Exhibit 10.3
JCPenney
J. C. Penney Company, Inc.                                      Notice of 2007
Performance Unit Grant
Name
    [Associate Name]
 Employee ID
     [EEID] 
Date of Grant
3/14/2007
Number of Performance Units Granted
 [Grant Amount]
Performance Cycle
Begins: 2/4/2007
Ends: 2/2/2008

2005 Equity
Compensation Plan

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You have been granted the number of Performance Units listed above in
recognition of your expected future contributions to the success of JCPenney.
This Performance Unit grant is a “target” award, which may increase or decrease
based on the Company’s actual results for the Performance Cycle as set forth in
the Payout Matrix established by the Human Resources and Compensation Committee
of the JCPenney Board of Directors (“Committee”). This grant is subject to all
the terms, rules, and conditions of the J. C. Penney Company, Inc. 2005 Equity
Compensation Plan (“Plan”) and the implementing resolutions (“Resolutions”)
approved by the Committee. Capitalized terms not otherwise defined herein shall
have the respective meanings assigned to them in the Plan and the Resolutions.
In the event of a change in capitalization of the Company or other similar
event, the number of units shall be adjusted as provided in the Plan.

Definitions
Payout Matrix - The payout matrix is established by the Committee at the
beginning of the Performance Cycle and describes the percentage of units you
shall earn based on the Company’s actual EPS for the Performance Cycle.

Performance Units - The performance units granted under this program are
restricted stock units with both performance-based and time-based vesting
features. Each performance unit shall at all times be deemed to have a value
equal to the then-current fair market value of one share of J. C. Penney
Company, Inc. Common Stock of 50¢ par value (“Common Stock”). You can earn from
0% to 200% of the units granted based on the Company’s actual results for the
Performance Cycle.

Performance Cycle - The performance cycle is a one-year period beginning on the
first day of the Company’s fiscal year and ending on the last day of the fiscal
year.

Performance Measurement - The performance measurement is the Company’s Diluted
Earnings Per Share from continuing operations (“EPS”) over the Performance Cycle
excluding any extraordinary or unusual noncomparable items as identified by the
Committee at the time the Payout Matrix for the Performance Cycle is
established.

Retirement—Retirement means your separation from service either (1) at or after
age 60 or (2) at or after age 55 with at least 15 years of service with JCPenney
or any of its subsidiaries.

How Your Actual Performance Units are Determined
The Company’s EPS for fiscal 2007 shall determine the actual number of
Performance Units, if any, that are credited to your account. The Payout Matrix
shown below indicates the percentage of Performance Units that shall be credited
for the respective EPS amounts.
 
The actual number of Performance Units that you earn shall be credited to your
account as soon as practicable but in no event later than 75 days after the end
of the Performance Cycle.

Vesting of Your Credited Performance Units
The actual Performance Units credited to your account shall vest, and the
restrictions on your Performance Units shall lapse, according to the following
Vesting Schedule, PROVIDED YOU REMAIN CONTINUOUSLY EMPLOYED BY THE COMPANY
THROUGH EACH OF THE RESPECTIVE VESTING DATES (unless your employment terminates
due to your Retirement, death, Disability, reduction in force/unit closing or an
Involuntary Termination under, and as defined in the Executive Termination Pay
Agreement). Your vested Performance Units shall be paid out in shares of Common
Stock as soon as practicable but in no event later than 75 days following each
Vesting Date. You shall not be allowed to defer the payment of your shares of
Common Stock to a later date.

 
Vesting Dates
Percent
Vesting
March 14, 2008
33-1/3%
March 14, 2009
33-1/3%
March 14, 2010
33-1/3%

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Employment Termination

If your employment terminates during the Performance Cycle because of
Retirement, Disability, death or reduction in force/unit closing, then you shall
be entitled to a prorated number of the Performance Units earned in accordance
with the Payout Matrix, determined as of the end of the Performance Cycle. The
proration shall be based on the ratio of (a) the number of calendar days from
the date of grant to the effective date of termination to (b) the total number
of calendar days in the vesting period. Any Performance Units earned under this
termination provision, shall be immediately vested and delivered in shares of
JCPenney Common Stock within 75 days of the end of the Performance Cycle.

If your employment terminates following the end of the Performance Cycle because
of Retirement, Disability, death or reduction in force/unit closing, you shall
be entitled to a prorated number of the Performance Units earned under the
Payout Matrix. The proration shall be based on the ratio of (a) the number of
calendar days from the date of grant to the effective date of termination to (b)
the total number of calendar days in the vesting period. Any Performance Units
that have already vested shall be subtracted from the prorated amount and the
remaining prorated Performance Units shall vest immediately and be delivered as
shares of JCPenney Common Stock as soon as practicable but in no event later
than 75 days following your termination date. Any Performance Units which have
not already vested or for which vesting is not accelerated shall expire on such
employment termination.

If your employment terminates due to an Involuntary Termination under, and as
defined in the Executive Termination Pay Agreement, any outstanding Performance
Units shall immediately vest and be payable in shares of JCPenney Common Stock,
in an amount equal to (1) if termination occurs prior to the end of the
Performance Cycle, the target number of Performance Units for such Performance
Cycle, and (2) if the termination occurs after the end of the Performance Cycle,
the number of Performance Units earned for such Performance Cycle, subject to
(a) the execution and delivery prior to the Involuntary Termination of a release
in such form as may be required by the Company and (b) the expiration of the
applicable revocation period for such release.

If your employment terminates for any reason other than Retirement, Disability,
death, reduction in force/unit closing, or Involuntary Termination under, and as
defined in the Executive Termination Pay Agreement you shall forfeit any
unearned and/or unvested Performance Units at the time of such employment
termination.

Change of Control
If a Change of Control (as defined in Attachment A to this Notice of Grant)
occurs during the Performance Cycle, any outstanding Performance Units shall
immediately vest and be payable in shares of JCPenney Common Stock, in an amount
equal to (1) if a Change of Control occurs prior to the end of the Performance
Cycle, the target number of Performance Units for such Performance Cycle, and
(2) if the Change of Control occurs after the end of the Performance Cycle, the
number of Performance Units earned for such Performance Cycle as of the
effective date of the Change of Control.

Dividend Equivalents
You shall not have any rights as a stockholder until your Performance Units vest
and you are issued shares of Common Stock in cancellation of the vested
Performance Units. However, following the conclusion of the Performance Cycle
you shall begin to accrue dividend equivalents on the Performance Units credited
to your account in the amount of any quarterly dividend declared on the Common
Stock. Dividend equivalents shall continue to accrue until your Performance
Units vest and you receive actual shares of Common Stock in cancellation of the
vested Performance Units. The dividend equivalents shall be credited as
additional Performance Units in your account to be paid out in shares of Common
Stock on each applicable Vesting Date along with the Performance Units to which
they relate. The number of additional Performance Units to be credited to your
account shall be determined by dividing the aggregate dividend payable with
respect to the number of Performance Units in your account by the closing price
of the Common Stock on the New York Stock Exchange on the dividend payment date.
The additional Performance Units credited to your account are subject to all of
the terms and conditions of this Performance Unit award and the Plan and you
shall forfeit your additional Performance Units in the event that you forfeit
the Performance Units to which they relate.

Taxes and Withholding
At the time your Performance Units vest and you are issued shares of Common
Stock or cash in lieu of fractional shares, the fair market value of the shares
of Common Stock issued to you shall be included in your W-2 form and the Company
shall be required to withhold applicable taxes on such amount. Your withholding
rate with respect to this award may not be higher than the minimum statutory
rate. The Company shall retain and cancel the number of issued shares equal to
the value of the required minimum tax withholding in payment of the required
minimum tax withholding due. For purposes of this grant notice, “fair market
value” means the closing price of the Common Stock on the New York Stock
Exchange, or if the Exchange is closed on the applicable date, or if the Common
Stock does not trade on such date, the closing price of the Common Stock on the
New York Stock Exchange on the last trading day immediately preceding such date.

Transferability of Your Performance Units
The Performance Units awarded hereunder are non-transferable.

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Effect on Other Benefits
The value of the shares covered by the Performance Unit award shall not be
included as compensation or earnings for purposes of any other compensation,
retirement, or benefit plan offered to Company associates.

Administration
The Committee has full authority and discretion, subject only to the terms of
the Plan, to decide all matters relating to the administration and
interpretation of the Plan and this Performance Unit award. The Committee’s
determinations shall be final, conclusive, and binding on you and your heirs,
legatees and designees.
 
This performance unit grant does not constitute an employment contract. It does
not guarantee employment for the length of the vesting period or for any portion
thereof.

2007 Performance Unit Award Payout Matrix

 

 
2007 EPS
Plan Payout %
Maximum
$5.87
200%
 
$5.78
180%
 
$5.70
160%
 
$5.61
140%
 
$5.53
120%
Target
$5.44
100%
 
$5.33
80%
 
$5.22
60%
 
$5.10
40%
 
$4.99
20%
Threshold
$4.88
0%

For EPS results that fall in between the intervals shown above, the payout
percent increases approximately 2.33% for each $0.01 above target and decreases
approximately 1.79% for each $0.01 of EPS below target.

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Attachment A

A Change of Control Event shall have occurred if there is a change of ownership,
a change of effective control, or a change in ownership of a substantial portion
of the assets of the Company (as “Company” is defined in the J. C. Penney
Company, Inc. 2005 Equity Compensation Plan).

1.  
Change of ownership occurs on the date that a person or persons acting as a
group acquires ownership of stock of the Company that together with stock held
by such person or group constitutes more than 50 percent of the total fair
market value or total voting power of the stock of the Company.

2.  
Notwithstanding whether the Company has undergone a change of ownership, a
change of effective control occurs (a) when a person or persons acting as a
group acquires within a 12-month period 35 percent of the total voting power of
the stock of the Company or (b) a majority of the Board of Directors is replaced
within 12 months if not previously approved by a majority of the members. A
change in effective control also may occur in any transaction in which either of
the two corporations involved in the transaction has a Change in Control Event,
i.e. multiple change in control events.

3.  
Change in ownership of a substantial portion of the Company’s assets occurs when
a person or persons acting as a group acquires assets that have a total gross
fair market value equal to or more than 40 percent of the total gross fair
market value of all assets of the Company immediately prior to the acquisition.
A transfer of assets by the Company is not treated as a change in the ownership
of such assets if the assets are transferred to -

(i) A shareholder of the Company (immediately before the asset transfer) in
exchange for or with respect to its stock;
(ii) An entity, 50 percent or more of the total value or voting power of which
is owned, directly or indirectly, by the Company;
(iii) A person, or more than one person acting as a group, that owns, directly
or indirectly, 50 percent or more of the total value or voting power of all the
outstanding stock of the Company; or
(iv) An entity, at least 50 percent of the total value or voting power of which
is owned, directly or indirectly, by a person described in paragraph (iii).

Persons will not be considered to be acting as a group solely because they
purchase assets of the Company at the same time, or as a result of the same
public offering. However persons will be considered to be acting as a group if
they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of assets, or similar business transaction with the
Company.

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