Document:

<PAGE>

                                                              Exhibit 10(ii)(au)

                AMENDMENTS TO MIRROR SAVINGS PLAN I, II and III

1.   Section 2.02 (Eligible Associate) of the J. C. Penney Company, Inc. Mirror
     Savings Plan III is amended effective August 1, 1999 to revise paragraph
     two to read as follows:

         An Associate shall not be designated as an Eligible Associate unless
     he (a) is employed with the Company at a position responsibility level of
     15 or above, or with an Employer at a comparable position responsibility
     level as determined by the Vice President and Director of Human Resources
     (or his successor by title or position) in his sole discretion and (b) is
     expected to have projected earnings of at least $100,000 for his first
     year of employment based on his Compensation as of his date of hire.

2.   Section 2.04 (Election to Defer) of the J. C. Penney Company, Inc. Mirror
     Savings Plan III is amended effective August 1, 1999 to revise subparagraph
     (b) of paragraph two and to add a new paragraph after subparagraph (c) of
     paragraph two to read as follows:

         (b)  For a Plan Year beginning after December 31, 1999, on or before
              the last day of the 30-day period ("election period") beginning on
              the Eligible Associate's date of hire and shall be effective on
              the first day of the next calendar month beginning after the end
              of the election period, or

         The election period described in (b) above shall begin on the date of
     the written offer to participate in the Plan if the Vice President and
     Director of Human Resources (or his successor by title or position)
     determines in his sole discretion that the Eligible Associate did not have
     adequate time after his date of hire to make an Election to Defer.

3.   Section 4.02 (Company Accounts) of the J. C. Penney Company, Inc. Mirror
     Savings Plans I and II is amended effective March 1, 2001 to delete the
     words "who has attained age 55 and is 100% vested in his Company Accounts
     under the Plan" from the first sentence.

4.   Section 7.03 (Death) of the J. C. Penney Company, Inc. Mirror Savings Plans
     I, II and III is amended effective January 1, 1999 for Plans I and II and
     August 1, 1999 for Plan Ill to restate the first two paragraphs to read as
     follows:

         The Beneficiary of a Participant who (1) has a Separation from Service
     because of death, or (2) dies after his Separation from Service but before
     receiving all of his vested Plan benefits shall be entitled to receive
<PAGE>

     the remaining annual installments to which the Participant was entitled as
     of the date of death. The first annual installment payable to the
     Beneficiary shall be paid in January following the Participant's date of
     death, or, if later, after satisfactory proof of death is received by the
     Plan Administrator. Each annual installment thereafter shall be paid in
     January of each year. Payment dates shall be determined by a Plan
     Administrator.

         A single-sum distribution shall be paid to the estate of the
     Participant if as of the date of death (1) no valid beneficiary designation
     by the Participant is on file with the Plan Administrator, or (2) the
     Beneficiary has predeceased the Participant, or (3) the Beneficiary has
     died within 30 days after the Participant's date of death.

5.   The J. C. Penney Company, Inc. Mirror Savings Plan III is amended effective
     August 1, 1999 to delete the words "Personnel and Compensation Committee"
     in each place in which they appear and to substitute therefor the words
     "Benefit Plans Review Committee" In each such place.<PAGE>

                                                              Exhibit 10(ii)(av)

                       AMENDMENT TO EMPLOYMENT AGREEMENT

     This Agreement amends that certain Employment Agreement dated August 1,
1999 ("Employment Agreement"), between J.C. Penney Company, Inc. a Delaware
corporation ("Employer") and Vanessa Castagna ("Employee"), and shall be
effective as of May 19, 2000 ("Effective Date").

1.   The second sentence of Section 5.1 of the Employment Agreement is amended
     to provide as follows:

     The Restricted Stock will be held in escrow and will be subject to
     forfeiture upon the termination of Employee's employment for any reason
     (subject to Section 7); provided however, that on the third, fifth, and
     sixth anniversaries of the Start Date, 14,333, 14,333, and 14,334
     (respectively) shares of Restricted Stock will no longer be subject to
     forfeiture and will be released from escrow.

2.   The following sentence is added to Section 5.1 of the Employment Agreement:

     In addition, on the Effective Date, the Employer will grant to the Employee
     100,000 shares of the Employer's common stock (the "2000 Restricted
     Stock"), to be held in escrow and subject to forfeiture upon termination of
     Employee's employment for any reason (subject to Section 7); provided
     however, that on each annual anniversary of the Effective Date, through and
     including May 19, 2004, 25,000 shares of 2000 Restricted Stock will no
     longer be subject to forfeiture and will be released from escrow.

3.   Section 7.5(i) is amended to add the following sentence at the end thereof:

          Notwithstanding the provisions of (4) above, during the Succession
          Severance Period (as defined herein), if the Employee's involuntary
          termination other than for Cause occurs during the six-month period
          following the date that a new Chief Executive Officer of the Company
          is in place, then the payment provided for in (4) above shall be
          increased from two times Grand Total Earnings to three times Grand
          Total Earnings. As used herein, the Succession Severance Period shall
          mean a period of one year beginning May 19, 2000; such Period may be
          extended for an additional one year if a new Chief Executive Officer
          is not in place and if the Board delivers written notice to Employee
          not less than thirty (30) days prior to May 19, 2001.

<PAGE>

                                  SCHEDULE A

                           CASTAGNA RESTRICTED STOCK
                      VESTING DATES AND NUMBERS OF SHARES
                      -----------------------------------

Date of Employment: August 1, 1999

                   May 19, 2001            25,000 shares
                   May 19, 2002            25,000 shares
                   August 1, 2002          14,333 shares
                   May 19, 2003            25,000 shares
                   May 19, 2004            25,000 shares
                   August 1, 2004          14,333 shares
                   August 1, 2005          14,334 shares

YEAR:              2001        2002         2003        2004        2005

SHARES VESTING     25,000      39,333       25,000      39,333      14,334

<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.

                                        J.C. PENNEY CO., INC.

                                        By:   /s/ James E. Oesterreicher
                                             ---------------------------------
                                              James E. Oesterreicher
                                              Its Chairman and Chief Executive
                                              Officer

                                        /s/ Vanessa Castagna
                                        --------------------------------------
                                        Vanessa Castagna<PAGE>

                                                              Exhibit 10(ii)(aw)

                       INCENTIVE COMPENSATION AGREEMENT
                       --------------------------------

     INCENTIVE COMPENSATION AGREEMENT (this "Agreement") dated as of January 2,
2001 by and between Gary L. Davis (the "Executive") and J.C. Penney Company,
Inc. (the "Company").

     WHEREAS, the Executive and the Company entered into a Succession Severance
Agreement, dated as of the date set forth on Appendix A hereto (as amended, the
"Succession Agreement"); and

     WHEREAS, the Executive, desiring to continue in the employment of the
Company, has agreed to cancel the Succession Agreement in exchange for the
incentive compensation and other benefits set forth herein, and

     WHEREAS, the Company also desires that the Executive continue in the employ
of the Company;

     NOW THEREFORE, in consideration of the representations, covenants and
mutual promises set forth in this Agreement (the sufficiency of which is hereby
acknowledged) and intending legally to be bound, it is hereby agreed as follows:

1)  Termination of Succession Agreement. Effective as of the date hereof, the
    -----------------------------------
    Succession Agreement is terminated and cancelled and shall be of no further
    force and effect and the Company and the Executive shall have no further
    rights or obligations under such agreement.

2)  Incentive Compensation Payments. In consideration of the termination of the
    -------------------------------
    Succession Agreement and the execution of this Agreement, the Executive
    shall be entitled to the compensation and benefits set forth in this Section
    2.

    a)  Restricted Stock Unit Grant. As of the date hereof, the Executive is
        ---------------------------
        hereby granted the number of restricted stock units (the "Restricted
        Stock Units") set forth on Appendix A hereto (the "Restricted Stock Unit
        Grant"), pursuant to the Company's 1997 Equity Compensation Plan (the
        "Plan"). Subject to the provisions hereof, the Restricted Stock Units
        shall become fully vested on December 31, 2003. Notwithstanding the
        foregoing, the Restricted Stock Units shall become fully vested on the
        date on which there occurs an "Acceleration Event" (as hereinafter
        defined). An Acceleration Event shall occur on such date, prior to
        December 31, 2003, as the Executive's employment with the Company
        terminates by reason of death or "Disability"
<PAGE>

        (as hereinafter defined), termination by the Company without Cause (as
        hereinafter defined), the Executive's retirement on or following the
        date set forth on Appendix A hereto, a termination of employment by the
        Executive for Good Reason (as hereinafter defined) or upon a change of
        control of the Company, as defined in the 1997 Equity Compensation Plan.
        Upon any other termination of the Executive's employment prior to
        December 31, 2003, the Restricted Stock Units shall be forfeited.
        Except as set forth herein, the terms and conditions applicable to the
        Restricted Stock Units shall be governed by the terms of the Plan and
        the standard agreement evidencing the grant of Restricted Stock Units
        pursuant to the Plan. As soon as practicable following the date upon
        which the Restricted Stock Units become fully vested (the "Vesting
        Date"), the Company shall issue to the Executive, in cancellation of the
        Restricted Stock Units, a number of shares of Company common stock equal
        to the number of Restricted Stock Units. Notwithstanding the foregoing,
        the Executive may elect to defer the receipt of such common stock until
        a date after December 31, 2003, provided that such election is made at
        least six months prior to the Vesting Date. Any such deferral shall be
        evidenced by a deferral agreement entered into by the Executive and the
        Company.

    b)  Stock Option Grant. As of the date hereof, the Executive is hereby
        ------------------
        granted a non-qualified stock option to purchase 50,000 shares of
        Company common stock (the "Option") pursuant to the Plan. The Option
        shall have a maximum term of ten years from the date hereof and shall
        have the per share exercise price set forth on Appendix A hereto.
        Subject to the provisions hereof, the Option shall vest and become
        exercisable on December 31, 2003. Notwithstanding the foregoing, the
        Option shall become fully vested and exercisable if, prior to December
        31, 2003, there occurs an Acceleration Event with respect to the
        Executive. Upon any termination of the Executive's employment prior to
        December 31, 2003, other than pursuant to an Acceleration Event, the
        Option shall be forfeited and in the event of a termination of the
        Executive's employment for Cause at any time prior to the expiration of
        the Option term, the unexercised portion of the Option shall be
        immediately forfeited. Following any termination of the Executive's
        employment after December 31, 2003, other than a termination for Cause,
        the Option shall remain exercisable for one year (but not beyond the
        expiration of the Option's term). The terms and conditions applicable to
        the Option shall otherwise be governed by the terms of the Plan and the
        standard agreement evidencing the grant of an Option pursuant to the
        Plan.

                                       2
<PAGE>

    c)  Bonus Payment. With respect to the Company's 2000 fiscal year, unless
        -------------
        the Executive is terminated for Cause prior to the payment date, the
        Executive shall receive a minimum cash bonus pursuant to the Company's
        EVAPP and 1989 Management Incentive Compensation Plan plans equal to 50%
        of the Executive's target award level for such year.

    d)  Make-Whole Payment. Except as otherwise provided herein, during the
        ------------------
        20-day period ending upon the earlier of(i) December 31, 2003 or (ii)
        the date upon which the Option becomes fully vested and exercisable
        (such earlier date being referred to hereinafter as the "Election
        Date"), the Executive shall be entitled to elect irrevocably to receive
        the Make-Whole Payment (as hereinafter defined). For purposes of this
        Section 2(d), the Make-Whole Payment shall equal the amount (if any) by
        which the Minimum Payout (as set forth on Appendix A hereto) exceeds the
        aggregate fair market value (as defined in the Plan) of the shares of
        Company common stock represented by the Restricted Stock Unit Grant,
        measured as of the Election Date. The Executive shall not be entitled to
        elect to receive the Make-Whole Payment if, prior to the Election Date,
        the Executive's employment with the Company is terminated other than
        pursuant to an Acceleration Event or the Executive has exercised any
        portion of the Option. An election by the Executive to receive the Make-
        Whole Payment shall result in the immediate cancellation of the Option
        and the Executive agrees that he will have no further rights with
        respect to the Option following such election.

    e)  Pension Guarantee. Following (i) any termination of Executive's
        -----------------
        employment by the Company other than a termination for Cause, (ii) a
        termination of employment by the Executive for Good Reason or (iii) a
        termination of employment by the Executive for any reason after the
        retirement date noted on Appendix A, the Company agrees to pay the
        Executive an additional monthly pension supplement if, and to the extent
        that, the aggregate monthly pension payments (expressed as a life
        annuity commencing at age 60) for which the Executive is eligible
        pursuant to the Company's qualified and non-qualified pension plans (the
        JCPenney Pension Plan, Supplemental Retirement Plan, and Benefits
        Restoration Plan) following such termination are less than the monthly
        pension payment set forth on Appendix A hereto. The payment to the
        Executive of the pension supplement described in the preceding sentence
        shall commence immediately upon termination of the Executive's
        employment in a manner which qualifies the Executive for the pension
        supplement.

                                       3
<PAGE>

3)  Certain Definitions. For purposes of this Agreement only (i) "Cause" means
    -------------------
    that the Executive (A) has been convicted of a felony involving theft or
    moral turpitude, or (B) has engaged in conduct that constitutes willful
    gross neglect or willful gross misconduct with respect to his employment
    duties, which, in either case, results in, or can reasonably be expected to
    result in, material economic harm to the Company, (ii) "Disability" means
    that the Executive is disabled within the meaning of the Company's long-term
    disability policy and (iii) the Executive shall be entitled to terminate his
    employment for "Good Reason" within thirty days following (a) any reduction
    in the Executive's current base salary or (b) any reduction in the aggregate
    annual bonus opportunity available to the Executive under the Company's
    incentive bonus plans and arrangements (except for across-the-board
    reductions in annual bonus opportunity similarly affecting all senior
    executives of the Company).

4)  Tax Withholding. The Company may withhold from amounts or benefits due or
    ---------------
    shares issuable hereunder to the Executive such amounts as are required to
    satisfy applicable withholding obligations.

5)  Successors. This Agreement is personal to the Executive and, without the
    ----------
    prior written consent of the Company, shall not be assignable by the
    Executive otherwise than by will or the laws of descent and distribution.
    This Agreement shall inure to the benefit of and be enforceable by the
    Executive's legal representatives. This Agreement shall inure to the benefit
    of and be binding upon the Company and its successors and assigns. The
    Company shall require any successor (whether direct or indirect, by
    purchase, merger, consolidation or otherwise) to all or substantially all of
    the business and/or assets of the Company expressly to assume and agree to
    perform this Agreement in the same manner and to the same extent that the
    Company would have been required to perform it if no such succession had
    taken place. As used in this Agreement, the "Company" shall mean both the
    Company as defined above and any such successor that assumes and agrees to
    perform this Agreement, by operation of law or otherwise.

6)  Miscellaneous.
    -------------

    a)  The Executive and the Company agree that nothing contained in this
        Agreement shall confer any rights to continued employment upon the
        Executive or alter the Executive's status as an "at-will" employee of
        the Company.

                                       4
<PAGE>

    b)  This Agreement may not be altered, amended, or modified except by
        written instrument executed by the Company and the Executive. A waiver
        of any term, covenant, agreement or condition contained in this
        Agreement shall not be deemed a waiver of any other term, covenant,
        agreement or condition and any waiver of any default in any such term,
        covenant, agreement or condition shall not be deemed a waiver of any
        later default thereof or of any other term, covenant, agreement or
        condition.

    c)  This Agreement may be executed in several counterparts, each of which
        shall be deemed to be an original, but all of which together will
        constitute one and the same instrument.

    d)  This Agreement (including Appendix A hereto) forms the entire agreement
        between the parties hereto with respect to with respect to the subject
        matter contained in the Agreement. This Agreement shall supersede all
        prior agreements, promises, and representations regarding severance or
        other payments contingent upon termination of employment, whether in
        writing or otherwise, including, without limitation, the Succession
        Agreement. The Executive agrees that, in the event that the Executive's
        employment with the Company terminates pursuant to an Acceleration
        Event, the Executive shall not be entitled to severance payments under
        any severance plan, program or arrangement maintained by the Company,
        notwithstanding anything to the contrary in any such plan, program or
        arrangement.

    e)  All notices and other communications under this Agreement shall be in
        writing and shall be given by hand delivery to the other party or by
        registered or certified mail, return receipt requested, postage prepaid,
        addressed as follows:

                (a) If to the Executive:

                (b) To the address set forth on Appendix A hereto

                (c) If to the Company:

                (d) J. C. Penney Company, Inc.
                (e) 6501 Legacy Drive
                (f) Plano, Texas 75024-3699
                (g) Attention: Director of Human Resources and Administration

                                       5
<PAGE>

        ii)  or to such other address as either party furnishes to the other in
             writing in accordance with this paragraph (e) of Section 6. Notices
             and communications shall be effective when actually received by the
             addressee.

    f)  Notwithstanding anything to the contrary contained herein, in connection
        with any termination of the Executive's employment or in connection with
        the payment of benefits under Section 2(d) hereof, the Executive and the
        Company agree to execute a customary mutual release from liability and
        it is understood that the payment of benefits pursuant to Section 2(d)
        or 2(e) hereof, as applicable, are conditioned upon the execution of
        such release.

    g)  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 Dallas, 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 the Executive. 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.

    h)  The captions of this Agreement are not part of the provisions hereof and
        shall not have any force or effect.

    i)  The provisions of this Agreement shall be interpreted and construed in
        accordance with the laws of the State of Texas, without regard to its
        choice of law principles.

                                      6
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates specified below.

                                        J.C. PENNEY COMPANY, INC.

                                        /s/ Allen Questrom
                                        ---------------------------------
                                        Name:  Allen Questrom
                                        Title: Chief Executive Officer

                                        /s/ Gary L. Davis
                                        ---------------------------------
                                        Gary L. Davis

                                       7
<PAGE>

                                  Appendix A

Date of Succession Agreement           May 18, 2000

Restricted Stock Units                 96,406

Approved Retirement Date               June 30, 2002

Option Exercise Price                  $10.85 per share

Minimum Payout                         $2,092,008

Succession Agreement Pension           $30,746.97

Executive's Address:                   [intentionally omitted]

                                       8
<PAGE>

                       INCENTIVE COMPENSATION AGREEMENT
                       --------------------------------

     INCENTIVE COMPENSATION AGREEMENT (this "Agreement") dated as of January 2,
2001 by and between Charles R. Lotter (the "Executive") and J.C. Penney Company,
Inc. (the "Company").

     WHEREAS, the Executive and the Company entered into a Succession Severance
Agreement, dated as of the date set forth on Appendix A hereto (as amended, the
"Succession Agreement"); and

     WHEREAS, the Executive, desiring to continue in the employment of the
Company, has agreed to cancel the Succession Agreement in exchange for the
incentive compensation and other benefits set forth herein, and

     WHEREAS, the Company also desires that the Executive continue in the employ
of the Company;

     NOW THEREFORE, in consideration of the representations, covenants and
mutual promises set forth in this Agreement (the sufficiency of which is hereby
acknowledged) and intending legally to be bound, it is hereby agreed as follows:

1)  Termination of Succession Agreement. Effective as of the date hereof, the
    -----------------------------------
    Succession Agreement is terminated and cancelled and shall be of no further
    force and effect and the Company and the Executive shall have no further
    rights or obligations under such agreement.

2)  Incentive Compensation Payments. In consideration of the termination of the
    -------------------------------
    Succession Agreement and the execution of this Agreement, the Executive
    shall be entitled to the compensation and benefits set forth in this Section
    2.

    a)  Restricted Stock Unit Grant. As of the date hereof, the Executive is
        ---------------------------
        hereby granted the number of restricted stock units (the "Restricted
        Stock Units") set forth on Appendix A hereto (the "Restricted Stock Unit
        Grant"), pursuant to the Company's 1997 Equity Compensation Plan (the
        "Plan"). Subject to the provisions hereof, the Restricted Stock Units
        shall become fully vested on December 31, 2003. Notwithstanding the
        foregoing, the Restricted Stock Units shall become fully vested on the
        date on which there occurs an "Acceleration Event" (as hereinafter
        defined). An Acceleration Event shall
<PAGE>

        occur on such date, prior to December 31, 2003, as the Executive's
        employment with the Company terminates by reason of death or
        "Disability" (as hereinafter defined), termination by the Company
        without Cause (as hereinafter defined), the Executive's retirement on or
        following the date set forth on Appendix A hereto, a termination of
        employment by the Executive for Good Reason (as hereinafter defined) or
        upon a change of control of the Company, as defined in the 1997 Equity
        Compensation Plan. Upon any other termination of the Executive's
        employment prior to December 31, 2003, the Restricted Stock Units shall
        be forfeited. Except as set forth herein, the terms and conditions
        applicable to the Restricted Stock Units shall be governed by the terms
        of the Plan and the standard agreement evidencing the grant of
        Restricted Stock Units pursuant to the Plan. As soon as practicable
        following the date upon which the Restricted Stock Units become fully
        vested (the "Vesting Date"), the Company shall issue to the Executive,
        in cancellation of the Restricted Stock Units, a number of shares of
        Company common stock equal to the number of Restricted Stock Units.
        Notwithstanding the foregoing, the Executive may elect to defer the
        receipt of such common stock until a date after December 31, 2003,
        provided that such election is made at least six months prior to the
        Vesting Date. Any such deferral shall be evidenced by a deferral
        agreement entered into by the Executive and the Company.

    b)  Stock Option Grant. As of the date hereof, the Executive is hereby
        ------------------
        granted a non-qualified stock option to purchase 50,000 shares of
        Company common stock (the "Option") pursuant to the Plan. The Option
        shall have a maximum term of ten years from the date hereof and shall
        have the per share exercise price set forth on Appendix A hereto.
        Subject to the provisions hereof, the Option shall vest and become
        exercisable on December 31, 2003. Notwithstanding the foregoing, the
        Option shall become fully vested and exercisable if, prior to December
        31, 2003, there occurs an Acceleration Event with respect to the
        Executive. Upon any termination of the Executive's employment prior to
        December 31, 2003, other than pursuant to an Acceleration Event, the
        Option shall be forfeited and in the event of a termination of the
        Executive's employment for Cause at any time prior to the expiration of
        the Option term, the unexercised portion of the Option shall be
        immediately forfeited. Following any termination of the Executive's
        employment after December 31, 2003, other than a termination for Cause,
        the Option shall remain exercisable for one year (but not beyond the
        expiration of the Option's term). The terms and conditions applicable to
        the Option shall

                                       2

<PAGE>

        otherwise be governed by the terms of the Plan and the standard
        agreement evidencing the grant of an Option pursuant to the Plan.

    c)  Bonus Payment. With respect to the Company's 2000 fiscal year, unless
        -------------
        the Executive is terminated for Cause prior to the payment date, the
        Executive shall receive a minimum cash bonus pursuant to the Company's
        EVAPP and 1989 Management Incentive Compensation Plan plans equal to 50%
        of the Executive's target award level for such year.

    d)  Make-Whole Payment. Except as otherwise provided herein, during the
        ------------------
        20-day period ending upon the earlier of (i) December 31, 2003 or (ii)
        the date upon which the Option becomes fully vested and exercisable
        (such earlier date being referred to hereinafter as the "Election
        Date"), the Executive shall be entitled to elect irrevocably to receive
        the Make-Whole Payment (as hereinafter defined). For purposes of this
        Section 2(d), the Make-Whole Payment shall equal the amount (if any) by
        which the Minimum Payout (as set forth on Appendix A hereto) exceeds the
        aggregate fair market value (as defined in the Plan) of the shares of
        Company common stock represented by the Restricted Stock Unit Grant,
        measured as of the Election Date. The Executive shall not be entitled to
        elect to receive the Make-Whole Payment if, prior to the Election Date,
        the Executive's employment with the Company is terminated other than
        pursuant to an Acceleration Event or the Executive has exercised any
        portion of the Option. An election by the Executive to receive the Make-
        Whole Payment shall result in the immediate cancellation of the Option
        and the Executive agrees that he will have no further rights with
        respect to the Option following such election.

    e)  Pension Guarantee. Following (i) any termination of Executive's
        -----------------
        employment by the Company other than a termination for Cause, (ii) a
        termination of employment by the Executive for Good Reason or (iii) a
        termination of employment by the Executive for any reason after the
        retirement date noted on Appendix A, the Company agrees to pay the
        Executive an additional monthly pension supplement if, and to the extent
        that, the aggregate monthly pension payments (expressed as a life
        annuity commencing at age 60) for which the Executive is eligible
        pursuant to the Company's qualified and non-qualified pension plans (the
        JCPenney Pension Plan, Supplemental Retirement Plan, and Benefits
        Restoration Plan) following such termination are less than the monthly
        pension payment set forth on Appendix A hereto. The payment to the
        Executive of the pension supplement described in the

                                       3
<PAGE>

        preceding sentence shall commence immediately upon termination of the
        Executive's employment in a manner which qualifies the Executive for the
        pension supplement.

3)  Certain Definitions. For purposes of this Agreement only (i) "Cause" means
    -------------------
    that the Executive (A) has been convicted of a felony involving theft or
    moral turpitude, or (B) has engaged in conduct that constitutes willful
    gross neglect or willful gross misconduct with respect to his employment
    duties, which, in either case, results in, or can reasonably be expected to
    result in, material economic harm to the Company, (ii) "Disability" means
    that the Executive is disabled within the meaning of the Company's long-term
    disability policy and (iii) the Executive shall be entitled to terminate his
    employment for "Good Reason" within thirty days following (a) any reduction
    in the Executive's current base salary or (b) any reduction in the aggregate
    annual bonus opportunity available to the Executive under the Company's
    incentive bonus plans and arrangements (except for across-the-board
    reductions in annual bonus opportunity similarly affecting all senior
    executives of the Company).

4)  Tax Withholding. The Company may withhold from amounts or benefits due or
    ---------------
    shares issuable hereunder to the Executive such amounts as are required to
    satisfy applicable withholding obligations.

5)  Successors. This Agreement is personal to the Executive and, without the
    ----------
    prior written consent of the Company, shall not be assignable by the
    Executive otherwise than by will or the laws of descent and distribution.
    This Agreement shall inure to the benefit of and be enforceable by the
    Executive's legal representatives. This Agreement shall inure to the benefit
    of and be binding upon the Company and its successors and assigns. The
    Company shall require any successor (whether direct or indirect, by
    purchase, merger, consolidation or otherwise) to all or substantially all of
    the business and/or assets of the Company expressly to assume and agree to
    perform this Agreement in the same manner and to the same extent that the
    Company would have been required to perform it if no such succession had
    taken place. As used in this Agreement, the "Company" shall mean both the
    Company as defined above and any such successor that assumes and agrees to
    perform this Agreement, by operation of law or otherwise.

                                       4
<PAGE>

6)  Miscellaneous.
    -------------

    a)  The Executive and the Company agree that nothing contained in this
        Agreement shall confer any rights to continued employment upon the
        Executive or alter the Executive's status as an "at-will" employee of
        the Company.

    b)  This Agreement may not be altered, amended, or modified except by
        written instrument executed by the Company and the Executive. A waiver
        of any term, covenant, agreement or condition contained in this
        Agreement shall not be deemed a waiver of any other term, covenant,
        agreement or condition and any waiver of any default in any such term,
        covenant, agreement or condition shall not be deemed a waiver of any
        later default thereof or of any other term, covenant, agreement or
        condition.

    c)  This Agreement may be executed in several counterparts, each of which
        shall be deemed to be an original, but all of which together will
        constitute one and the same instrument.

    d)  This Agreement (including Appendix A hereto) forms the entire agreement
        between the parties hereto with respect to with respect to the subject
        matter contained in the Agreement. This Agreement shall supersede all
        prior agreements, promises, and representations regarding severance or
        other payments contingent upon termination of employment, whether in
        writing or otherwise, including, without limitation, the Succession
        Agreement. The Executive agrees that, in the event that the Executive's
        employment with the Company terminates pursuant to an Acceleration
        Event, the Executive shall not be entitled to severance payments under
        any severance plan, program or arrangement maintained by the Company,
        notwithstanding anything to the contrary in any such plan, program or
        arrangement.

    e)  All notices and other communications under this Agreement shall be in
        writing and shall be given by hand delivery to the other party or by
        registered or certified mail, return receipt requested, postage prepaid,
        addressed as follows:

                (a)  If to the Executive:

                (b)  To the address set forth on Appendix A hereto

                                       5
<PAGE>

                (c) If to the Company:

                (d) J. C. Penney Company, Inc.
                (e) 6501 Legacy Drive
                (f) Plano, Texas 75024-3699
                (g) Attention: Director of Human Resources and Administration

        ii)  or to such other address as either party furnishes to the other in
             writing in accordance with this paragraph (e) of Section 6. Notices
             and communications shall be effective when actually received by the
             addressee.

    f)  Notwithstanding anything to the contrary contained herein, in connection
        with any termination of the Executive's employment or in connection with
        the payment of benefits under Section 2(d) hereof, the Executive and the
        Company agree to execute a customary mutual release from liability and
        it is understood that the payment of benefits pursuant to Section 2(d)
        or 2(e) hereof, as applicable, are conditioned upon the execution of
        such release.

    g)  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 Dallas, 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 the Executive. 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.

    h)  The captions of this Agreement are not part of the provisions hereof and
        shall not have any force or effect.

    i)  The provisions of this Agreement shall be interpreted and construed in
        accordance with the laws of the State of Texas, without regard to its
        choice of law principles.

                                       6
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates specified below.

                                        J.C. PENNEY COMPANY, INC.

                                        /s/ Allen Questrom
                                        --------------------------------
                                        Name:  Allen Questrom
                                        Title: Chief Executive Officer

                                        /s/ Charles R. Lotter
                                        --------------------------------
                                        Charles R. Lotter

                                       7

<PAGE>

                                  Appendix A

Date of Succession Agreement         May 18, 2000

Restricted Stock Units               125,050

Approved Retirement Date             June 30, 2002

Option Exercise Price                $10.85 per share

Minimum Payout                       $2,713,566

Succession Agreement Pension         $27,193.86

Executive's Address:                 [intentionally omitted]

                                       8
<PAGE>

                       INCENTIVE COMPENSATION AGREEMENT
                       --------------------------------

     INCENTIVE COMPENSATION AGREEMENT (this "Agreement") dated as of January 2,
2001 by and between Michael W. Taxter (the "Executive") and J.C. Penney Company,
Inc. (the "Company").

     WHEREAS, the Executive and the Company entered into a Succession Severance
Agreement, dated as of the date set forth on Appendix A hereto (as amended, the
"Succession Agreement"); and

     WHEREAS, the Executive, desiring to continue in the employment of the
Company, has agreed to cancel the Succession Agreement in exchange for the
incentive compensation and other benefits set forth herein, and

     WHEREAS, the Company also desires that the Executive continue in the
employ of the Company;

     NOW THEREFORE, in consideration of the representations, covenants and
mutual promises set forth in this Agreement (the sufficiency of which is hereby
acknowledged) and intending legally to be bound, it is hereby agreed as follows:

1)  Termination of Succession Agreement. Effective as of the date hereof, the
    -----------------------------------
    Succession Agreement is terminated and cancelled and shall be of no further
    force and effect and the Company and the Executive shall have no further
    rights or obligations under such agreement.

2)  Incentive Compensation Payments. In consideration of the termination of the
    -------------------------------
    Succession Agreement and the execution of this Agreement, the Executive
    shall be entitled to the compensation and benefits set forth in this Section
    2.

    a)  Restricted Stock Unit Grant. As of the date hereof, the Executive is
        ---------------------------
        hereby granted the number of restricted stock units (the "Restricted
        Stock Units") set forth on Appendix A hereto (the "Restricted Stock Unit
        Grant"), pursuant to the Company's 1997 Equity Compensation Plan (the
        "Plan"). Subject to the provisions hereof, the Restricted Stock Units
        shall become fully vested on December 31, 2003. Notwithstanding the
        foregoing, the Restricted Stock Units shall become fully vested on the
        date on which there occurs an "Acceleration Event" (as hereinafter
        defined). An Acceleration Event shall occur on such date, prior to
        December 31, 2003, as the Executive's employment with the Company
        terminates by reason of death or "Disability"
<PAGE>

        (as hereinafter defined), termination by the Company without Cause (as
        hereinafter defined), the Executive's retirement on or following the
        date set forth on Appendix A hereto, a termination of employment by the
        Executive for Good Reason (as hereinafter defined) or upon a change of
        control of the Company, as defined in the 1997 Equity Compensation Plan.
        Upon any other termination of the Executive's employment prior to
        December 31, 2003, the Restricted Stock Units shall be forfeited.
        Except as set forth herein, the terms and conditions applicable to the
        Restricted Stock Units shall be governed by the terms of the Plan and
        the standard agreement evidencing the grant of Restricted Stock Units
        pursuant to the Plan. As soon as practicable following the date upon
        which the Restricted Stock Units become fully vested (the "Vesting
        Date"), the Company shall issue to the Executive, in cancellation of the
        Restricted Stock Units, a number of shares of Company common stock equal
        to the number of Restricted Stock Units. Notwithstanding the foregoing,
        the Executive may elect to defer the receipt of such common stock until
        a date after December 31, 2003, provided that such election is made at
        least six months prior to the Vesting Date. Any such deferral shall be
        evidenced by a deferral agreement entered into by the Executive and the
        Company.

    b)  Stock Option Grant. As of the date hereof, the Executive is hereby
        ------------------
        granted a non-qualified stock option to purchase 50,000 shares of
        Company common stock (the "Option") pursuant to the Plan. The Option
        shall have a maximum term of ten years from the date hereof and shall
        have the per share exercise price set forth on Appendix A hereto.
        Subject to the provisions hereof, the Option shall vest and become
        exercisable on December 31, 2003. Notwithstanding the foregoing, the
        Option shall become fully vested and exercisable if, prior to December
        31, 2003, there occurs an Acceleration Event with respect to the
        Executive. Upon any termination of the Executive's employment prior to
        December 31, 2003, other than pursuant to an Acceleration Event, the
        Option shall be forfeited and in the event of a termination of the
        Executive's employment for Cause at any time prior to the expiration of
        the Option term, the unexercised portion of the Option shall be
        immediately forfeited. Following any termination of the Executive's
        employment after December 31, 2003, other than a termination for Cause,
        the Option shall remain exercisable for one year (but not beyond the
        expiration of the Option's term). The terms and conditions applicable to
        the Option shall otherwise be governed by the terms of the Plan and the
        standard agreement evidencing the grant of an Option pursuant to the
        Plan.

                                       2
<PAGE>

    c)  Bonus Payment. With respect to the Company's 2000 fiscal year, unless
        -------------
        the Executive is terminated for Cause prior to the payment date, the
        Executive shall receive a minimum cash bonus pursuant to the Company's
        EVAPP and 1989 Management Incentive Compensation Plan plans equal to 50%
        of the Executive's target award level for such year.

    d)  Make-Whole Payment. Except as otherwise provided herein, during the
        ------------------
        20-day period ending upon the earlier of (i) December 31, 2003 or (ii)
        the date upon which the Option becomes fully vested and exercisable
        (such earlier date being referred to hereinafter as the "Election
        Date"), the Executive shall be entitled to elect irrevocably to receive
        the Make-Whole Payment (as hereinafter defined). For purposes of this
        Section 2(d), the Make-Whole Payment shall equal the amount (if any) by
        which the Minimum Payout (as set forth on Appendix A hereto) exceeds the
        aggregate fair market value (as defined in the Plan) of the shares of
        Company common stock represented by the Restricted Stock Unit Grant,
        measured as of the Election Date. The Executive shall not be entitled to
        elect to receive the Make-Whole Payment if, prior to the Election Date,
        the Executive's employment with the Company is terminated other than
        pursuant to an Acceleration Event or the Executive has exercised any
        portion of the Option. An election by the Executive to receive the Make-
        Whole Payment shall result in the immediate cancellation of the Option
        and the Executive agrees that he will have no further rights with
        respect to the Option following such election.

               e)  Pension Guarantee. Following (i) any termination of
                   ------- ---------
                  Executive's employment by the Company other than a termination
                  for Cause, (ii) a termination of employment by the Executive
                  for Good Reason or (iii) a termination of employment by the
                  Executive for any reason after December 31, 2003, the
                  Company agrees to pay the Executive an additional monthly
                  pension supplement if, and to the extent that, the aggregate
                  monthly pension payments (expressed as a life annuity
                  commencing at age 60) for which the Executive is eligible
                  pursuant to the Company's qualified and non-qualified pension
                  plans (the JCPenney Pension Plan, Supplemental Retirement
                  Plan, and Benefits Restoration Plan) following such
                  termination are less than the monthly pension payment set
                  forth on Appendix A hereto. The payment to the Executive of
                  the pension supplement described in the preceding sentence
                  shall commence immediately upon termination of the Executive's
                  employment in a manner which qualifies the Executive for the
                  pension supplement.

                                       3
<PAGE>

3)  Certain Definitions. For purposes of this Agreement only (i) "Cause" means
    -------------------
    that the Executive (A) has been convicted of a felony involving theft or
    moral turpitude, or (B) has engaged in conduct that constitutes willful
    gross neglect or willful gross misconduct with respect to his employment
    duties, which, in either case, results in, or can reasonably be expected to
    result in, material economic harm to the Company, (ii) "Disability" means
    that the Executive is disabled within the meaning of the Company's long-term
    disability policy and (iii) the Executive shall be entitled to terminate his
    employment for "Good Reason" within thirty days following (a) any reduction
    in the Executive's current base salary or (b) any reduction in the aggregate
    annual bonus opportunity available to the Executive under the Company's
    incentive bonus plans and arrangements (except for across-the-board
    reductions in annual bonus opportunity similarly affecting all senior
    executives of the Company).

4)  Tax Withholding. The Company may withhold from amounts or benefits due or
    ---------------
    shares issuable hereunder to the Executive such amounts as are required to
    satisfy applicable withholding obligations.

5)  Successors. This Agreement is personal to the Executive and, without the
    ----------
    prior written consent of the Company, shall not be assignable by the
    Executive otherwise than by will or the laws of descent and distribution.
    This Agreement shall inure to the benefit of and be enforceable by the
    Executive's legal representatives. This Agreement shall inure to the benefit
    of and be binding upon the Company and its successors and assigns. The
    Company shall require any successor (whether direct or indirect, by
    purchase, merger, consolidation or otherwise) to all or substantially all of
    the business and/or assets of the Company expressly to assume and agree to
    perform this Agreement in the same manner and to the same extent that the
    Company would have been required to perform it if no such succession had
    taken place. As used in this Agreement, the "Company" shall mean both the
    Company as defined above and any such successor that assumes and agrees to
    perform this Agreement, by operation of law or otherwise.

6)  Miscellaneous.
    -------------

    a)  The Executive and the Company agree that nothing contained in this
        Agreement shall confer any rights to continued employment upon the
        Executive or alter the Executive's status as an "at-will" employee of
        the Company.

                                       4
<PAGE>

    b)  This Agreement may not be altered, amended, or modified except by
        written instrument executed by the Company and the Executive. A waiver
        of any term, covenant, agreement or condition contained in this
        Agreement shall not be deemed a waiver of any other term, covenant,
        agreement or condition and any waiver of any default in any such term,
        covenant, agreement or condition shall not be deemed a waiver of any
        later default thereof or of any other term, covenant, agreement or
        condition.

    c)  This Agreement may be executed in several counterparts, each of which
        shall be deemed to be an original, but all of which together will
        constitute one and the same instrument.

    d)  This Agreement (including Appendix A hereto) forms the entire agreement
        between the parties hereto with respect to with respect to the subject
        matter contained in the Agreement. This Agreement shall supersede all
        prior agreements, promises, and representations regarding severance or
        other payments contingent upon termination of employment, whether in
        writing or otherwise, including, without limitation, the Succession
        Agreement. The Executive agrees that, in the event that the Executive's
        employment with the Company terminates pursuant to an Acceleration
        Event, the Executive shall not be entitled to severance payments under
        any severance plan, program or arrangement maintained by the Company,
        notwithstanding anything to the contrary in any such plan, program or
        arrangement.

    e)  All notices and other communications under this Agreement shall be in
        writing and shall be given by hand delivery to the other party or by
        registered or certified mail, return receipt requested, postage prepaid,
        addressed as follows:

                (a) If to the Executive:

                (b) To the address set forth on Appendix A hereto

                (c) If to the Company:

                (d) J. C. Penney Company, Inc.
                (e) 6501 Legacy Drive
                (f) Plano, Texas 75024-3699
                (g) Attention: Director of Human Resources and Administration

                                       5
<PAGE>

        ii)  or to such other address as either party furnishes to the other in
             writing in accordance with this paragraph (e) of Section 6. Notices
             and communications shall be effective when actually received by the
             addressee.

    f)  Notwithstanding anything to the contrary contained herein, in connection
        with any termination of the Executive's employment or in connection with
        the payment of benefits under Section 2(d) hereof, the Executive and the
        Company agree to execute a customary mutual release from liability and
        it is understood that the payment of benefits pursuant to Section 2(d)
        or 2(e) hereof, as applicable, are conditioned upon the execution of
        such release.

    g)  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 Dallas, 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 the Executive. 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.

    h)  The captions of this Agreement are not part of the provisions hereof and
        shall not have any force or effect.

    i)  The provisions of this Agreement shall be interpreted and construed in
        accordance with the laws of the State of Texas, without regard to its
        choice of law principles.

                                       6
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates specified below.

                                        J.C. PENNEY COMPANY, INC.

                                        /s/ Allen Questrom
                                        ---------------------------------
                                        Name: Allen Questrom
                                        Title: Chief Executive Officer

                                        /s/ Michael W. Taxter
                                        ---------------------------------
                                        Michael W. Taxter          1/8/01

                                       7
<PAGE>

                                  Appendix A

Date of Succession Agreement       May 18, 2000

Restricted Stock Units             96,775

Approved Retirement Date           June 30, 2011

Option Exercise Price              $10.85 per share

Minimum Payout                     $2,100,003

Succession Agreement Pension       $10,112.74

Executive's Address:               [intentionally omitted]

                                       8

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