------------------------
(a) Upon written request by INDEMNITEE for indemnification pursuant to
the first sentence of Section 2(a) hereof, a determination, if required by
Delaware law, with respect to INDEMNITEE's entitlement thereto shall be
made not later than 60 days (provided that such 60 day period can be
extended for an additional reasonable time if (x) the Companies pursuant to
a request by INDEMNITEE have provided timely, continuous and effective
Interval Protection (as defined in Section 7 hereof) and (y) the Companies
in good faith require such additional time for the obtaining or evaluating
of documentation reasonably available to INDEMNITEE) after the Companies
shall have received such request (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter
defined) (unless INDEMNITEE shall make a request which is
12
timely under the circumstances that such determination be made by the Board
of Directors or stockholders, in which case pursuant to clause (ii)(A) or
(ii)(C) of this Section 4(a) as requested by INDEMNITEE) in a written
opinion to the Board of Directors, a copy of which (including each prior
draft thereof) shall be simultaneously delivered to INDEMNITEE, and (ii) in
all other cases (A) by the Board of Directors of ▇. ▇. ▇▇▇▇▇▇ Company, Inc.
by a majority vote of a quorum consisting of Disinterested Directors (as
hereinafter defined), or (B) if such a quorum is not obtainable or, even if
obtainable, if the Board of Directors by the majority vote of Disinterested
Directors so directs, by Independent Counsel in a written opinion to the
Board of Directors, a copy of which shall be simultaneously delivered to
INDEMNITEE or (C) by the stockholders of ▇. ▇. Penney Company, Inc. The
General Counsel(s) of the Companies shall, promptly upon receipt of
INDEMNITEE's request for indemnification, advise the Boards of Directors in
writing that INDEMNITEE has made such request for indemnification.
INDEMNITEE shall cooperate with the person or entity making such
determination of INDEMNITEE's entitlement to indemnification, including
providing to such person or entity upon reasonable advance request any
documentation or information reasonably available to INDEMNITEE and
necessary to such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by INDEMNITEE in so cooperating
with the person or
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entity making such determination shall be borne by the Companies
(irrespective of the determination as to INDEMNITEE's entitlement to
indemnification pursuant to Section 2(a) hereof) and the Companies hereby
indemnify and agree to hold INDEMNITEE harmless therefrom.
(b) In making a determination of entitlement pursuant to Section 4(a)
or 4(e) hereof, the person or entity making such determination shall
presume that INDEMNITEE is entitled to indemnification pursuant to Section
2(a) hereof and that the Companies have the burden of proof in the making
of any determination contrary to such presumption. If no determination
pursuant to Section 4(a) hereof is made within 60 days (or such longer
period, if any, as may be permitted by Section 4(a) hereof) of the
Companies' receipt of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and
INDEMNITEE shall be absolutely entitled to such indemnification, absent (i)
a misstatement of a material fact in the request for indemnification or an
omission of a material fact necessary to make the statements in such
request not materially misleading with respect to the information necessary
for the determination of entitlement to indemnification or (ii) a
prohibition of such indemnification under applicable law.
(c) The termination of any Proceeding by judgment, order, settlement
or conviction, or upon a plea of nolo
----
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contendere or its equivalent, shall not, in and of itself, affect the
----------
rights of INDEMNITEE to indemnification or the presumptions to which
INDEMNITEE is otherwise entitled pursuant to the provisions of this
Agreement.
(d) For purposes of this Agreement:
(i) "Change in Control" shall mean a change in control of ▇. ▇.
Penney Company, Inc. of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 ("Act"), whether
or not ▇. ▇. ▇▇▇▇▇▇ Company, Inc. is then subject to such reporting
requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred (irrespective of
the applicability of the initial clause of this definition) if (A) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act,
but excluding any employee benefit plan or employee stock plan of ▇.
▇. Penney Company, Inc. or any subsidiary of ▇. ▇. ▇▇▇▇▇▇ Company,
Inc., or any entity organized, appointed, established or holding
securities of ▇. ▇. Penney Company, Inc. with voting power for or
pursuant to the terms of any such plan) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of ▇. ▇. ▇▇▇▇▇▇ Company, Inc. representing
35%
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or more of the combined voting power of ▇. ▇. Penney Company Inc.'s
then outstanding securities without the prior approval of at least
two-thirds of the members of the Board of Directors of ▇. ▇. ▇▇▇▇▇▇
Company, Inc. in office immediately prior to such person's attaining
such interest; (B) ▇. ▇. Penney Company, Inc. is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board of Directors
of ▇. ▇. ▇▇▇▇▇▇ Company, Inc. in office immediately prior to such
transaction or event constitute less than a majority of the Board of
Directors of ▇. ▇. Penney Company, Inc. thereafter; or (C) during any
period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of ▇. ▇. ▇▇▇▇▇▇
Company, Inc. (including for this purpose any new director whose
election or nomination for election by ▇. ▇. Penney Company, Inc.'s
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of
such period) cease for any reason to constitute at least a majority of
the Board of Directors of ▇. ▇. ▇▇▇▇▇▇ Company, Inc.
(ii) "Disinterested Director" with respect to any request by
INDEMNITEE for indemnification hereunder shall mean a director of ▇.
▇. Penney Company, Inc. who neither
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is nor was a party to the Proceeding in respect of which
indemnification is being sought by INDEMNITEE.
(iii) "Independent Counsel" shall mean a law firm or a member of
a law firm (A) that neither is nor in the past five years has been
retained to represent in any material matter the Companies, or any
Securities Act Affiliate, or INDEMNITEE or any other party to the
Proceeding giving rise to a claim for indemnification hereunder and
(B) which, under applicable standards of professional conduct then
prevailing, would not have a conflict of interest in representing
either of the Companies or INDEMNITEE in an action to determine
INDEMNITEE's right to indemnification under this Agreement and (C)
that is reasonably acceptable to the Companies and INDEMNITEE. For
purposes hereof, counsel shall not be deemed to represent any
government or governmental entity which may have commenced any
Proceeding or be asserting any claim against INDEMNITEE solely by
reason of having represented any department, commission, authority,
subdivision or public benefit corporation of or created by such
government or governmental entity which is a party to such Proceeding
or before which it is being prosecuted or which is making any such
claim. In the event that the parties are unable to agree on the
selection of Independent Counsel, such counsel shall be selected by
lot from among the Delaware
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law firms generally reputed to be experienced in corporate law and
having more than 25 attorneys or New York City law firms generally
reputed to be experienced in corporate law and having more than 150
attorneys and having, in each case, a rating of "av" or better in the
then current ▇▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Law Directory. Such selection shall be
made in the presence of INDEMNITEE (or his or her representative), and
the parties shall contact, in the order of their selection by lot,
such law firms, requesting each such firm to accept an engagement to
make the determination required hereunder until one of such firms
accepts such engagement. The fees and expenses of counsel in
connection with making any determination contemplated hereunder
(irrespective of the determination as to INDEMNITEE's entitlement to
indemnification) shall be paid by either or both of the Companies and,
if requested by such counsel, either or both of the Companies shall
promptly give such counsel an appropriate written agreement with
respect to the payment of its fees and expenses and such other matters
as may be reasonably requested by such counsel.
(e) In the event that pursuant to Section 4(a) hereof a determination
is made that INDEMNITEE shall not be entitled to indemnification hereunder
in respect of all or any part of a claim made by INDEMNITEE therefor,
INDEMNITEE shall nevertheless be entitled, at his or her option, to a final
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adjudication or may seek an award in arbitration regarding his or her
entitlement to indemnification hereunder in respect of such claim. In the
event INDEMNITEE seeks adjudication, INDEMNITEE shall initially commence,
within 180 days from INDEMNITEE's receipt of notice that he or she is not
entitled to indemnification, an appropriate action in an appropriate court
of the State of Delaware or any other court of competent jurisdiction. In
the event INDEMNITEE seeks an award in arbitration, such arbitration, which
shall be conducted in Wilmington, Delaware or in New York, New York, shall
be initiated by INDEMNITEE within 180 days from INDEMNITEE's receipt of
notice that he or she is not entitled to indemnification, shall be
conducted by a single arbitrator who is a member of a firm that would
qualify as an Independent Counsel hereunder pursuant to the commercial
arbitration rules of the American Arbitration Association, and the
arbitrator shall notify the parties of his or her decision within 60 days
following the initiation of such arbitration. The Companies hereby agree to
be bound by the determination of such arbitrator and shall bear all fees,
costs and expenses imposed by the American Arbitration Association on
account of such proceeding, irrespective of the determination thereof. The
Companies further unconditionally and irrevocably agree that their
execution of this Agreement shall also constitute a stipulation by which
they shall be irrevocably bound in any court or arbitration in which such
proceeding shall have been
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commenced, continued or appealed that (i) they shall not oppose
INDEMNITEE's right to seek or obtain any such adjudication or award in
arbitration or any other claim by reason of any prior determination made
pursuant to this Agreement with respect to INDEMNITEE's right to
indemnification under this Agreement on such claim or any other claim, or,
except in good faith, raise any objections not specifically relating to the
merits of INDEMNITEE's claim; (ii) for all purposes of this Agreement any
such adjudication or arbitration shall be conducted de novo and without
prejudice by reason of any such prior determination to the effect that
INDEMNITEE is not entitled to indemnification; and (iii) it shall be bound
by all provisions of this Agreement (including, but not limited to,
Sections 4(b) and 4(c) hereof). Whether or not the court or arbitrator
shall determine that INDEMNITEE is entitled to indemnification hereunder as
to any costs, expenses (including attorneys' fees and disbursements),
judgments, penalties, fines or amounts in settlement in respect of any
claim, issue or matter involved in the Proceeding in respect of which
indemnification is sought hereunder, either or both of the Companies shall
within 30 days after written request therefor (and submission of reasonable
evidence of the nature and amount thereof), and unless there is a specific
judicial finding that INDEMNITEE's suit was frivolous, pay all costs and
expenses (including attorneys' fees and disbursements) incurred by
INDEMNITEE in
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connection with such adjudication or arbitration (including, but not
limited to, any appellate proceedings).
(f) If the person or entity (including the Board of Directors of ▇. ▇.
▇▇▇▇▇▇ Company, Inc., Independent Counsel, stockholders, court or
arbitrator) making the determination as to the entitlement of INDEMNITEE to
indemnification hereunder shall determine that INDEMNITEE is not entitled
to indemnification in respect of all claims, issues or matters involved in
a Proceeding in respect of which indemnification is sought hereunder but is
entitled to indemnification for some of such claims, issues or matters,
such person or entity shall equitably allocate such costs, expenses
(including attorneys' fees and disbursements), judgments, penalties, fines
and amounts in settlement incurred in connection with such Proceeding among
the claims, issues or matters involved therein and determine those for
which INDEMNITEE shall be indemnified hereunder.
5. Advancement of Costs and Expenses.
---------------------------------
(a) All costs and expenses (including attorneys' fees, retainers and
advances of disbursements required of INDEMNITEE) incurred by INDEMNITEE in
preparing to serve or serving as a witness in a Proceeding of the type
described in clause (i) of Section 2(b) hereof, or in investigating,
defending or appealing any Proceeding relating to a Qualifying Reason (and
not excluded by clause (i) or (ii) of Section 2(c)
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(as modified by the proviso clause contained in such Section)) or arising
in connection with service as a Representative, or in connection with an
adjudication or award in arbitration pursuant to Section 4(e) hereof, or
relating to a Proceeding described in or arising pursuant to Section 9
hereof, shall be paid by either or both of the Companies (in advance of the
final disposition of such Proceeding) at the request of INDEMNITEE within
20 days after the receipt from time to time by either or both of the
Companies from INDEMNITEE of a statement or statements requesting such
advance or advances, reasonably evidencing the expenses and costs incurred
by him or her in connection therewith and averring that they do not relate
to matters described in the aforesaid clause (i) or (ii) of Section 2(c),
together with a written undertaking by INDEMNITEE to repay such amount if
it is ultimately determined (in a final adjudication or conclusion of an
arbitration pursuant to Section 4(e) hereof, if INDEMNITEE elects to seek
such an adjudication or arbitration, and otherwise in a determination, if
required hereunder, pursuant to Section 4(a) hereof) that INDEMNITEE is not
entitled to be indemnified against such costs and expenses by the Companies
as provided by this Agreement (or, if INDEMNITEE has sought advances (i)
pursuant to Section 4(e) or 9 hereof, if there is a specific judicial
finding that INDEMNITEE's suit was frivolous or (ii) in his capacity as a
Representative, if there is a final judicial determination of willful
misconduct in the matter
22
giving rise to the Proceeding as to which he or she obtained an advance or
advances).
(b) If and to the extent it is finally determined hereunder that
INDEMNITEE is not entitled to indemnification, or is entitled only to
partial indemnification, INDEMNITEE shall reimburse the Companies for all
costs and expenses advanced or prepaid pursuant to INDEMNITEE's prior
request or requests hereunder, or the proper proportion thereof, as the
case may be, within 90 days after receipt of an itemized written statement
therefor from the Companies, provided that INDEMNITEE shall have no
obligation to reimburse the Companies for any of INDEMNITEE's costs and
expenses relating to (i) cooperating with the Companies in making their
determination, as provided in Section 4(a) hereof, (ii) an adjudication or
arbitration of his or her entitlement to indemnification hereunder, as
provided in Section 4(e) hereof or (iii) a Proceeding described in or
arising under Section 9 hereof (unless, in the case of the foregoing clause
(ii) or (iii) there is a specific judicial finding that INDEMNITEE's suit
was frivolous).
6. Other Rights to Indemnification. The indemnification and advancement
-------------------------------
of costs and expenses (including attorneys' fees and disbursements) provided by
this Agreement shall not be deemed exclusive of any other rights to which
INDEMNITEE may now or in the future be entitled under any provision of
applicable law, the
23
Restated Certificates of Incorporation or any Bylaw of the Companies or any
other agreement or any vote of directors or stockholders or otherwise, whether
as to action in his or her official capacity or in another capacity while
occupying any of the positions or having any of the relationships referred to in
Section 2 of this Agreement.
7. Interval Protection Against Premature Enforcement.
-------------------------------------------------
During the interval between the Companies' receipt of INDEMNITEE's request
for indemnification and the latest to occur of (a) payment in full to INDEMNITEE
of the indemnification to which he or she is entitled hereunder, or (b) a
determination (if required) pursuant to Section 4(a) hereof or a final
adjudication or conclusion of an arbitration pursuant to Section 4(e) hereof (if
INDEMNITEE elects to seek such an adjudication or arbitration) that INDEMNITEE
is not entitled to indemnification hereunder (or, if INDEMNITEE has sought
indemnification in his or her capacity as a Representative, a final judicial
determination of willful misconduct in the matter giving rise to the Proceeding
as to which he or she is seeking indemnification), the Companies shall provide
"Interval Protection" which, for purposes of this Agreement, shall mean the
taking of the necessary steps (whether or not such steps require expenditures to
be made by the Companies at that time) to stay, pending a final determination of
INDEMNITEE's entitlement to indemnification (and, if INDEMNITEE is so entitled,
the payment thereof), the execution, enforcement or collection of any judgments,
penalties, fines or any other amounts for which INDEMNITEE may be
24
liable (and as to which INDEMNITEE has requested indemnification hereunder) in
order to avoid INDEMNITEE's being or becoming in default with respect to any
such amounts (such necessary steps to include, but not be limited to, the
procurement of a surety bond to achieve such stay or the loan to INDEMNITEE of
amounts necessary to satisfy the judgments, penalties, fines or other amounts
for which INDEMNITEE may be liable and as to which a stay of execution as
aforesaid cannot be obtained, the Boards of Directors by their approval of the
form of the Indemnification Agreement (as hereinafter defined) having made the
judgment that, in general, such loan or similar assistance may reasonably be
expected to benefit the Companies), within three days after receipt of
INDEMNITEE's written request therefor, together with a written undertaking by
INDEMNITEE to repay, no later than 90 days following receipt of a statement
therefor from the Companies, amounts (if any) expended by the Companies for such
purpose, if it is ultimately determined (in a final adjudication or conclusion
of an arbitration pursuant to Section 4(e) hereof, if INDEMNITEE elects to seek
such an adjudication or arbitration, and otherwise in a determination (if
required) pursuant to Section 4(a) hereof) that INDEMNITEE is not entitled to be
indemnified against such judgments, penalties, fines or other amounts (or, if
INDEMNITEE has sought Interval Protection in his or her capacity as a
Representative, if there is a final judicial determination of willful misconduct
in the matter giving rise to the Proceeding as to which he obtained Interval
Protection), provided that in no event shall the Companies pay the amount of any
25
such judgment, penalty, fine or other amount except pursuant to Section 2, 4 (if
applicable) or 6 hereof.
8. Trust Fund. In order to provide some assurance of payment to INDEMNITEE
----------
and all other directors and officers of the Companies who, prior to a Change in
Control, have executed or will execute agreements substantially similar to this
Agreement (together with this Agreement, collectively referred to herein as
"Indemnification Agreements") of amounts to which they may become entitled
hereunder (including, but not limited to, advances and Interval Protection), the
Companies shall (a) have executed and delivered a trust agreement in
substantially the form of Exhibit I hereto ("Indemnification Trust Agreement")
with the bank named therein or with any other bank in the United States having a
capital and surplus of at least $500 million as shown in its most recently
published financial statements as trustee ("Trustee") and (b) have deposited not
less than $5 million in cash to be held in trust by the Trustee pursuant to the
terms and conditions of the Indemnification Trust Agreement ("Trust").
Thereafter, subject to the provisions of the Indemnification Trust Agreement,
the Companies shall from time to time fund the Trust with such additional
amounts in cash as may be necessary so that the total amount held in trust
thereunder shall not, at any time, be less than the sum of $5 million plus such
additional amounts as may from time to time be required by the Indemnification
Trust Agreement, provided, however, that if such Trust shall have terminated in
accordance with its
26
terms prior to the termination of this Agreement, the Companies shall fund a new
trust for the benefit of the INDEMNITEES (as defined in the Indemnification
Trust Agreement), established upon substantially the same terms as the Trust,
and funded to the same extent as would have been required if the Trust had not
terminated. As more fully set forth in the Indemnification Trust Agreement, if
the Companies shall fail to pay INDEMNITEE any indemnification or advances or
provide Interval Protection to which INDEMNITEE is or shall become entitled
pursuant to this Agreement, INDEMNITEE shall have the right to payment thereof
from the Trust, upon INDEMNITEE's submission to the Trustee of a notice
requesting any such payment, enclosing reasonable evidence of the amount to be
so paid, stating under oath that (i) INDEMNITEE has requested and is entitled to
such payment pursuant to the provisions of this Agreement, (ii) the Companies
have failed to provide such payment and (iii) INDEMNITEE has not received such
payment pursuant to any directors and officers liability insurance policy
maintained by the Companies, and including in such notice an undertaking to
repay such amounts to the Trust if any of the statements in the foregoing clause
(i), (ii) or (iii) are ultimately determined not to be true. Upon termination of
the Trust pursuant to the provisions of Section 7 of the Indemnification Trust
Agreement, any funds then remaining in the Trust, after the distributions
provided for in the Indemnification Trust Agreement, shall (unless required for
the funding of a new trust as aforesaid) revert to the Companies.
27
9. Enforcement.
-----------
(a) The Companies unconditionally and irrevocably agree that their
execution of this Agreement shall also constitute a stipulation by which
they shall be irrevocably bound in any court or arbitration in which a
proceeding by INDEMNITEE for enforcement of his or her rights shall have
been commenced, continued or appealed that their obligations set forth in
this Agreement are unique and special, and that failure of the Companies to
comply with the provisions of this Agreement will cause irreparable and
irremediable injury to INDEMNITEE, for which a remedy at law will be
inadequate. As a result, in addition to any other right or remedy he may
have at law or in equity with respect to a violation of this Agreement,
INDEMNITEE shall be entitled to injunctive or mandatory relief directing
specific performance by the Companies of their obligations under this
Agreement, including without limitation the Companies' obligations
regarding the establishment, re-establishment and funding of one or more
trusts in accordance with Section 8 hereof. The Companies further
irrevocably stipulate and agree that (i) they shall not, except in good
faith, raise any objections not specifically relating to the merits of
INDEMNITEE's claim, (ii) if a determination was made or deemed to have been
made pursuant to the provisions of Section 4 hereof that INDEMNITEE is
entitled to indemnification, the Companies shall be bound by such
28
determination and shall be precluded from asserting that such determination
has not been made or that the procedure by which such determination was
made is not valid, binding and enforceable, and (iii) the Companies shall
be bound, in any such proceeding, by all provisions of this Agreement
(including, but not limited to, Sections 4(b) and 4(c) hereof).
(b) In the event that INDEMNITEE is subject to or intervenes in any
legal action in which the validity or enforceability of this Agreement is
at issue or institutes any legal action, for specific performance or
otherwise, to enforce his or her rights under, or to recover damages for
breach of, this Agreement, INDEMNITEE shall, within 30 days after written
request to the Companies therefor (and submission of reasonable evidence of
the amount thereof), and unless there is a specific judicial finding that
INDEMNITEE's suit was frivolous, be indemnified by the Companies against
all costs and expenses (including attorneys' fees and disbursements)
incurred by him or her in connection therewith.
10. Duration of Agreement.
---------------------
(a) This Agreement shall continue until and terminate upon the later
of (i) the tenth anniversary after INDEMNITEE has ceased to occupy any of
the positions or have any of the relationships described in Section 2(a) of
this Agreement or (ii) (A) the final termination or resolution of all
Proceedings
29
with respect to INDEMNITEE commenced during such 10 year period and (B)
either (x) receipt by INDEMNITEE of the indemnification to which he or she
is entitled hereunder with respect thereto or (y) a final adjudication or
binding arbitration that INDEMNITEE is not entitled to any further
indemnification with respect thereto, as the case may be, provided that
(subject to the exception set forth below), in the event that (1) the Board
of Directors of ▇. ▇. Penney Corporation, Inc., in its discretion,
determines to submit the Indemnification Agreements for stockholder
ratification at ▇. ▇. ▇▇▇▇▇▇ Company's 1987 Annual Meeting of Stockholders
and (2) the stockholders fail to ratify the Indemnification Agreements at
said Annual Meeting, then this Agreement shall terminate as of the close of
business on the date of the certification (by the inspectors of election
for said Annual Meeting) of said vote; except that this Agreement shall not
terminate on such date pursuant to the foregoing proviso with respect to
claims which have arisen (whether or not asserted) against INDEMNITEE prior
to the close of business on such date, but shall continue in full force and
effect until the occurrence of either of the events set forth in the
foregoing clauses (x) and (y) of this paragraph (a) with respect to such
claims.
(b) This Agreement shall be binding upon the Companies and their
successors and assigns and shall inure to the benefit of INDEMNITEE and his
or her heirs, devisees, executors, administrators or other legal
representatives.
30
11. Severability. If any provision or provisions of this Agreement or the
------------
Indemnification Trust Agreement shall be held to be invalid, illegal or
unenforceable under any particular circumstances or for any reason whatsoever
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement and the Indemnification Trust Agreement (including, without
limitation, all other portions of any Section, paragraph or clause of this
Agreement or the Indemnification Trust Agreement that contains any provision
that has been found to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable), or the validity, legality or
enforceability under any other circumstances shall not in any way be affected or
impaired thereby and (b) to the fullest extent possible consistent with
applicable law, the provisions of this Agreement and the Indemnification Trust
Agreement (including, without limitation, all other portions of any Section,
paragraph or clause of this Agreement or the Indemnification Trust Agreement
that contains any such provision that has been found to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement and the Indemnification Trust Agreement (including
the provision held invalid, illegal or unenforceable).
12. Identical Counterparts. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall for all purposes be
31
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
13. Headings. The headings of the paragraphs of this Agreement are inserted
--------
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
14. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
15. Notification and Defense of Claim. INDEMNITEE agrees to promptly notify
---------------------------------
the Companies in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any matter
which may be subject to indemnification covered hereunder, whether civil,
criminal or investigative; provided, however, that the failure of INDEMNITEE to
give such notice to the Companies shall not adversely affect INDEMNITEE's rights
under this Agreement except to the extent the Companies shall have been
materially prejudiced as a direct result
32
of such failure. Nothing in this Agreement shall constitute a waiver of the
Companies' right to seek participation at their own expense in any Proceeding
which may give rise to indemnification hereunder.
16. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (ii) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed, in either case:
(a) if to INDEMNITEE, at the address indicated on the signature page
hereof,
(b) if to ▇. ▇. Penney Company, Inc.:
If Mailed:
▇. ▇. ▇▇▇▇▇▇ Company, Inc.
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
If Delivered:
▇. ▇. Penney Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
33
(c) if to ▇. ▇. ▇▇▇▇▇▇ Corporation, Inc.:
If Mailed:
▇. ▇. Penney Company, Inc.
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
If Delivered:
▇. ▇. ▇▇▇▇▇▇ Company, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ 005
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: General Counsel
or to such other address as may have been furnished to either party by the other
party.
Governing Law. The parties hereto agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: ▇. ▇. PENNEY COMPANY, INC.
By:________________________________ By:__________________________________
Name:______________________________ Name:________________________________
Title:_____________________________ Title:_______________________________
ATTEST: ▇. ▇. ▇▇▇▇▇▇ CORPORATION, INC.
By:________________________________ By:__________________________________
Name:______________________________ Name:________________________________
Title:_____________________________ Title:_______________________________
INDEMNITEE
By:__________________________________
Name:
Title:
Address:
35
