Form of Notice of Performance Units


     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


      

    

    
      
        
          

        

      

    

    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%

              


      

      
        
          1

        

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. 


    
      
        2

      

    

     

    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.


    
      
        3

      

      
        
        

      

       

    


    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.


    


    
      
        
          4