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 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 Human Resources and Compensation Committee (“Committee”) of the Board. 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
Disability – Disability means totally and permanently disabled within the meaning of the Social Security Act, provided you either (a) qualified for disability insurance benefits under such Act, or (b) in the opinion of the organization that administers the Company’s disability plans, you have a disability which entitles you to such disability insurance benefits except for the fact that you do not have sufficient quarters of coverage or have not satisfied any age requirements under such law.
Performance Units – The Performance Units granted under this award are restricted stock units with performance-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”).
Performance Cycle – The Performance Cycle is a three-year period beginning on March 16, 2009 and ending on March 15, 2012.
Performance Measure –The Performance Measure is the Company’s annualized Total Stockholder Return over the Performance Cycle.
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.
Total Stockholder Return (“TSR”) – The Company’s cumulative annual stockholder returns, assuming reinvestment of all dividends on the date paid (assumed to be the ex-dividend date). The Company’s cumulative annual stockholder returns will be calculated based on the closing price of Common Stock on the last trading day immediately preceding the date of grant and the 60-day trailing average stock price of Common Stock prior to the last day of the Performance Cycle.
Vesting of Your Performance Units
The Company’s annualized TSR for the Performance Cycle shall determine whether the Performance Units granted pursuant to this award will vest. The minimum performance level to achieve 100% payout is 11.3% annualized TSR. If the annualized TSR is less than 11.3%, no portion of the Performance Unit award will vest and the Performance Units granted hereunder will be cancelled. The maximum payout amount is 100% of Performance Units granted if annualized TSR is 11.3% or greater. Within 2½ months following March 16, 2012 (the “Vesting Date”), the independent members of the Board shall approve the vesting of Performance Units, if any, based on achievement of the Performance Measure. The vested Performance Units shall be paid in shares of Common Stock as soon as practicable, but in no event later than 2½ months, after the Vesting Date.
You shall not be allowed to defer the payment of your shares of Common Stock to a later date.
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.
Employment Termination
If your employment terminates during the Performance Cycle because of Retirement, Disability or death, then you shall be entitled to a prorated number of the vested Performance Units determined as of the end of the Performance Cycle, and payable as specified above. 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.
The beneficiary listed on your J. C. Penney Company, Inc. Equity Plan Beneficiary Designation Form shall receive the vested shares covered by the Performance Unit award in the case of termination of employment due to death.
If your employment terminates for any reason other than Retirement, Disability or death, you shall forfeit any 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, your Performance Units shall vest and be payable in shares of Common Stock based on the 60-day trailing average stock price of Common Stock prior to the closing date of the Change of Control transaction. Such payment shall be made as soon as practicable after the closing date of the Change of Control transaction, but no later than the deadline for distribution specified in Section 7 of the Plan.
Taxes and Withholding
At the time your Performance Units vest and you are issued shares of Common Stock, 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. To the extent permitted by the Committee and applicable laws, regulations, or accounting rules at the time of vesting, 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 on the Vesting Date, or if the Exchange is closed on the Vesting Date, or if the Common Stock does not trade on such Vesting 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.
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.
