<PAGE>
                                                              EXHIBIT 10(ii)(ab)






                            INDEMNIFICATION AGREEMENT

                                      among

                           J. C. PENNEY COMPANY, INC.,

                         J. C. PENNEY CORPORATION, INC.

                                       and

                            ________________________

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<S>                                                                               <C>
1.   Services to the Companies .................................................   6

2.   Indemnification ...........................................................   6

3.   Partial Indemnification ...................................................  12

4.   Determination of Entitlement to Indemnification Pursuant to Section 2(a). .  12

5.   Advancement of Costs and Expenses. ........................................  21

6.   Other Rights to Indemnification ...........................................  23

7.   Interval Protection Against Premature Enforcement .........................  24

8.   Trust Fund ................................................................  26

9.   Enforcement. ..............................................................  28

10.  Duration of Agreement. ....................................................  29

11.  Severability ..............................................................  31

12.  Identical Counterparts ....................................................  31

13.  Headings ..................................................................  32

14.  Modification and Waiver ...................................................  32

15.  Notification and Defense of Claim .........................................  32

16.  Notices ...................................................................  33

17.  Governing Law .............................................................  34
</TABLE>

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                            INDEMNIFICATION AGREEMENT
                            -------------------------

     This INDEMNIFICATION AGREEMENT made and entered into as of the _____ day of
________ 2002 ("Agreement") by and among J. C. PENNEY COMPANY, INC., a Delaware
corporation, J. C. PENNEY CORPORATION, INC., a Delaware corporation (formerly
known as J. C. Penney Company, Inc., and now a wholly-owned subsidiary of J. C.
Penney Company, Inc.) (J. C. Penney Company, Inc. and J. C. Penney Corporation,
Inc. herein collectively called the "Companies"), and
__________________________________ ("INDEMNITEE"):

     WHEREAS, competent and experienced persons are becoming more reluctant to
serve as directors or officers of publicly-held corporations unless they are
provided with adequate protection against claims and actions against them for
their activities on behalf or at the request of such corporations, generally
through insurance and indemnification; and

     WHEREAS, uncertainties in the interpretations of the statutes and
regulations, laws and public policies relating to indemnification of corporate
directors and officers are such as to make adequate, reliable assessment of the
risks to which directors and officers of publicly held corporations may be
exposed difficult, particularly in light of the proliferation of lawsuits
against directors and officers; and

                                       1

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     WHEREAS, the Boards of Directors of the Companies, based upon their
business experience, have concluded that the continuation of present trends in
litigation against corporate directors and officers will inevitably make it more
difficult for the Companies to attract and retain directors and officers of the
highest degree of competence committed to the active and effective direction and
supervision of the business and affairs of the Companies and their subsidiaries
and affiliates and the operation of their facilities, and the Boards deem such
consequences to be so detrimental to the best interests of the Companies'
stockholders that they have concluded that the Companies should act to provide
their directors and officers with enhanced protection against inordinate risks
attendant on their positions in order to assure that the most capable persons
otherwise available will be attracted to such positions and, in such connection,
said directors have further concluded that it is not only reasonable and prudent
but necessary for the Companies to contractually obligate themselves to
indemnify to the fullest extent permitted by applicable law their directors and
certain of their officers and certain persons serving other entities at the
request, or on behalf, of the Companies and to assume, to the maximum extent
permitted by applicable law, financial responsibility for expenses and
liabilities which might be incurred by such individuals in connection with
claims lodged against them for their decisions and actions in such capacities;
and

                                       2

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     WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, under which law the Companies are organized, empowers a corporation
organized in Delaware to indemnify persons who serve as directors, officers,
employees or agents of the corporation or persons who serve at the request of
the corporation as directors, officers, employees or agents of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, and further specifies that the indemnification provided by said
section "shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise", and further empowers a
corporation to "purchase and maintain insurance" on behalf of such persons
"against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of" said laws; and

     WHEREAS, the Bylaws of the Companies permit indemnification in accordance
with and to the full extent permitted by the laws of the State of Delaware, and
resolutions adopted by the Board of Directors of J. C. Penney Corporation, Inc.
on December 30, 1975, require that directors, officers and employees of the
Companies acting as fiduciaries (within the meaning of the Employee Retirement
Income Security Act of 1974) with respect to any of the Companies' employee
benefit and welfare plans be indemnified in accordance with the

                                       3

<PAGE>

terms set forth in said resolution; and

     WHEREAS, the Companies have (i) reviewed the type of insurance available to
insure the directors and officers of the Companies and of their affiliates
against costs, expenses (including attorneys' fees and disbursements),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding to
which they are, or are threatened to be made, a party by reason of their status
and/or decisions or actions in such positions, (ii) studied the nature and
extent of the coverage provided by such insurance and the cost thereof to the
Companies, (iii) purchased such insurance to the extent reasonably available,
and (iv) concluded, notwithstanding the purchase of such insurance to the extent
reasonably available, that it would be in the best interests of the Companies
and their stockholders for the Companies to enter into agreements to indemnify
certain of such persons in the form of this Agreement, inasmuch as such
insurance is, and is likely to continue to be, subject to certain significant
exclusions and limitations or could cease to be reasonably available on any
basis; and

     WHEREAS, to further assure that the directors and officers of the Companies
and persons serving other entities at the request, or on behalf, of the
Companies will obtain the protections contemplated by this Agreement,
notwithstanding future uncertainties, the Companies have concluded that it would
be in the best interests of

                                       4

<PAGE>

the stockholders for such contractual indemnification to be supported by a trust
fund to be established by the Companies; and

     WHEREAS, the Companies desire to have INDEMNITEE serve or continue to serve
as a director or officer of J. C. Penney Company, Inc. and/or J. C. Penney
Corporation, Inc., and/or as a director, officer, employee, partner, trustee,
agent or fiduciary of such other corporations, partnerships, joint ventures,
employee benefit plans, trusts or other enterprises (herein collectively called
"Company Affiliate") of which he or she has been or is serving, or will serve,
at the request of or for the convenience of or to represent the interests of the
Companies, free from undue concern for unpredictable, inappropriate or
unreasonable claims for damages by reason of his or her being a director or
officer of the Companies or a director, officer, employee, partner, trustee,
agent or fiduciary of a Company Affiliate or by reason of his or her decisions
or actions on their behalf; and

     WHEREAS, INDEMNITEE is willing to serve, or to continue to serve, or to
take on additional service for, J. C. Penney Company, Inc. and/or J. C. Penney
Corporation, Inc., and/or the Company Affiliates in such aforesaid capacities on
the condition that he or she be indemnified as provided for herein;

     NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Companies and INDEMNITEE do hereby covenant and agree as
follows:

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     1. Services to the Companies. INDEMNITEE will serve and/or continue to
        -------------------------
serve as a director and/or officer of either or both of the Companies (in the
case of an officer of either or both, at the will of J. C. Penney Company, Inc.
and/or J. C. Penney Corporation, Inc., as applicable, or under separate
contract, if any such contract exists or shall hereafter exist) and/or as a
director, officer, employee, partner, trustee, agent or fiduciary of a Company
Affiliate faithfully and to the best of his or her ability so long as he or she
is duly elected and qualified in accordance with the provisions of the Bylaws or
other applicable constitutive documents thereof; provided that INDEMNITEE may at
any time and for any reason resign from such position (subject to any
contractual obligations which INDEMNITEE shall have assumed apart from this
Agreement) and further provided that neither the Companies nor any Company
Affiliate shall have any obligation under this Agreement to continue the
INDEMNITEE in any such position.

     2. Indemnification.
        ---------------

          (a) Except as otherwise expressly provided in this Agreement or
     prohibited by applicable law, the Companies, within 60 days (or such longer
     period, if any, as may be permitted by Section 4(a) hereof) after receipt
     of a written statement from INDEMNITEE requesting indemnification and
     reasonably evidencing the costs, expenses, judgments, penalties, fines and
     amounts in settlement incurred by him or

                                       6

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     her, shall, in accordance with the applicable provisions of this Agreement,
     fully indemnify INDEMNITEE if INDEMNITEE is or was made a party or is
     threatened to be made a party to any Proceeding (as hereinafter defined) by
     reason of the fact that he or she is or was a director, officer, employee,
     agent or fiduciary of the Companies or is or was serving at the request of
     or for the convenience of or to represent the interests of either or both
     of the Companies as a director, officer, employee, partner, trustee, agent
     or fiduciary of a Company Affiliate, or by reason of anything done or not
     done by him or her in any such capacity (all of the foregoing reasons being
     herein collectively called "Qualifying Reasons"), against costs, expenses
     (including attorneys' fees and disbursements), judgments, penalties, fines
     and amounts in settlement incurred by him or her in connection with such
     Proceeding (including, but not limited to, the investigation, defense,
     settlement, or appeal thereof). In the event that both the foregoing
     sentence and Section 2(b) hereof would be applicable to the indemnification
     being sought, the provisions of Section 2(b) shall govern. For purposes of
     this Agreement, (i) a "Proceeding" shall mean any threatened, pending or
     completed investigation, action, suit, arbitration, alternate dispute
     resolution mechanism, or any other proceeding (including any appeals
     therefrom), whether civil, criminal, administrative or investigative in
     nature and whether in a court or arbitration, or before or involving a
     governmental, administrative or

                                       7

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     private entity (including, but not limited to, an investigation initiated
     by either or both of the Companies, a Company Affiliate, or the Board of
     Directors or fiduciaries of any thereof), (ii) references to "fines" shall
     include any excise taxes assessed on INDEMNITEE with respect to any
     employee benefit or welfare plan, and (iii) references to "serving at the
     request of either or both of the Companies" shall include, without
     limitation, any service, while serving as a director, officer, employee,
     partner, trustee, agent or fiduciary of either or both of the Companies or
     any Company Affiliate which imposes duties on, or involves services by,
     INDEMNITEE with respect to any employee benefit or welfare plan of either
     or both of the Companies or any Company Affiliate, its participants or
     beneficiaries.

          (b) Notwithstanding any other provision of this Agreement (except as
     set forth in Section 2(c) hereof), and without a requirement for any
     determination as described in Section 4(a) hereof, to the extent INDEMNITEE
     (i) has prepared to serve or has served as a witness in any Proceeding in
     any way relating to either or both of the Companies, any Company Affiliate,
     any affiliate (as defined in Rule 405 under the Securities Act of 1933, as
     amended) of either or both of the Companies ("Securities Act Affiliate"),
     any associate (as defined in said Rule 405) of either or both of the
     Companies or of any Securities Act Affiliate or Company Affiliate, or
     anything done or not done by INDEMNITEE as a director,

                                       8

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     officer, employee, partner, trustee, agent, or fiduciary of either or both
     of the Companiesor any Company Affiliate or (ii) has been successful on the
     merits or otherwise (including, without limitation, the dismissal of an
     action without prejudice) in defense of any Proceeding arising out of a
     Qualifying Reason, or in the defense of any claim, issue or matter involved
     therein, whether in the final adjudication, arbitration or alternate
     dispute resolution mechanism or on appeal, the Companies shall fully
     indemnify him or her against costs and expenses (including attorneys' fees
     and disbursements) incurred by him or her in connection therewith
     (including, but not limited to, the preparation or service as a witness or
     the investigation, defense or appeal in connection with any such
     Proceeding) within 30 days after receipt by the Companies from INDEMNITEE
     of a statement requesting such indemnification, reasonably evidencing the
     expenses and costs so incurred by him or her and averring that they do not
     relate to matters of the type described in clauses (i) or (ii) of Section
     2(c) hereof.

          (c) Notwithstanding anything to the contrary in the foregoing
     provisions of this Section 2 (and except as provided in the proviso clause
     of this sentence), INDEMNITEE shall not be entitled, as a matter of right,
     to indemnification pursuant to this Section 2: (i) except as provided in
     Section 4(e) or 9 hereof, against costs and expenses incurred in connection
     with any Proceeding commenced by INDEMNITEE against either or both

                                       9

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     of the Companies, any Company Affiliate, any Securities Act Affiliate, or
     any person who is or was a director or officer, in his or her respective
     capacity as such, of the Companies, any Company Affiliate or any Securities
     Act Affiliate; or (ii) against costs and expenses incurred by INDEMNITEE in
     connection with preparing to serve or serving, prior to a Change in Control
     (as defined in Section 4(d)(i) hereof), as a witness in cooperation with
     any party or entity, who or which has threatened or commenced any
     Proceeding against either or both of the Companies, any Company Affiliate
     or Securities Act Affiliate, or any director, officer, employee, partner,
     trustee, agent or fiduciary of any thereof in his or her respective
     capacity as such; or (iii) to the extent that INDEMNITEE has theretofore
     received payment pursuant to any directors and officers liability insurance
     policy maintained by either or both of the Companies; provided, however,
     that indemnification may be provided by either or both of the Companies in
     any specific case as contemplated by Section 6 hereof notwithstanding the
     applicability of the foregoing clause (i) or (ii).

          (d) In the event that INDEMNITEE is serving or has served as a
     Representative (as such term is defined in Section 4(a) of the
     Indemnification Trust Agreement attached hereto as Exhibit I), then,
     notwithstanding any other provision of this Agreement, and without a
     requirement for any determination as described in Section 4(a) hereof,
     either or both of the

                                       10

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     Companies, within 30 days after receipt of a statement from INDEMNITEE
     requesting indemnification and reasonably evidencing the costs, expenses,
     judgments, penalties, fines and amounts in settlement incurred by him or
     her, shall fully indemnify INDEMNITEE if INDEMNITEE is or was made a party
     or is threatened to be made a party to any Proceeding by reason of the fact
     that he or she is or was such a Representative or by reason of anything
     done or not done by him or her in such capacity, against costs, expenses
     (including attorneys' fees and disbursements), judgments, penalties, fines,
     and amounts in settlement, incurred by him or her in connection with such
     Proceeding, provided that no indemnification shall be made with respect to
     (and INDEMNITEE shall state in his or her request that he or she is not
     seeking indemnification with respect to) any cost, expense, judgment,
     penalty, fine or amount in settlement as to which there has been a final
     judicial determination that such amount was incurred as a direct result of
     willful misconduct in the course of INDEMNITEE's service as a
     Representative.

          (e) Notwithstanding any other provision of this Agreement,
     indemnification shall also be made to the extent that the Court of Chancery
     of the State of Delaware or the court in which a Proceeding was brought
     shall determine that INDEMNITEE is fairly and reasonably entitled to
     indemnification for such costs and expenses as such court shall deem
     proper.

                                       11

<PAGE>

     3. Partial Indemnification. If INDEMNITEE is only partially successful in
        -----------------------
     the defense of any Proceeding arising out of a Qualifying Reason, or in the
     defense of any claim, issue or matter involved therein, whether in the
     initial adjudication, arbitration or alternate dispute resolution mechanism
     or on appeal, either or both of the Companies shall nevertheless indemnify
     INDEMNITEE, as a matter of right pursuant to Section 2(b) hereof, to the
     extent INDEMNITEE has been partially successful.

     4. Determination of Entitlement to Indemni-
        ----------------------------------------
        fication Pursuant to Section 2(a).
        ---------------------------------

        (a) Upon written request by INDEMNITEE for indemnification pursuant to
     the first sentence of Section 2(a) hereof, a determination, if required by
     Delaware law, with respect to INDEMNITEE's entitlement thereto shall be
     made not later than 60 days (provided that such 60 day period can be
     extended for an additional reasonable time if (x) the Companies pursuant to
     a request by INDEMNITEE have provided timely, continuous and effective
     Interval Protection (as defined in Section 7 hereof) and (y) the Companies
     in good faith require such additional time for the obtaining or evaluating
     of documentation reasonably available to INDEMNITEE) after the Companies
     shall have received such request (i) if a Change in Control (as hereinafter
     defined) shall have occurred, by Independent Counsel (as hereinafter
     defined) (unless INDEMNITEE shall make a request which is

                                       12

<PAGE>

     timely under the circumstances that such determination be made by the Board
     of Directors or stockholders, in which case pursuant to clause (ii)(A) or
     (ii)(C) of this Section 4(a) as requested by INDEMNITEE) in a written
     opinion to the Board of Directors, a copy of which (including each prior
     draft thereof) shall be simultaneously delivered to INDEMNITEE, and (ii) in
     all other cases (A) by the Board of Directors of J. C. Penney Company, Inc.
     by a majority vote of a quorum consisting of Disinterested Directors (as
     hereinafter defined), or (B) if such a quorum is not obtainable or, even if
     obtainable, if the Board of Directors by the majority vote of Disinterested
     Directors so directs, by Independent Counsel in a written opinion to the
     Board of Directors, a copy of which shall be simultaneously delivered to
     INDEMNITEE or (C) by the stockholders of J. C. Penney Company, Inc. The
     General Counsel(s) of the Companies shall, promptly upon receipt of
     INDEMNITEE's request for indemnification, advise the Boards of Directors in
     writing that INDEMNITEE has made such request for indemnification.
     INDEMNITEE shall cooperate with the person or entity making such
     determination of INDEMNITEE's entitlement to indemnification, including
     providing to such person or entity upon reasonable advance request any
     documentation or information reasonably available to INDEMNITEE and
     necessary to such determination. Any costs or expenses (including
     attorneys' fees and disbursements) incurred by INDEMNITEE in so cooperating
     with the person or

                                       13

<PAGE>

     entity making such determination shall be borne by the Companies
     (irrespective of the determination as to INDEMNITEE's entitlement to
     indemnification pursuant to Section 2(a) hereof) and the Companies hereby
     indemnify and agree to hold INDEMNITEE harmless therefrom.

          (b) In making a determination of entitlement pursuant to Section 4(a)
     or 4(e) hereof, the person or entity making such determination shall
     presume that INDEMNITEE is entitled to indemnification pursuant to Section
     2(a) hereof and that the Companies have the burden of proof in the making
     of any determination contrary to such presumption. If no determination
     pursuant to Section 4(a) hereof is made within 60 days (or such longer
     period, if any, as may be permitted by Section 4(a) hereof) of the
     Companies' receipt of the request therefor, the requisite determination of
     entitlement to indemnification shall be deemed to have been made and
     INDEMNITEE shall be absolutely entitled to such indemnification, absent (i)
     a misstatement of a material fact in the request for indemnification or an
     omission of a material fact necessary to make the statements in such
     request not materially misleading with respect to the information necessary
     for the determination of entitlement to indemnification or (ii) a
     prohibition of such indemnification under applicable law.

          (c) The termination of any Proceeding by judgment, order, settlement
     or conviction, or upon a plea of nolo
                                      ----

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     contendere or its equivalent, shall not, in and of itself, affect the
     ----------
     rights of INDEMNITEE to indemnification or the presumptions to which
     INDEMNITEE is otherwise entitled pursuant to the provisions of this
     Agreement.

          (d) For purposes of this Agreement:

               (i) "Change in Control" shall mean a change in control of J. C.
          Penney Company, Inc. of a nature that would be required to be reported
          in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
          response to any similar item on any similar schedule or form)
          promulgated under the Securities Exchange Act of 1934 ("Act"), whether
          or not J. C. Penney Company, Inc. is then subject to such reporting
          requirement; provided, however, that, without limitation, such a
          Change in Control shall be deemed to have occurred (irrespective of
          the applicability of the initial clause of this definition) if (A) any
          "person" (as such term is used in Sections 13(d) and 14(d) of the Act,
          but excluding any employee benefit plan or employee stock plan of J.
          C. Penney Company, Inc. or any subsidiary of J. C. Penney Company,
          Inc., or any entity organized, appointed, established or holding
          securities of J. C. Penney Company, Inc. with voting power for or
          pursuant to the terms of any such plan) is or becomes the "beneficial
          owner" (as defined in Rule 13d-3 under the Act), directly or
          indirectly, of securities of J. C. Penney Company, Inc. representing
          35%

                                       15

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          or more of the combined voting power of J. C. Penney Company Inc.'s
          then outstanding securities without the prior approval of at least
          two-thirds of the members of the Board of Directors of J. C. Penney
          Company, Inc. in office immediately prior to such person's attaining
          such interest; (B) J. C. Penney Company, Inc. is a party to a merger,
          consolidation, sale of assets or other reorganization, or a proxy
          contest, as a consequence of which members of the Board of Directors
          of J. C. Penney Company, Inc. in office immediately prior to such
          transaction or event constitute less than a majority of the Board of
          Directors of J. C. Penney Company, Inc. thereafter; or (C) during any
          period of two consecutive years, individuals who at the beginning of
          such period constituted the Board of Directors of J. C. Penney
          Company, Inc. (including for this purpose any new director whose
          election or nomination for election by J. C. Penney Company, Inc.'s
          stockholders was approved by a vote of at least two-thirds of the
          directors then still in office who were directors at the beginning of
          such period) cease for any reason to constitute at least a majority of
          the Board of Directors of J. C. Penney Company, Inc.

               (ii) "Disinterested Director" with respect to any request by
          INDEMNITEE for indemnification hereunder shall mean a director of J.
          C. Penney Company, Inc. who neither

                                       16

<PAGE>

          is nor was a party to the Proceeding in respect of which
          indemnification is being sought by INDEMNITEE.

               (iii) "Independent Counsel" shall mean a law firm or a member of
          a law firm (A) that neither is nor in the past five years has been
          retained to represent in any material matter the Companies, or any
          Securities Act Affiliate, or INDEMNITEE or any other party to the
          Proceeding giving rise to a claim for indemnification hereunder and
          (B) which, under applicable standards of professional conduct then
          prevailing, would not have a conflict of interest in representing
          either of the Companies or INDEMNITEE in an action to determine
          INDEMNITEE's right to indemnification under this Agreement and (C)
          that is reasonably acceptable to the Companies and INDEMNITEE. For
          purposes hereof, counsel shall not be deemed to represent any
          government or governmental entity which may have commenced any
          Proceeding or be asserting any claim against INDEMNITEE solely by
          reason of having represented any department, commission, authority,
          subdivision or public benefit corporation of or created by such
          government or governmental entity which is a party to such Proceeding
          or before which it is being prosecuted or which is making any such
          claim. In the event that the parties are unable to agree on the
          selection of Independent Counsel, such counsel shall be selected by
          lot from among the Delaware

                                       17

<PAGE>

          law firms generally reputed to be experienced in corporate law and
          having more than 25 attorneys or New York City law firms generally
          reputed to be experienced in corporate law and having more than 150
          attorneys and having, in each case, a rating of "av" or better in the
          then current Martindale-Hubbell Law Directory. Such selection shall be
          made in the presence of INDEMNITEE (or his or her representative), and
          the parties shall contact, in the order of their selection by lot,
          such law firms, requesting each such firm to accept an engagement to
          make the determination required hereunder until one of such firms
          accepts such engagement. The fees and expenses of counsel in
          connection with making any determination contemplated hereunder
          (irrespective of the determination as to INDEMNITEE's entitlement to
          indemnification) shall be paid by either or both of the Companies and,
          if requested by such counsel, either or both of the Companies shall
          promptly give such counsel an appropriate written agreement with
          respect to the payment of its fees and expenses and such other matters
          as may be reasonably requested by such counsel.

          (e) In the event that pursuant to Section 4(a) hereof a determination
     is made that INDEMNITEE shall not be entitled to indemnification hereunder
     in respect of all or any part of a claim made by INDEMNITEE therefor,
     INDEMNITEE shall nevertheless be entitled, at his or her option, to a final

                                       18

<PAGE>

     adjudication or may seek an award in arbitration regarding his or her
     entitlement to indemnification hereunder in respect of such claim. In the
     event INDEMNITEE seeks adjudication, INDEMNITEE shall initially commence,
     within 180 days from INDEMNITEE's receipt of notice that he or she is not
     entitled to indemnification, an appropriate action in an appropriate court
     of the State of Delaware or any other court of competent jurisdiction. In
     the event INDEMNITEE seeks an award in arbitration, such arbitration, which
     shall be conducted in Wilmington, Delaware or in New York, New York, shall
     be initiated by INDEMNITEE within 180 days from INDEMNITEE's receipt of
     notice that he or she is not entitled to indemnification, shall be
     conducted by a single arbitrator who is a member of a firm that would
     qualify as an Independent Counsel hereunder pursuant to the commercial
     arbitration rules of the American Arbitration Association, and the
     arbitrator shall notify the parties of his or her decision within 60 days
     following the initiation of such arbitration. The Companies hereby agree to
     be bound by the determination of such arbitrator and shall bear all fees,
     costs and expenses imposed by the American Arbitration Association on
     account of such proceeding, irrespective of the determination thereof. The
     Companies further unconditionally and irrevocably agree that their
     execution of this Agreement shall also constitute a stipulation by which
     they shall be irrevocably bound in any court or arbitration in which such
     proceeding shall have been

                                       19

<PAGE>

     commenced, continued or appealed that (i) they shall not oppose
     INDEMNITEE's right to seek or obtain any such adjudication or award in
     arbitration or any other claim by reason of any prior determination made
     pursuant to this Agreement with respect to INDEMNITEE's right to
     indemnification under this Agreement on such claim or any other claim, or,
     except in good faith, raise any objections not specifically relating to the
     merits of INDEMNITEE's claim; (ii) for all purposes of this Agreement any
     such adjudication or arbitration shall be conducted de novo and without
     prejudice by reason of any such prior determination to the effect that
     INDEMNITEE is not entitled to indemnification; and (iii) it shall be bound
     by all provisions of this Agreement (including, but not limited to,
     Sections 4(b) and 4(c) hereof). Whether or not the court or arbitrator
     shall determine that INDEMNITEE is entitled to indemnification hereunder as
     to any costs, expenses (including attorneys' fees and disbursements),
     judgments, penalties, fines or amounts in settlement in respect of any
     claim, issue or matter involved in the Proceeding in respect of which
     indemnification is sought hereunder, either or both of the Companies shall
     within 30 days after written request therefor (and submission of reasonable
     evidence of the nature and amount thereof), and unless there is a specific
     judicial finding that INDEMNITEE's suit was frivolous, pay all costs and
     expenses (including attorneys' fees and disbursements) incurred by
     INDEMNITEE in

                                       20

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     connection with such adjudication or arbitration (including, but not
     limited to, any appellate proceedings).

          (f) If the person or entity (including the Board of Directors of J. C.
     Penney Company, Inc., Independent Counsel, stockholders, court or
     arbitrator) making the determination as to the entitlement of INDEMNITEE to
     indemnification hereunder shall determine that INDEMNITEE is not entitled
     to indemnification in respect of all claims, issues or matters involved in
     a Proceeding in respect of which indemnification is sought hereunder but is
     entitled to indemnification for some of such claims, issues or matters,
     such person or entity shall equitably allocate such costs, expenses
     (including attorneys' fees and disbursements), judgments, penalties, fines
     and amounts in settlement incurred in connection with such Proceeding among
     the claims, issues or matters involved therein and determine those for
     which INDEMNITEE shall be indemnified hereunder.

     5.   Advancement of Costs and Expenses.
          ---------------------------------

          (a) All costs and expenses (including attorneys' fees, retainers and
     advances of disbursements required of INDEMNITEE) incurred by INDEMNITEE in
     preparing to serve or serving as a witness in a Proceeding of the type
     described in clause (i) of Section 2(b) hereof, or in investigating,
     defending or appealing any Proceeding relating to a Qualifying Reason (and
     not excluded by clause (i) or (ii) of Section 2(c)

                                       21

<PAGE>

     (as modified by the proviso clause contained in such Section)) or arising
     in connection with service as a Representative, or in connection with an
     adjudication or award in arbitration pursuant to Section 4(e) hereof, or
     relating to a Proceeding described in or arising pursuant to Section 9
     hereof, shall be paid by either or both of the Companies (in advance of the
     final disposition of such Proceeding) at the request of INDEMNITEE within
     20 days after the receipt from time to time by either or both of the
     Companies from INDEMNITEE of a statement or statements requesting such
     advance or advances, reasonably evidencing the expenses and costs incurred
     by him or her in connection therewith and averring that they do not relate
     to matters described in the aforesaid clause (i) or (ii) of Section 2(c),
     together with a written undertaking by INDEMNITEE to repay such amount if
     it is ultimately determined (in a final adjudication or conclusion of an
     arbitration pursuant to Section 4(e) hereof, if INDEMNITEE elects to seek
     such an adjudication or arbitration, and otherwise in a determination, if
     required hereunder, pursuant to Section 4(a) hereof) that INDEMNITEE is not
     entitled to be indemnified against such costs and expenses by the Companies
     as provided by this Agreement (or, if INDEMNITEE has sought advances (i)
     pursuant to Section 4(e) or 9 hereof, if there is a specific judicial
     finding that INDEMNITEE's suit was frivolous or (ii) in his capacity as a
     Representative, if there is a final judicial determination of willful
     misconduct in the matter

                                       22

<PAGE>

     giving rise to the Proceeding as to which he or she obtained an advance or
     advances).

          (b) If and to the extent it is finally determined hereunder that
     INDEMNITEE is not entitled to indemnification, or is entitled only to
     partial indemnification, INDEMNITEE shall reimburse the Companies for all
     costs and expenses advanced or prepaid pursuant to INDEMNITEE's prior
     request or requests hereunder, or the proper proportion thereof, as the
     case may be, within 90 days after receipt of an itemized written statement
     therefor from the Companies, provided that INDEMNITEE shall have no
     obligation to reimburse the Companies for any of INDEMNITEE's costs and
     expenses relating to (i) cooperating with the Companies in making their
     determination, as provided in Section 4(a) hereof, (ii) an adjudication or
     arbitration of his or her entitlement to indemnification hereunder, as
     provided in Section 4(e) hereof or (iii) a Proceeding described in or
     arising under Section 9 hereof (unless, in the case of the foregoing clause
     (ii) or (iii) there is a specific judicial finding that INDEMNITEE's suit
     was frivolous).

     6.   Other Rights to Indemnification. The indemnification and advancement
          -------------------------------
of costs and expenses (including attorneys' fees and disbursements) provided by
this Agreement shall not be deemed exclusive of any other rights to which
INDEMNITEE may now or in the future be entitled under any provision of
applicable law, the

                                       23

<PAGE>

Restated Certificates of Incorporation or any Bylaw of the Companies or any
other agreement or any vote of directors or stockholders or otherwise, whether
as to action in his or her official capacity or in another capacity while
occupying any of the positions or having any of the relationships referred to in
Section 2 of this Agreement.

     7.   Interval Protection Against Premature Enforcement.
          -------------------------------------------------

     During the interval between the Companies' receipt of INDEMNITEE's request
for indemnification and the latest to occur of (a) payment in full to INDEMNITEE
of the indemnification to which he or she is entitled hereunder, or (b) a
determination (if required) pursuant to Section 4(a) hereof or a final
adjudication or conclusion of an arbitration pursuant to Section 4(e) hereof (if
INDEMNITEE elects to seek such an adjudication or arbitration) that INDEMNITEE
is not entitled to indemnification hereunder (or, if INDEMNITEE has sought
indemnification in his or her capacity as a Representative, a final judicial
determination of willful misconduct in the matter giving rise to the Proceeding
as to which he or she is seeking indemnification), the Companies shall provide
"Interval Protection" which, for purposes of this Agreement, shall mean the
taking of the necessary steps (whether or not such steps require expenditures to
be made by the Companies at that time) to stay, pending a final determination of
INDEMNITEE's entitlement to indemnification (and, if INDEMNITEE is so entitled,
the payment thereof), the execution, enforcement or collection of any judgments,
penalties, fines or any other amounts for which INDEMNITEE may be

                                       24

<PAGE>

liable (and as to which INDEMNITEE has requested indemnification hereunder) in
order to avoid INDEMNITEE's being or becoming in default with respect to any
such amounts (such necessary steps to include, but not be limited to, the
procurement of a surety bond to achieve such stay or the loan to INDEMNITEE of
amounts necessary to satisfy the judgments, penalties, fines or other amounts
for which INDEMNITEE may be liable and as to which a stay of execution as
aforesaid cannot be obtained, the Boards of Directors by their approval of the
form of the Indemnification Agreement (as hereinafter defined) having made the
judgment that, in general, such loan or similar assistance may reasonably be
expected to benefit the Companies), within three days after receipt of
INDEMNITEE's written request therefor, together with a written undertaking by
INDEMNITEE to repay, no later than 90 days following receipt of a statement
therefor from the Companies, amounts (if any) expended by the Companies for such
purpose, if it is ultimately determined (in a final adjudication or conclusion
of an arbitration pursuant to Section 4(e) hereof, if INDEMNITEE elects to seek
such an adjudication or arbitration, and otherwise in a determination (if
required) pursuant to Section 4(a) hereof) that INDEMNITEE is not entitled to be
indemnified against such judgments, penalties, fines or other amounts (or, if
INDEMNITEE has sought Interval Protection in his or her capacity as a
Representative, if there is a final judicial determination of willful misconduct
in the matter giving rise to the Proceeding as to which he obtained Interval
Protection), provided that in no event shall the Companies pay the amount of any

                                       25

<PAGE>

such judgment, penalty, fine or other amount except pursuant to Section 2, 4 (if
applicable) or 6 hereof.

     8.  Trust Fund. In order to provide some assurance of payment to INDEMNITEE
         ----------
and all other directors and officers of the Companies who, prior to a Change in
Control, have executed or will execute agreements substantially similar to this
Agreement (together with this Agreement, collectively referred to herein as
"Indemnification Agreements") of amounts to which they may become entitled
hereunder (including, but not limited to, advances and Interval Protection), the
Companies shall (a) have executed and delivered a trust agreement in
substantially the form of Exhibit I hereto ("Indemnification Trust Agreement")
with the bank named therein or with any other bank in the United States having a
capital and surplus of at least $500 million as shown in its most recently
published financial statements as trustee ("Trustee") and (b) have deposited not
less than $5 million in cash to be held in trust by the Trustee pursuant to the
terms and conditions of the Indemnification Trust Agreement ("Trust").
Thereafter, subject to the provisions of the Indemnification Trust Agreement,
the Companies shall from time to time fund the Trust with such additional
amounts in cash as may be necessary so that the total amount held in trust
thereunder shall not, at any time, be less than the sum of $5 million plus such
additional amounts as may from time to time be required by the Indemnification
Trust Agreement, provided, however, that if such Trust shall have terminated in
accordance with its

                                       26

<PAGE>

terms prior to the termination of this Agreement, the Companies shall fund a new
trust for the benefit of the INDEMNITEES (as defined in the Indemnification
Trust Agreement), established upon substantially the same terms as the Trust,
and funded to the same extent as would have been required if the Trust had not
terminated. As more fully set forth in the Indemnification Trust Agreement, if
the Companies shall fail to pay INDEMNITEE any indemnification or advances or
provide Interval Protection to which INDEMNITEE is or shall become entitled
pursuant to this Agreement, INDEMNITEE shall have the right to payment thereof
from the Trust, upon INDEMNITEE's submission to the Trustee of a notice
requesting any such payment, enclosing reasonable evidence of the amount to be
so paid, stating under oath that (i) INDEMNITEE has requested and is entitled to
such payment pursuant to the provisions of this Agreement, (ii) the Companies
have failed to provide such payment and (iii) INDEMNITEE has not received such
payment pursuant to any directors and officers liability insurance policy
maintained by the Companies, and including in such notice an undertaking to
repay such amounts to the Trust if any of the statements in the foregoing clause
(i), (ii) or (iii) are ultimately determined not to be true. Upon termination of
the Trust pursuant to the provisions of Section 7 of the Indemnification Trust
Agreement, any funds then remaining in the Trust, after the distributions
provided for in the Indemnification Trust Agreement, shall (unless required for
the funding of a new trust as aforesaid) revert to the Companies.

                                       27

<PAGE>

     9.   Enforcement.
          -----------

          (a) The Companies unconditionally and irrevocably agree that their
     execution of this Agreement shall also constitute a stipulation by which
     they shall be irrevocably bound in any court or arbitration in which a
     proceeding by INDEMNITEE for enforcement of his or her rights shall have
     been commenced, continued or appealed that their obligations set forth in
     this Agreement are unique and special, and that failure of the Companies to
     comply with the provisions of this Agreement will cause irreparable and
     irremediable injury to INDEMNITEE, for which a remedy at law will be
     inadequate. As a result, in addition to any other right or remedy he may
     have at law or in equity with respect to a violation of this Agreement,
     INDEMNITEE shall be entitled to injunctive or mandatory relief directing
     specific performance by the Companies of their obligations under this
     Agreement, including without limitation the Companies' obligations
     regarding the establishment, re-establishment and funding of one or more
     trusts in accordance with Section 8 hereof. The Companies further
     irrevocably stipulate and agree that (i) they shall not, except in good
     faith, raise any objections not specifically relating to the merits of
     INDEMNITEE's claim, (ii) if a determination was made or deemed to have been
     made pursuant to the provisions of Section 4 hereof that INDEMNITEE is
     entitled to indemnification, the Companies shall be bound by such

                                       28

<PAGE>

     determination and shall be precluded from asserting that such determination
     has not been made or that the procedure by which such determination was
     made is not valid, binding and enforceable, and (iii) the Companies shall
     be bound, in any such proceeding, by all provisions of this Agreement
     (including, but not limited to, Sections 4(b) and 4(c) hereof).

          (b) In the event that INDEMNITEE is subject to or intervenes in any
     legal action in which the validity or enforceability of this Agreement is
     at issue or institutes any legal action, for specific performance or
     otherwise, to enforce his or her rights under, or to recover damages for
     breach of, this Agreement, INDEMNITEE shall, within 30 days after written
     request to the Companies therefor (and submission of reasonable evidence of
     the amount thereof), and unless there is a specific judicial finding that
     INDEMNITEE's suit was frivolous, be indemnified by the Companies against
     all costs and expenses (including attorneys' fees and disbursements)
     incurred by him or her in connection therewith.

     10.  Duration of Agreement.
          ---------------------

          (a) This Agreement shall continue until and terminate upon the later
     of (i) the tenth anniversary after INDEMNITEE has ceased to occupy any of
     the positions or have any of the relationships described in Section 2(a) of
     this Agreement or (ii) (A) the final termination or resolution of all
     Proceedings

                                       29

<PAGE>

     with respect to INDEMNITEE commenced during such 10 year period and (B)
     either (x) receipt by INDEMNITEE of the indemnification to which he or she
     is entitled hereunder with respect thereto or (y) a final adjudication or
     binding arbitration that INDEMNITEE is not entitled to any further
     indemnification with respect thereto, as the case may be, provided that
     (subject to the exception set forth below), in the event that (1) the Board
     of Directors of J. C. Penney Corporation, Inc., in its discretion,
     determines to submit the Indemnification Agreements for stockholder
     ratification at J. C. Penney Company's 1987 Annual Meeting of Stockholders
     and (2) the stockholders fail to ratify the Indemnification Agreements at
     said Annual Meeting, then this Agreement shall terminate as of the close of
     business on the date of the certification (by the inspectors of election
     for said Annual Meeting) of said vote; except that this Agreement shall not
     terminate on such date pursuant to the foregoing proviso with respect to
     claims which have arisen (whether or not asserted) against INDEMNITEE prior
     to the close of business on such date, but shall continue in full force and
     effect until the occurrence of either of the events set forth in the
     foregoing clauses (x) and (y) of this paragraph (a) with respect to such
     claims.

          (b) This Agreement shall be binding upon the Companies and their
     successors and assigns and shall inure to the benefit of INDEMNITEE and his
     or her heirs, devisees, executors, administrators or other legal
     representatives.

                                      30

<PAGE>

     11.   Severability. If any provision or provisions of this Agreement or the
           ------------
Indemnification Trust Agreement shall be held to be invalid, illegal or
unenforceable under any particular circumstances or for any reason whatsoever
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement and the Indemnification Trust Agreement (including, without
limitation, all other portions of any Section, paragraph or clause of this
Agreement or the Indemnification Trust Agreement that contains any provision
that has been found to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable), or the validity, legality or
enforceability under any other circumstances shall not in any way be affected or
impaired thereby and (b) to the fullest extent possible consistent with
applicable law, the provisions of this Agreement and the Indemnification Trust
Agreement (including, without limitation, all other portions of any Section,
paragraph or clause of this Agreement or the Indemnification Trust Agreement
that contains any such provision that has been found to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement and the Indemnification Trust Agreement (including
the provision held invalid, illegal or unenforceable).

     12.   Identical Counterparts. This Agreement may be executed in one or more
           ----------------------
counterparts, each of which shall for all purposes be

                                       31

<PAGE>

deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

     13. Headings. The headings of the paragraphs of this Agreement are inserted
         --------
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.

     14. Modification and Waiver. No supplement, modification or amendment of
         -----------------------
this Agreement shall be binding unless executed in writing by all of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.

     15. Notification and Defense of Claim. INDEMNITEE agrees to promptly notify
         ---------------------------------
the Companies in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any matter
which may be subject to indemnification covered hereunder, whether civil,
criminal or investigative; provided, however, that the failure of INDEMNITEE to
give such notice to the Companies shall not adversely affect INDEMNITEE's rights
under this Agreement except to the extent the Companies shall have been
materially prejudiced as a direct result

                                       32

<PAGE>

of such failure. Nothing in this Agreement shall constitute a waiver of the
Companies' right to seek participation at their own expense in any Proceeding
which may give rise to indemnification hereunder.

     16. Notices. All notices, requests, demands and other communications
         -------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (ii) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed, in either case:

         (a) if to INDEMNITEE, at the address indicated on the signature page
     hereof,

         (b) if to J. C. Penney Company, Inc.:

             If Mailed:

             J. C. Penney Company, Inc.
             P.O. Box 10001
             Dallas, Texas 75301-0005
             Attn:  General Counsel

             If Delivered:

             J. C. Penney Company, Inc.
             6501 Legacy Drive, MS 005
             Plano, Texas 75024-3698
             Attn:  General Counsel

                                       33

<PAGE>

          (c) if to J. C. Penney Corporation, Inc.:


              If Mailed:

              J. C. Penney Company, Inc.
              P.O. Box 10001
              Dallas, Texas 75301-0005
              Attn:  General Counsel


              If Delivered:

              J. C. Penney Company, Inc.
              6501 Legacy Drive, MS 005
              Plano, Texas 75024-3698
              Attn:  General Counsel

or to such other address as may have been furnished to either party by the other
party.

          Governing Law. The parties hereto agree that this Agreement shall be
          -------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.

                                       34

<PAGE>

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

ATTEST:                              J. C. PENNEY COMPANY, INC.



By:________________________________  By:__________________________________
Name:______________________________  Name:________________________________
Title:_____________________________  Title:_______________________________



ATTEST:                              J. C. PENNEY CORPORATION, INC.



By:________________________________  By:__________________________________
Name:______________________________  Name:________________________________
Title:_____________________________  Title:_______________________________



                                     INDEMNITEE


                                     By:__________________________________
                                     Name:
                                     Title:
                                     Address:



                                       35