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                                                                    EXHIBIT 3(i)

                     RESTATED CERTIFICATE OF INCORPORATION

                                      OF

                          J. C. PENNEY COMPANY, INC.


         The present name of the corporation is J. C. Penney Company, Inc. (the
"Company").  The Company was incorporated under the name of J. C. Penney Company
by the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware on December 15, 1924.  This Restated Certificate
of Incorporation of the Company restates and integrates but does not further
amend the provisions of the Company's Certificate of Incorporation as heretofore
amended and supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation.  This Restated
Certificate of Incorporation was duly adopted by the Board of Directors of the
Company in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware and hereby restates and integrates the
provisions of the Company's Certificate of Incorporation, as heretofore amended
and restated, to read in its entirety as follows:

         First:  The name of the corporation (which is herein referred to as the
Company) shall be J. C. Penney Company, Inc.

         Second:  The address of the Company's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle Delaware 19801.  The name of the Company's registered agent
at such address is The Corporation Trust Company.

         Third:  The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

         Fourth:  The total number of shares of all classes of stock which the
Company shall have authority to issue is 1,275,000,000 shares, of which
25,000,000 shares shall be shares of Preferred Stock without par value
(hereinafter called Preferred Stock) and 1,250,000,000 shares shall be shares of
Common Stock of 50c par value (hereinafter called Common Stock).

         Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock as Preferred Stock of one or more
series and in connection with the creation of any such series to fix by the
resolution or

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resolutions providing for the issue of shares thereof the designation, powers,
preferences, and relative, participating, optional, or other special rights of
such series, and the qualifications, limitations, or restrictions thereof. Such
authority of the Board of Directors with respect to each such series shall
include, but not be limited to, the determination of the following:

              (a) the distinctive designation of, and the number of shares
         comprising, such series, which number may be increased (except where
         otherwise provided by the Board of Directors in creating such series)
         or decreased (but not below the number of shares thereof then
         outstanding) from time to time by like action of the Board of
         Directors;

              (b) the dividend rate or amount for such series, the conditions
         and dates upon which such dividends shall be payable, the relation
         which such dividends shall bear to the dividends payable on any other
         class or classes or any other series of any class or classes of stock,
         and whether such dividends shall be cumulative, and if so, from which
         date or dates for such series;

              (c) whether or not the shares of such series shall be subject to
         redemption by the Company and the times, prices, and other terms and
         conditions of such redemption;

              (d) whether or not the shares of such series shall be subject to
         the operation of a sinking fund or purchase fund to be applied to the
         purchase or redemption of such shares and if such a fund be
         established, the amount thereof and the terms and provisions relative
         to the application thereof;

              (e) whether or not the shares of such series shall be convertible
         into or exchangeable for shares of any other class or classes, or of
         any other series of any class or classes, of stock of the Company and
         if provision be made for conversion or exchange, the times, prices,
         rates, adjustments, and other terms and conditions of such conversion
         or exchange;

              (f) whether or not the shares of such series shall have voting
         rights, in addition to the voting rights provided by law, and if they
         are to have such additional voting rights, the extent thereof;

              (g) the rights of the shares of such series in the event of any
         liquidation, dissolution, or winding up of the Company or upon any

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         distribution of its assets; and

              (h) any other powers, preferences, and relative, participating,
         optional, or other special rights of the shares of such series, and
         qualifications, limitations, or restrictions thereof, to the full
         extent now or hereafter permitted by law and not inconsistent with the
         provisions hereof.

         All shares of any one series of Preferred Stock shall be identical in
all respects except as to the dates from which dividends thereon shall be
cumulative.  All series of the Preferred Stock shall rank equally and be
identical in all respects except as otherwise provided in the resolution or
resolutions providing for the issue of any series of Preferred Stock.

         Whenever dividends upon the Preferred Stock at the time outstanding, to
the extent of the preference to which such stock is entitled, shall have been
paid in full or declared and set apart for payment for all past dividend
periods, and after the provisions for any sinking or purchase fund or funds for
any series of Preferred Stock shall have been complied with, the Board of
Directors may declare and pay dividends on the Common Stock, payable in cash,
stock, or otherwise, and the holders of shares of Preferred Stock shall not be
entitled to share therein, subject to the provisions of the resolution or
resolutions creating any series of Preferred Stock.

         In the event of any liquidation, dissolution, or winding up of the
Company or upon the distribution of the assets of the Company, all assets and
funds of the Company remaining, after the payment to the holders of the
Preferred Stock of the full preferential amounts to which they shall be entitled
as provided in the resolution or resolutions creating any series thereof, shall
be divided and distributed among the holders of the Common Stock ratably, except
as may otherwise be provided in any such resolution or resolutions.  Neither the
merger or consolidation of the Company with another corporation nor the sale or
lease of all or substantially all the assets of the Company shall be deemed to
be a liquidation, dissolution, or winding up of the Company or a distribution of
its assets.

         Except as otherwise required by law or provided by a resolution or
resolutions of the Board of Directors creating any series of Preferred Stock,
the holders of Common Stock shall have the exclusive power to vote and shall
have one vote in respect of each share of such stock held and the holders of
Preferred Stock shall have no voting power whatsoever.  Except as otherwise
provided in such a resolution or resolutions, the authorized shares of any class
or classes may be increased or decreased by the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Company entitled to
vote.

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         Pursuant to the authority conferred by this Article Fourth upon the
Board of Directors of the Company, the Board of Directors created a series of
1,600,000 shares of Preferred Stock designated as Series A Junior Participating
Preferred Stock by filing a Certificate of Designations of the Company with the
Secretary of State of the State of Delaware (the "Secretary of State") on
January 29, 1986, as amended by the Amended Certificate of Designations of the
Company filed with the Secretary of State on February 15, 1990, and the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
the Company's Series A Junior Participating Preferred Stock are set forth in
Appendix A hereto and are incorporated herein by reference.

         Pursuant to the authority conferred by this Article Fourth upon the
Board of Directors of the Company, the Board of Directors created a series of
1,400,000 shares of Preferred Stock designated as Series B ESOP Convertible
Preferred Stock by filing a Certificate of Designations of the Company with the
Secretary of State on August 30, 1988, and the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of the Company's Series
B ESOP Convertible Preferred Stock are set forth in Appendix B hereto and are
incorporated herein by reference.

         Fifth:  In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered:

              (a) to make, alter, and repeal the Bylaws of the Company, subject
         to the power of the stockholders of the Company to alter or repeal any
         Bylaw made by the Board of Directors;

              (b) subject to the laws of the State of Delaware, from time to
         time to sell, lease, or otherwise dispose of any part or parts of the
         properties of the Company and to cease to conduct the business
         connected therewith or again to resume the same, as it may deem best;
         and

              (c) in addition to the powers and authorities hereinbefore and by
         the laws of the State of Delaware conferred upon the Board of
         Directors, to exercise all such powers and to do all such acts and
         things as may be exercised or done by the Company; subject,
         nevertheless, to the provisions of said laws, of the Certificate of
         Incorporation as from

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         time to time amended of the Company, and of its Bylaws.

         Sixth:  (a)  Except as otherwise provided for or fixed by or pursuant
to the provisions of Article Fourth of this Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of directors of
the Company shall be fixed from time to time by or pursuant to the Bylaws of the
Company.  The directors, other than those who may be elected pursuant to the
aforesaid provisions of said Article Fourth, shall be classified, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as possible, as shall be provided in the manner specified in the
Bylaws of the Company, the first such class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1986, the second
such class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1987, and the third such class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1988, with each director in each class to hold office until his or her successor
is elected and qualified.  At each annual meeting of stockholders beginning with
the annual meeting of stockholders to be held in 1986, the successors of the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders to be held in
the third year following the year of their election, with each director in each
such class to hold office until his or her successor is elected and qualified.

          (b) Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided by the Bylaws of the Company at
the time in effect.

          (c) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article Fourth of this Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, newly-created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal, or other
cause shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors.  Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.  No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.

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          (d) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article Fourth of this Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, any director may be removed from
office, with or without cause, but only by the affirmative vote of at least 80%
of the combined voting power of the then-outstanding shares of all classes and
series of stock of the Company entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class (it being
understood that for the purposes of this Article Sixth, each share of the Voting
Stock shall have the number of votes granted to it in accordance with Article
Fourth of this Certificate of Incorporation).

          (e) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80% of the
combined voting power of the Voting Stock, voting together as a single class,
shall be required to alter, amend, or repeal, or adopt any provision
inconsistent with, this Article Sixth.

         Seventh:  Section 1.  The vote of stockholders of the Company required
to approve any Business Combination shall be as set forth in this Article
Seventh.  The term "Business Combination", as well as other capitalized terms
used in this Article Seventh, shall have the respective meanings ascribed to
them in Section 3 of this Article Seventh.

         Irrespective of any affirmative vote required by law or by this
Certificate of Incorporation, and except as otherwise expressly provided in
Section 2 of this Article Seventh:

                  (i) any merger or consolidation of the Company or any
         Subsidiary with (a) any Interested Stockholder or (b) any other Person
         (whether or not itself an Interested Stockholder or an Affiliate of an
         Interested Stockholder) which is, or after such merger or consolidation
         would be, an Interested Stockholder or an Affiliate of an Interested
         Stockholder,

                  (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
         other disposition (in one transaction or a series of transactions) to
         or with any Interested Stockholder or any Affiliate of any Interested
         Stockholder of any assets of the Company or any Subsidiary having an
         aggregate Fair Market Value of $100 million or more,

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                  (iii)  any sale, lease, exchange, mortgage, pledge, transfer,
         or other disposition (in one transaction or a series of transactions)
         to the Company or any Subsidiary of any assets of any Interested
         Stockholder or any Affiliate of any Interested Stockholder having an
         aggregate Fair Market Value of $100 million or more,

                  (iv) any issuance or transfer by the Company or any Subsidiary
         (in one transaction or a series of transactions) of any securities of
         the Company or any Subsidiary to any Interested Stockholder or any
         Affiliate of any Interested Stockholder in exchange for cash,
         securities, or other property (or a combination thereof) having an
         aggregate Fair Market Value of $100 million or more,

                  (v) the adoption of any plan or proposal for the liquidation
         or dissolution of the Company proposed by or on behalf of any
         Interested Stockholder or any Affiliate of any Interested Stockholder,
         or

                  (vi) any reclassification of securities (including any reverse
         stock split), or recapitalization of the Company, or any merger or
         consolidation of the Company with any of its Subsidiaries or any other
         transaction (whether or not with or into or otherwise involving an
         Interested Stockholder), which has the effect, directly or indirectly,
         of increasing the proportionate share of the outstanding shares of any
         class of equity, or securities convertible into any equity, securities
         of the Company or any Subsidiary, as the case may be, which is,
         directly or indirectly, owned by any Interested Stockholder or any
         Affiliate of any Interested Stockholder,

shall require the affirmative vote of at least 80% of the combined voting power
of the then-outstanding shares of all classes and series of stock of the Company
entitled to vote generally in the election of directors ("Voting Stock"), voting
together as a single class (it being understood that for the purposes of this
Article Seventh, each share of Voting Stock shall have the number of votes
granted to it in accordance with Article Fourth of this Certificate of
Incorporation).  Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may otherwise be
applicable, by law or in any agreement with any national securities exchange or
otherwise.

         Section 2.  Any Business Combination which meets all the conditions
specified in either paragraph A or paragraph B below shall not be subject to the
provisions of Section 1 of this Article Seventh and shall require only such
affirmative

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vote as is required by law and any other provision of this Certificate of
Incorporation:

         A.   the Business Combination shall have been approved by a majority of
the Disinterested Directors;

                                     - or -

         B.   all the following conditions with respect to such Business
Combination shall have been met:

             (i) the aggregate amount of cash and the Fair Market Value as of
   the date of the consummation of the Business Combination of consideration
   other than cash to be received per share by holders of Common Stock in such
   Business Combination, shall be at least equal in value to the higher of the
   following:

                  (a) if applicable, the highest per share price (including
         any brokerage commissions, transfer taxes, soliciting dealers' fees,
         and option costs) paid by the Interested Stockholder (before or after
         becoming an Interested Stockholder), or any Affiliate or Associate
         thereof, in acquiring Beneficial Ownership of any shares of Common
         Stock (1) within the two-year period immediately prior to the first
         public announcement of the proposal of the Business Combination
         ("Announcement Date") or (2) in the transaction in which it became an
         Interested Stockholder, whichever is higher; or

                  (b) the Fair Market Value per share of Common Stock of the
         Company (1) on the Announcement Date, or (2) on the date on which the
         Interested Stockholder became an Interested Stockholder ("Determination
         Date"), whichever is higher;

             (ii) the aggregate amount of cash and the Fair Market Value as of
   the date of the consummation of the Business Combination of consideration
   other than cash to be received per share by holders of shares of any class or
   series of outstanding Voting Stock other than Common Stock shall be at least
   equal to the highest of the following (it being intended that the
   requirements of this paragraph B(ii) of this Section 2 of Article Seventh
   shall be required to be met with respect to every class or series, as the
   case may be, of outstanding Voting Stock, whether or not the Interested
   Stockholder has previously acquired any shares of such class or series of
   Voting Stock):

                  (a) if applicable, the highest per share price (including

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         any brokerage commissions, transfer taxes, soliciting dealers' fees,
         and option costs) paid by the Interested Stockholder (before or after
         becoming an Interested Stockholder) for any shares of such class or
         series of Voting Stock acquired by it (1) within the two-year period
         immediately prior to the Announcement Date or (2) in the transaction in
         which it became an Interested Stockholder, whichever is higher;

                  (b) if applicable, the highest preferential amount per share
         to which the holders of shares of such class or series, as the case may
         be, of Voting Stock are entitled in the event of any voluntary or
         involuntary liquidation, dissolution, or winding up of the Company; or

                  (c) the Fair Market Value per share of such class or series,
         as the case may be, of Voting Stock on the Announcement Date or on the
         Determination Date, whichever is higher;

             (iii)  the price determined in accordance with paragraphs B(i) and
   B(ii) of this Section 2 of Article Seventh shall be subject to appropriate
   adjustment in the event of any stock dividend, stock split, combination of
   shares, or similar event;

             (iv)   the consideration to be received by the holders of a
  specified class or series of outstanding Voting Stock (including Common Stock)
  shall be in cash or in the same form as that which the Interested Stockholder
  has previously paid for shares of such class or series of Voting Stock; if the
  Interested Stockholder had paid for shares of any class or series of Voting
  Stock with varying forms of consideration, the form of consideration for such
  class or series of Voting Stock shall, at the option of the Interested
  Stockholder, be either cash or the form used to acquire the largest number of
  shares of such class or series of Voting Stock previously acquired by it;

             (v)    after such Interested Stockholder has become an Interested
   Stockholder and prior to the consummation of such Business Combination:  (a)
   except as approved by a majority of the Disinterested Directors, there shall
   have been no failure to declare and pay at the regular date therefor any full
   quarterly dividends (whether or not cumulative) on the outstanding Preferred
   Stock; (b) there shall have been (i) no reduction in the annual rate of
   dividends payable or last paid, as the case may be, on the Common Stock
   (except as necessary to reflect any subdivision of such Common Stock) except
   as approved by a majority of the Disinterested Directors and (ii) an increase
   in the annual rate of dividends last paid on the Common Stock, as necessary
   to reflect any reclassification (including any reverse stock

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   split), recapitalization, reorganization, or any similar transaction which
   has the effect of reducing the number of outstanding shares of such Common
   Stock, unless the failure so to increase such annual rate shall have been
   approved by a majority of the Disinterested Directors; and (c) such
   Interested Stockholder shall not have acquired Beneficial Ownership of any
   additional shares of Voting Stock, except as part of the transaction which
   resulted in such Interested Stockholder becoming an Interested Stockholder;

             (vi)   after such Interested Stockholder has become an Interested
   Stockholder, such Interested Stockholder shall not have received the benefit,
   directly or indirectly (except proportionately as a stockholder), of any
   loans, advances, guarantees, pledges, or other financial assistance or any
   tax credits or other tax advantages provided by, or as a result of its equity
   position in, the Company, whether in anticipation of or in connection with
   such Business Combination or otherwise; and

             (vii)  a proxy statement or information statement describing the
   proposed Business Combination (and including the views of the Disinterested
   Directors, if requested by the Disinterested Directors, and of an independent
   investment banker, if any, selected by such Disinterested Directors with
   respect to the proposed Business Combination) and complying with the
   disclosure and other requirements of the Securities Exchange Act of 1934 and
   the rules and regulations thereunder (or any subsequent provisions replacing
   such requirements of such Act, rules, or regulations) shall be mailed at
   least 30 days prior to the consummation of such Business Combination (whether
   or not such proxy statement or information statement is required to be mailed
   pursuant to such Act or subsequent provisions) to stockholders of the
   Company.

         Section 3.  For purposes of this Article Seventh:

__.      A.   An "Affiliate" of, or a Person "Affiliated" with, a specified
Person, shall mean a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.

         B.   "Announcement Date" shall have the meaning set forth in paragraph
B(i)(a) of Section 2 of this Article Seventh.

         C.   The term "Associate" used to indicate a relationship with any
Person shall mean (1) any corporation or organization (other than the Company or
any Subsidiary), of which such Person is an officer or partner or is, directly
or indirectly, the Beneficial Owner of 10% or more of any class of equity
securities, (2) any trust or other estate in which such Person has a substantial
beneficial interest or

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as to which such Person serves as a trustee or in a similar fiduciary capacity,
and (3) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person or who is a director or officer of the
Company or any Subsidiary.

         D.   A Person shall be a "Beneficial Owner" of any Voting Stock:

              (i)   which such Person or any of its Affiliates or Associates
         owns, directly or indirectly;

              (ii)  which such Person or any of its Affiliates or Associates has
         (a) the right to acquire (whether such right is exercisable immediately
         or only after the passage of time) pursuant to any agreement,
         arrangement, or understanding or upon the exercise of conversion
         rights, exchange rights, warrants, or options, or otherwise, or (b) the
         right to vote (whether or not irrevocable) pursuant to any agreement,
         arrangement, or understanding; or

              (iii) which is Beneficially Owned, directly or indirectly, by
         another Person with which such Person or any of its Affiliates or
         Associates has any agreement, arrangement, or understanding for the
         purpose of acquiring, holding, voting, or disposing of any shares of
         Voting Stock,

and any Voting Stock of which a Person shall be the Beneficial Owner shall be
"Beneficially Owned" by, or be under the "Beneficial Ownership" of, such Person.

         E.   "Business Combination" shall mean any transaction which is
referred to in any one or more of clauses (i) through (vi) of Section 1 of this
Article Seventh.

         F.   In the event of any Business Combination in which the Company
survives, the phrase "consideration other than cash to be received" as used in
paragraphs B(i) and (ii) of Section 2 of this Article Seventh shall include
shares of Common Stock and shares of any other class or series of outstanding
Voting Stock retained by the holders of such shares, or both.

         G.   "Determination Date" shall have the meaning set forth in paragraph
B(i)(b) of Section 2 of this Article Seventh.

         H.   "Disinterested Director" shall mean any member of the Board of
Directors who is not an Affiliate, an Associate, or a nominee of the Interested

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Stockholder and who was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is not an Affiliate or Associate of
the Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.

         I.   "Fair Market Value" shall mean:  (i) in the case of stock, the
highest closing sale price of a share of such stock during the 30 calendar day
period immediately preceding the date in question on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on such
Composite Tape, on the New York Stock Exchange, or, if such stock is not listed
on such Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30 calendar day period
immediately preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
Disinterested Directors; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by a majority of the Disinterested Directors.

         J.   "Interested Stockholder" shall mean any Person (other than the
Company, any Subsidiary, or any employee benefit plan of the Company or any
Subsidiary) who or which:

              (i)    is the Beneficial Owner, directly or indirectly, of at
         least 10% of the Voting Stock;

              (ii)   is an Affiliate of the Company and at any time within the
         two-year period immediately prior to the date in question was the
         Beneficial Owner, directly or indirectly, of at least 10% of the Voting
         Stock; or

              (iii)  is an assignee of or has otherwise succeeded to any shares
         of Voting Stock which were at any time within the two-year period
         immediately prior to the date in question Beneficially Owned by any
         Interested Stockholder, if such assignment or succession shall have
         occurred in the course of a transaction or series of transactions not
         involving a public offering within the meaning of the Securities Act of
         1933, as amended.

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         For purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph D of this Section
3, but shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement, or understanding or upon exercise of
conversion rights, warrants, or options, or otherwise.

         K.   "Person" shall mean any individual, firm, trust, partnership,
association, corporation, or other entity.

         L.   "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Company.

         M.   "Voting Stock" shall have the meaning set forth in Section 1 of
this Article Seventh.

         Section 4.  A majority of the Disinterested Directors shall have the
power and duty to determine for the purposes of this Article Seventh, on the
basis of information known to them after reasonable inquiry, (A) whether a
person is an Interested Stockholder, (B) the number of shares of Voting Stock
beneficially owned by any person, (C) whether a Person is an Affiliate or
Associate of another, and (D) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Company or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $100 million or more.  A
majority of the Disinterested Directors shall have the further power to
interpret all the terms and provisions of this Article Seventh.

         Section 5.  Nothing contained in this Article Seventh shall be
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.

         Section 6.  Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may otherwise be specified by law, this Certificate of Incorporation,
or the Bylaws), the affirmative vote of at least 80% of the Voting Stock, voting
together as a single class (it being understood that for the purposes of this
Article Seventh, each share of the Voting Stock shall have the number of votes
granted to it in accordance with Article Fourth of this Certificate of
Incorporation), shall be required to alter, amend, or repeal, or adopt any
provisions inconsistent with, this Article Seventh.

         Eighth:  Any action required or permitted to be taken by the holders of
the Voting Stock must be effected at a duly called annual or special meeting of
such

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holders and may not be effected by any consent in writing by such holders.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of at least 80% of the combined voting power of
the then-outstanding shares of all classes and series of stock of the Company
entitled to vote generally in the election of directors ("Voting Stock"), voting
together as a single class (it being understood that for the purposes of this
Article Eighth, each share of the Voting Stock shall have the number of votes
granted to it in accordance with Article Fourth of this Certificate of
Incorporation), shall be required to alter, amend, or repeal, or adopt any
provisions inconsistent with, this Article Eighth.

         Ninth:  The Board of Directors shall have the power to make, alter,
amend, or repeal, or adopt any provision inconsistent with, the Bylaws (except
insofar as the Bylaws adopted by the stockholders shall otherwise provide).  Any
Bylaws made by the directors under the powers conferred hereby may be altered,
amended, or repealed, and any provisions inconsistent therewith may be adopted,
by the directors or by the stockholders.  Notwithstanding the foregoing and
anything contained in this Certificate of Incorporation to the contrary, Section
2 of Article II, and Sections 3, 12, 13, and 15 of Article III of the Bylaws,
all as in effect simultaneously with the effectiveness of this Article, shall
not be altered, amended, or repealed, and no provision inconsistent therewith
shall be adopted, without the affirmative vote of at least 80% of the combined
voting power of the then-outstanding shares of all classes and series of stock
of the Company entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class (it being understood that for the
purposes of this Article Ninth, each share of the Voting Stock shall have the
number of votes granted to it in accordance with Article Fourth of this
Certificate of Incorporation).  Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of at least
80% of the Voting Stock, voting together as a single class, shall be required to
alter, amend, or repeal, or adopt any provision inconsistent with, this Article
Ninth.

         Tenth:  A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.  If the Delaware General Corporation Law is hereafter amended to permit
further limitation on or elimination of the personal liability of the Company's
directors for breach of fiduciary duty, then a director of the Company shall be
exempt from such liability for any such breach to the full extent permitted by
the Delaware General Corporation Law as so amended from time to time.  Any
repeal or modification of the foregoing provisions of this

                                       14
<PAGE>
 
Article Tenth, or the adoption of any provision inconsistent herewith, shall not
adversely affect any right or protection of a director of the Company hereunder
in respect of any act or omission of such director occurring prior to such
repeal, modification, or adoption of an inconsistent provision.

          IN WITNESS WHEREOF, the Company has caused this Restated Certificate
of Incorporation to be signed in its name by its Chairman of the Board this ____
day of _______________, 1996.


                                     J. C. PENNEY COMPANY, INC.


                                     By:
                                         ----------------------------
                                          William R. Howell
                                          Chairman of the Board

                                       15
<PAGE>
 
                                   EXHIBIT A
                                   ---------


                  SECOND AMENDED CERTIFICATE OF DESIGNATIONS
                                      OF
                 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
                                      OF
                          J. C. PENNEY COMPANY, INC.

                    Pursuant to Section 151 of the Delaware
                            General Corporation Law

          J. C. Penney Company, Inc., a company organized and existing under the
laws of the State of Delaware (the "Company"), DOES HEREBY CERTIFY:

          1.  That by resolution of the Board of Directors of the Company dated
January 28, 1986, and by a Certificate of Designations filed in the office of
the Secretary of State of Delaware on January 29, 1986, the Company authorized
the issuance of a series of 1,600,000 shares of Series A Junior Participating
Preferred Stock of the Company (the "Series A Preferred Stock") and established
the voting powers, designations, preferences and relative, participating and
other rights, and the qualifications, limitations or restrictions thereof.

          2.  That an Amended Certificate of Designation of the Series A
Preferred Stock was filed with the Secretary of State of Delaware on February
15, 1990.

                                      A-1
<PAGE>
 
          3.  That as of the date hereof no shares of such Series A Preferred
Stock are outstanding and no shares of such Series A Preferred Stock have been
issued.

          4.  That pursuant to authority conferred on the Board of Directors of
the Company by its Restated Certificate of Incorporation and the provisions of
Section 151(g) of the General Corporation Law of the State of Delaware, the
Board of Directors on March 10, 1999 adopted the following resolution amending
in their entireties the voting powers, preferences, and relative, participating,
optional or other special rights of the shares of the Series A Preferred Stock,
and the qualifications, limitations or restrictions thereof effective upon the
redemption of the rights (the "1990 Rights") issued pursuant to the Rights
Agreement between the Company and ChaseMellon Shareholder Services L.L.C., as
successor Rights Agent, dated February 14, 1990.

          RESOLVED, that effective upon the redemption of the 1990 Rights and
pursuant to the authority conferred upon the Board of Directors of the Company
by its Restated Certificate of Incorporation and by the provisions of Section
151(g) of the General Corporation Law of the State of Delaware, the voting
powers, preferences and relative participating, optional or other special rights
of the Series A Junior Preferred Stock of the Company, and the qualifications,
limitations or restrictions thereof, be, and the same hereby are, amended in
their entireties to be as follows:

          RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Company be, and
hereby is, created and that the designation and amount thereof and the voting
powers, preferences and relative, 

                                      A-2
<PAGE>
 
participating, optional or other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:

          Section 1.  Designation and Amount.  The shares of such series shall
be designated "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting such series shall be
1,600,000.

          Section 2.  Dividends and Distributions.

          (A) Subject to the provisions for adjustment hereinafter set forth,
the holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 1,000 times the aggregate per share amount of all
cash dividends declared or paid on the Common Stock, 50c par value per share, of
the Company (the "Common Stock") and (ii) a preferential cash dividend
("Preferential Dividend"), if any, on the first day of February, May, August and
November of each year (each a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount equal to $50.00
per share of Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to clause (i) of
this sentence since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock.  In
the event the Company shall, at any time after the issuance of any share or
fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the Company, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the Company or otherwise, which 

                                      A-3
<PAGE>
 
is payable in cash or any debt security, debt instrument, real or personal
property or any other property (other than cash dividends subject to the
immediately preceding sentence and other than a distribution of shares of Common
Stock or other capital stock of the Company and other than a distribution of
rights or warrants to acquire any such share, including any debt security
convertible into or exchangeable for any such share), at a price less than the
Current Market Price of such share, then, and in each such event the Company
shall simultaneously pay on each then outstanding share of Series A Preferred
Stock of the Company a distribution, in like kind, of 1,000 times such
distribution paid on a share of Common Stock (subject to the provisions for
adjustment hereinafter set forth). The dividends and distributions on the Series
A Preferred Stock to which holders thereof are entitled pursuant to clause (i)
of the first sentence of this paragraph and the second sentence of this
paragraph are hereinafter referred to as "Participating Dividends," and the
multiple of such cash and noncash dividends on the Common Stock applicable to
the determination of the Participating Dividends, which shall be 1,000 initially
but shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple". In the event the Company shall at any
time after March 26, 1999 (the "Effective Date") declare or pay any dividend or
make any distribution on Common Stock payable in shares of Common Stock, or
effect a subdivision or split or a combination, consolidation or reverse split
of the outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, or issue any of its capital stock in a reclassification
of the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Participating Dividends which holders of
shares of

                                      A-4
<PAGE>
 
Series A Preferred Stock shall be entitled to receive shall be the Dividend
Multiple applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

          (B) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article Fourth of the Restated Certificate of Incorporation of the
Company relating to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends, the Company shall declare
each Participating Dividend at the same time it declares any cash or noncash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid.  No cash or noncash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Dividend in respect of such dividend or distribution on the Common Stock shall
be simultaneously paid or set aside for payment on the Series A Preferred Stock.

          (C) Preferential Dividends shall begin to accumulate on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issuance of any shares of Series A Preferred Stock.
Accumulated but unpaid Preferential Dividends shall cumulate but shall not bear
interest.  Preferential Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time
accumulated and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding.

          Section 3.  Voting Rights.  The holders of shares of Series A
Preferred Stock shall have the following voting rights:

                                      A-5
<PAGE>
 
          (A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Company.
The number of votes which a holder of Series A Preferred Stock is entitled to
cast, as the same may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Vote Multiple."  In the event the Company shall
at any time after the Effective Date declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding shares of Common
Stock into a greater or lesser number of shares of Common Stock, or issue any of
its capital stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock shall be
entitled after such event shall be the Vote Multiple immediately prior to such
event multiplied by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

          (B) Except as otherwise provided herein, in the Restated Certificate
of Incorporation, in any resolution or resolutions of the Board of Directors of
the Company providing for the issue of any other series of Preferred Stock or by
law, the holders of shares of Series A Preferred Stock, the holders of shares of
Common Stock and the holders of shares of any other class or series of capital
stock of the Company entitled to vote 

                                      A-6
<PAGE>
 
generally for the election of directors shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.

          (C) In the event that the Preferential Dividends accrued on the Series
A Preferred Stock for four or more consecutive quarterly periods shall not have
been declared and paid or set apart for payment, the holders of record of the
Series A Preferred Stock, voting together with the holders of record of any
other series of Preferred Stock of the Company which shall then have the right,
expressly granted by the Restated Certificate of Incorporation of the Company or
in any resolution or resolutions of the Board of Directors of the Company
providing for the issue of such shares of Preferred Stock, to elect directors
upon such a default in the payment of dividends by the Company shall have the
right, at the next meeting of stockholders called for the election of directors,
voting together as a class, to elect two members to the Board of Directors,
which directors shall be in addition to the number provided for pursuant to the
Company's By laws prior to such event, to serve until the next Annual Meeting
and until their successors are elected and qualified or their earlier
resignation, removal or incapacity or until such earlier time as all accrued and
unpaid Preferential Dividends upon the outstanding shares of Series A Preferred
Stock shall have been paid (or set aside for payment) in full.  The holders of
shares of Series A Preferred Stock shall continue to have the right to elect
directors as provided by the immediately preceding sentence until all accrued
and unpaid Preferential Dividends upon the outstanding shares of Series A
Preferred Stock shall have been paid (or set aside for payment) in full.  Such
directors may be removed and replaced by such stockholders, and 

                                      A-7
<PAGE>
 
vacancies in such directorships may be filled only by such stockholders (or by
the remaining director elected by such stockholders, if there be one) in the
manner permitted by law. Subject to the foregoing, any directors elected
pursuant to this paragraph 3(C) shall be elected annually and shall not
constitute members of any Class of directors as contemplated by Article Sixth of
the Company's Restated Certificate of Incorporation.

          (D) Except as otherwise required by law or set forth herein, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote as
set forth herein) for the taking of any corporate action.

          Section 4.  Certain Restrictions.

          (A) Whenever Preferential Dividends or Participating Dividends are in
arrears or the Company shall be in default in payment thereof, thereafter and
until all accrued and unpaid Preferential Dividends and Participating Dividends,
whether or not declared, on shares of Series A Preferred Stock outstanding shall
have been paid or set aside for payment in full, and in addition to any and all
other rights which any holder of shares of Series A Preferred Stock may have in
such circumstances, the Company shall not

              (i)    declare or pay dividends on, make any other distributions
     on, or redeem or purchase or otherwise acquire for consideration, any
     shares of stock ranking junior (either as to dividends or upon liquidation,
     dissolution or winding up) to the Series A Preferred Stock;

              (ii)   declare or pay dividends or make any other distributions
     on any shares of stock ranking on a parity as to dividends with the Series
     A Preferred 

                                      A-8
<PAGE>
 
     Stock, unless dividends are paid ratably on the Series A Preferred Stock
     and all such parity stock on which dividends are payable or in arrears in
     proportion to the total amounts to which the holders of all such shares are
     then entitled;

              (iii)  except as permitted by subparagraph (iv) of this paragraph
     (A), redeem or purchase or otherwise acquire for consideration shares of
     any stock ranking on a parity (either as to dividends or upon liquidation,
     dissolution or winding up) with the Series A Preferred Stock, provided that
     the Company may at any time redeem, purchase or otherwise acquire shares of
     any such parity stock in exchange for shares of any stock of the Company
     ranking junior (both as to dividends and upon liquidation, dissolution or
     winding up) to the Series A Preferred Stock; or

              (iv)   purchase or otherwise acquire for consideration any shares
     of Series A Preferred Stock, or any shares of stock ranking on a parity
     with the Series A Preferred Stock (either as to dividends or upon
     liquidation, dissolution or winding up), except in accordance with a
     purchase offer made in writing or by publication (as determined by the
     Board of Directors) to all holders of such shares upon such terms as the
     Board of Directors, after consideration of the respective annual dividend
     rates and other relative rights and preferences of the respective series
     and classes, shall determine in good faith will result in fair and
     equitable treatment among the respective series or classes.

                                      A-9
<PAGE>
 
          (B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company ranking junior to the Series A Preferred Stock unless the Company could,
under paragraph (A) of this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.

          (C) The Company shall not issue any shares of Series A Preferred Stock
except upon exercise of Rights issued pursuant to that certain Rights Agreement
dated as of March 26, 1999 between the Company and ChaseMellon Shareholder
Services L.L.C., as Rights Agent, a copy of which is on file with the Secretary
of the Company at the principal executive office of the Company and shall be
made available to holders of record of Common Stock or Series A Preferred Stock
without charge upon written request therefor addressed to the Secretary of the
Company.  Notwithstanding the foregoing sentence, nothing contained in the
provisions hereof shall prohibit or restrict the Company from issuing for any
purpose any series of Preferred Stock with rights and privileges similar to,
different from, or greater than, those of the Series A Preferred Stock.

          Section 5.  Reacquired Shares.  Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof.  All such shares
upon their retirement and cancellation shall become authorized but unissued
shares of Preferred Stock, without designation as to series, and such shares may
be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors.

          Section 6.  Liquidation, Dissolution or Winding Up.  Upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
no 

                                      A-10
<PAGE>
 
distribution shall be made (i) to the holders of shares of stock ranking junior
to the Series A Preferred Stock (either as to dividends or upon liquidation,
dissolution or winding up) unless the holders of shares of Series A Preferred
Stock shall have received, subject to adjustment as hereinafter provided, the
greater of (A) $1,000 ($1.00 per one one-thousandth of a share) plus an amount
equal to all accumulated and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, and (B) the amount equal to 1,000
times the aggregate amount to be distributed per share to holders of Common
Stock, as the same may be adjusted as hereinafter provided, or (ii) to the
holders of stock ranking on a parity upon liquidation, dissolution or winding up
with the Series A Preferred Stock, unless simultaneously therewith distributions
are made ratably on the Series A Preferred Stock and all other shares of such
parity stock in proportion to the total amounts to which the holders of shares
of Series A Preferred Stock are entitled under clause (i)(A) of this sentence
and to which the holders of such parity shares are entitled, in each case upon
such liquidation, dissolution or winding up. The amount to which holders of
Series A Preferred Stock shall be entitled upon liquidation, dissolution or
winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is
hereinafter referred to as the "Participating Liquidation Amount," and the
multiple of the amount to be distributed to holders of shares of Common Stock
upon the liquidation, dissolution or winding up of the Company applicable
pursuant to said clause to the determination of the Participating Liquidation
Amount, which shall be 1,000 but may be adjusted from time to time as
hereinafter provided, is hereinafter referred to as the "Liquidation Multiple."
In this event the Company shall at any time after the Effective Date declare or
pay any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock

                                      A-11
<PAGE>
 
into a greater or lesser number of shares of Common Stock, or issue any of its
capital stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then in each such case the
Liquidation Multiple thereafter applicable to the determination of the
Participating Liquidation Amount to which holders of Series A Preferred Stock
shall be entitled after such event shall be the Liquidation Multiple applicable
immediately prior to such event multiplied by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

          Section 7.  Certain Reclassifications and Other Events.

          (A) In the event that holders of shares of Common Stock receive after
the Effective Date, in respect of their shares of Common Stock any share of
capital stock of the Company (other than any share of Common Stock of the
Company), whether by way of reclassification, recapitalization, reorganization,
dividend or other distribution or otherwise ("Transaction"), then in each such
event the dividend rights, voting rights and rights upon the liquidation,
dissolution or winding up of the Company of the shares of Series A Preferred
Stock shall be adjusted so that after such event the holders of Series A
Preferred Stock shall be entitled, in respect of each share of Series A
Preferred Stock held, in addition to such rights in respect thereof to which
such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote 

                                      A-12
<PAGE>
 
Multiple in effect immediately prior to such Transaction multiplied by the
additional voting rights which the holder of a share of Common Stock shall be
entitled to receive by virtue of the receipt in the Transaction of such capital
stock and (iii) such additional distributions upon liquidation, dissolution or
winding up of the Company as equal the Liquidation Multiple in effect
immediately prior to such Transaction multiplied by the additional amount which
the holder of a share of Common Stock shall be entitled to receive upon
liquidation, dissolution or winding up of the Company by virtue of the receipt
in the Transaction of such capital stock, as the case may be, all as provided by
the terms of such capital stock.

          (B) In the event that holders of shares of Common Stock receive after
the Effective Date, in respect of their shares of Common Stock any right or
warrant to purchase Common Stock (including as such a right, for all purposes of
this paragraph, any security convertible into or exchangeable for Common Stock)
at a purchase price per share less than the Current Market Price (as hereinafter
defined) of a share of Common Stock on the date of issuance of such right or
warrant, then in each such event the dividend rights, voting rights and rights
upon the liquidation, dissolution or winding up of the Company of the shares of
Series A Preferred Stock shall each be adjusted so that after such event the
Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be
the product of the Dividend Multiple, the Vote Multiple and the Liquidation
Multiple, as the case may be, in effect immediately prior to such event
multiplied by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately before such issuance of rights or warrants
plus the maximum number of shares of Common Stock which could be acquired upon
exercise in full of all such rights or warrants and the denominator of which
shall be the number of shares of Common Stock 

                                      A-13
<PAGE>
 
outstanding immediately before such issuance of rights or warrants plus the
number of shares of Common Stock which could be purchased, at the Current Market
Price of the Common Stock at the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.

          (C) In the event that holders of shares of Common Stock receive after
the Effective Date in respect of their shares of Common Stock any right or
warrant to purchase capital stock of the Company (other than shares of Common
Stock), including as such a right, for all purposes of this paragraph, any
security convertible into or exchangeable for capital stock of the Company,
(other than Common Stock), at a purchase price per share less than the Fair
Market Value of such shares of capital stock on the date of issuance of such
right or warrant, then in each such event the dividend rights, voting rights and
rights upon liquidation, dissolution or winding up of the Company of the shares
of Series A Preferred Stock shall each be adjusted so that after such event each
holder of a share of Series A Preferred Stock shall be entitled, in respect of
each share of Series A Preferred Stock held, in addition to such rights in
respect thereof to which such holder was entitled immediately prior to such
event, to receive (i) such additional dividends as equal the Dividend Multiple
in effect immediately prior to such event multiplied, first, by the additional
dividends to which the holder of a share of Common Stock shall be entitled upon
exercise of such right or warrant by virtue of the capital stock which could be
acquired upon such exercise and multiplied again by the Discount Fraction (as
hereinafter defined), (ii) such additional voting rights as equal the Vote
Multiple in effect immediately prior to such event multiplied, first, by the
additional voting rights to which the holder of a share of Common Stock shall be
entitled upon exercise of such right or warrant by virtue of the capital stock
which could be acquired upon such exercise and multiplied again by 

                                      A-14
<PAGE>
 
the Discount Fraction and (iii) such additional distribution upon liquidation,
dissolution or winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such event multiplied, first, by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Company upon exercise of such
right or warrant by virtue of the capital stock which could be acquired upon
such exercise and multiplied again by the Discount Fraction. For purposes of
this paragraph, the "Discount Fraction" shall be a fraction the numerator of
which shall be the difference between the Current Market Price of a share of the
capital stock subject to a right or warrant distributed to holders of shares of
Common Stock as contemplated by this paragraph immediately after the
distribution thereof and the purchase price per share for such share of capital
stock pursuant to such right or warrant and the denominator of which shall be
the Current Market Price of a share of such capital stock immediately after the
distribution of such right or warrant.

          (D) For purposes of this Second Amended Certificate of Designations,
the "Current Market Price" of a share of capital stock of the Company (including
a share of Common Stock) on any date shall be deemed to be the average of the
daily closing price per share thereof over the 30 consecutive Trading Days (as
such term is hereinafter defined) immediately prior to such date; provided,
however, that, in the event that such Current Market Price of any such share of
capital stock is determined during a period which includes any date that is
within 30 Trading Days after (i) the ex-dividend date for a dividend or
distribution on stock payable in shares of such stock or securities convertible
into shares of such stock, or (ii) the effective date of any subdivision, split,
combination, consolidation, reverse stock split or reclassification of such
stock, then and in each such event, the Current Market Price shall be
appropriately adjusted by the Board of Directors to 

                                      A-15
<PAGE>
 
reflect the Current Market Price of such stock to take into account ex-dividend
or post-effective date trading. The closing price for any day shall be the last
sale price, regular way, or, in case, no such sale takes place on such day, the
average of the closing bid and asked prices, regular way (in either case, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange), or,
if the shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the shares are listed or admitted to trading or, if the shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use, or if on any such date the shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the shares selected by the Board of
Directors. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares are listed or admitted to
trading is open for the transaction of business or, if the shares are not listed
or admitted to trading on any national securities exchange, on which the New
York Stock Exchange or such other national securities exchange as may be
selected by the Board of Directors is open. If the shares are not publicly held
or not so listed or traded on any day within the period of 30 Trading Days
applicable to the determination of Current Market Price thereof as aforesaid,
"Current Market Price" shall mean the fair market value thereof per share as
determined in good faith by the Board of Directors. In either case referred to
in the foregoing sentence,

                                      A-16
<PAGE>
 
the determination of Current Market Price shall be described in a statement
filed with the Secretary of the Company.

          Section 8.  Consolidation, Merger, etc.  In the event that the Company
shall enter into any consolidation, merger, combination or other transaction in
which shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such event each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and other property (payable in like kind), as the case may be,
for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Dividend Multiple, the Vote Multiple or the
Liquidation Multiple in effect immediately prior to such event.

          Section 9.  Effective Time of Adjustments.

          (A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event requiring
such adjustments occurs.

          (B) The Company shall give prompt written notice to each holder of a
share of Series A Preferred Stock of the effect on any shares of any adjustment
to the dividend  rights, voting rights or rights upon liquidation, dissolution
or winding up of the Company required by the provisions hereof.  Notwithstanding
the foregoing sentence, the failure of the Company to give such notice shall not
affect the validity of or the force or effect of or the requirement for such
adjustment.

          Section 10.  No Redemption.  The shares of Series A Preferred Stock
shall not be redeemable at the option of the Company or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the Company may acquire
shares 

                                      A-17
<PAGE>
 
of Series A Preferred Stock in any other manner permitted by law, the provisions
of the Amended Certificate of Designations setting forth the rights, powers and
preferences of the Series A Preferred Stock and the Restated Certificate of
Incorporation of the Company.

          Section 11.  Ranking.  Unless otherwise provided in the Restated
Certificate of Incorporation or a certificate of designations relating to a
subsequent series of Preferred Stock of the Company, the Series A Preferred
Stock shall rank junior to all other series of the Company's Preferred Stock as
to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding up, and senior to the Common Stock.

          Section 12.  Amendment.  After the Distribution Date (as defined in
the Rights Agreement), the provisions of the Amended Certificate of Designations
setting forth the rights, powers and preferences of the Series A Preferred Stock
and the Restated Certificate of Incorporation shall not be amended in any manner
which would materially affect the rights, privileges or powers of the Series A
Preferred Stock without, in addition to any other vote of stockholders required
by law, the affirmative vote of the holders of 66 2/3% of more of the
outstanding shares of Series A Preferred Stock, voting together as a single
class.

          5.  This Amended Certificate of Designations shall become effective at
5:01 p.m. on March 26, 1999.

                                      A-18
<PAGE>
 
          IN WITNESS WHEREOF, J. C. Penney Company, Inc. has caused this Second
Amended Certificate of Designations to be signed and attested this __ day of
March, 1999.

                              J. C. PENNEY COMPANY, INC.

                              By  
                                  ----------------------------------------------
                                  Name:
                                  Title:

ATTEST:

-----------------------------------
Name:
Title:

                                      A-19
<PAGE>
 
                                   EXHIBIT B
                                   ---------

                          CERTIFICATE OF DESIGNATIONS

                                      OF

                   SERIES B ESOP CONVERTIBLE PREFERRED STOCK

                                      of

                          J. C. PENNEY COMPANY, INC.

                    Pursuant to Section 151 of the General
                   Corporation Law of the State of Delaware


         I, William R. Howell, Chairman of the Board of J. C. Penney Company,
Inc. ("Company"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151 thereof, DO HEREBY CERTIFY that, pursuant to the authority conferred
upon the Board of Directors by the Restated Certificate of Incorporation of the
Company, the Board of Directors authorized the series of Preferred Stock
hereinafter provided for and established the voting powers thereof and
authorized a committee of the Board of Directors to adopt, and said committee
has adopted, the following resolution creating a series of 1,400,000 shares of
Preferred Stock, without par value, designated as Series B ESOP Convertible
Preferred Stock:

         RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Company be, and
it hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:

         Section 1.  Designation and Amount; Special Purpose Restricted Transfer
Issue.

         (A)  The shares of this series of Preferred Stock shall be designated
as Series B ESOP Convertible Preferred Stock ("Series B Preferred Stock") and
the number of shares constituting such series shall be 1,400,000.

         (B)  Shares of Series B Preferred Stock shall be issued only to a

                                      B-1
<PAGE>
 
trustee acting on behalf of an employee stock ownership plan or other employee
benefit plan of the Company.  In the event of any transfer of shares of Series B
Preferred Stock to any person other than any such plan trustee, the shares of
Series B Preferred Stock so transferred, upon such transfer and without any
further action by the Company or the holder, shall be automatically converted
into shares of Common Stock on the terms otherwise provided for the conversion
of shares of Series B Preferred Stock into shares of Common Stock pursuant to
Section 5 hereof and no such transferee shall have any of the voting powers,
preferences and relative, participating, optional or special rights ascribed to
shares of Series B Preferred Stock hereunder but, rather, only the powers and
rights pertaining to the Common Stock into which such shares of Series B
Preferred Stock shall be so converted.  Certificates representing shares of
Series B Preferred Stock shall be legended to reflect such restrictions on
transfer.  Notwithstanding the foregoing provisions of this paragraph (B) of
Section 1, shares of Series B Preferred Stock (i) may be converted into shares
of Common Stock as provided by Section 5 hereof and the shares of Common Stock
issued upon such conversion may be transferred by the holder thereof as
permitted by law and (ii) shall be redeemable by the Company upon the terms and
conditions provided by Sections 6, 7 and 8 hereof.

         Section 2.  Dividends and Distributions.

         (A)  Subject to the provisions for adjustment hereinafter set forth,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends ("Preferred Dividends") in an amount per
share equal to $47.40 per share per annum, and no more, payable semi-annually,
one-half on the first day of January and one-half on the first day of July of
each year (each a "Dividend Payment Date") commencing on January 1, 1989, to
holders of record at the start of business on such Dividend Payment Date.
Preferred Dividends shall begin to accrue on outstanding shares of Series B
Preferred Stock from the date of issuance of such shares of Series B Preferred
Stock. Preferred Dividends shall accrue on a daily basis whether or not the
Company shall have earnings or surplus at the time, but Preferred Dividends
accrued after January 1, 1989 on the shares of Series B Preferred Stock for any
period less than a full semi-annual period between Dividend Payment Dates shall
be computed on the basis of a 360-day year of 30-day months. A full semi-annual
dividend payment of $23.70 per share shall accrue for the period from the date
of issuance until January 1, 1989. Accumulated but unpaid Preferred Dividends
shall cumulate as of the Dividend Payment Date on which they first become
payable, but no interest shall accrue on accumulated but unpaid Preferred
Dividends.

         (B)  So long as any Series B Preferred Stock shall be outstanding, no
dividend shall be declared or paid or set apart for payment on any other series
of 

                                      B-2
<PAGE>
 
stock ranking on a parity with the Series B Preferred Stock as to dividends,
unless there shall also be or have been declared and paid or set apart for
payment on the Series B Preferred Stock, like dividends for all dividend payment
periods of the Series B Preferred Stock ending on or before the dividend payment
date of such parity stock, ratably in proportion to the respective amounts of
dividends accumulated and unpaid through such dividend payment period on the
Series B Preferred Stock and accumulated and unpaid or payable on such parity
stock through the dividend payment period on such parity stock next preceding
such dividend payment date.  In the event that full cumulative dividends on the
Series B Preferred Stock have not been declared and paid or set apart for
payment when due, the Company shall not declare or pay or set apart for payment
any dividends or make any other distributions on, or make any payment on account
of the purchase, redemption or other retirement of any other class of stock or
series thereof of the Company ranking, as to dividends or as to distributions in
the event of a liquidation, dissolution or winding-up of the Company, junior to
the Series B Preferred Stock until full cumulative dividends on the Series B
Preferred Stock shall have been paid or declared and provided for; provided,
however, that the foregoing shall not apply to (i) any dividend payable solely
in any shares of any stock ranking, as to dividends or as to distributions in
the event of a liquidation, dissolution or winding-up of the Company, junior to
the Series B Preferred Stock, or (ii) the acquisition of shares of any stock
ranking, as to dividends or as to distributions in the event of a liquidation,
dissolution or winding up of the Company, junior to the Series B Preferred Stock
either (A) pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of the
Company or any subsidiary of the Company heretofore or hereafter adopted or (B)
in exchange solely for shares of any other stock ranking junior to the Series B
Preferred Stock.

         Section 3.  Voting Rights.  The holders of shares of Series B Preferred
Stock shall have the following voting rights:

         (A)  The holders of Series B Preferred Stock shall be entitled to vote
on all matters submitted to a vote of the holders of Common Stock of the
Company, voting together with the holders of Common Stock as one class.  Each
share of the Series B Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Series B
Preferred Stock could be converted on the record date for determining the
stockholders entitled to vote, rounded to the nearest one-tenth of a vote; it
being understood that whenever the "Conversion Price" (as defined in Section 5
hereof) is adjusted as provided in Section 9 hereof, the voting rights of the
Series B Preferred Stock shall also be similarly adjusted.

         (B)  Except as otherwise required by law or set forth herein, holders 

                                      B-3
<PAGE>
 
of Series B Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action; provided, however, that the vote of at least 66-2/3% of the
outstanding shares of Series B Preferred Stock, voting separately as a series,
shall be necessary to adopt any alteration, amendment or repeal of any provision
of the Restated Certificate of Incorporation of the Company, as amended, or this
Resolution (including any such alteration, amendment or repeal effected by any
merger or consolidation in which the Company is the surviving or resulting
corporation) if such amendment, alteration or repeal would alter or change the
powers, preferences or special rights of the shares of Series B Preferred Stock
so as to affect them adversely.

         Section 4.  Liquidation, Dissolution or Winding Up.

         (A)  Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Series B Preferred Stock shall be
entitled to receive out of assets of the Company which remain after satisfaction
in full of all valid claims of creditors of the Company and which are available
for payment to stockholders and subject to the rights of the holders of any
stock of the Company ranking senior to or on a parity with the Series B
Preferred Stock in respect of distributions upon liquidation, dissolution or
winding up of the Company, before any amount shall be paid or distributed among
the holders of Common Stock or any other shares ranking junior to the Series B
Preferred Stock in respect of distributions upon liquidation, dissolution or
winding up of the Company, liquidating distributions in the amount of $600.00
per share, plus an amount equal to all accumulated and unpaid dividends thereon
to the date fixed for distribution, and no more.  If upon any liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Series B Preferred Stock and any other stock ranking as to any such
distribution on a parity with the Series B Preferred Stock are not paid in full,
the holders of the Series B Preferred Stock and such other stock shall share
ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled.  After payment of the full
amount to which they are entitled as provided by the foregoing provisions of
this paragraph 4(A), the holders of shares of Series B Preferred Stock shall not
be entitled to any further right or claim to any of the remaining assets of the
Company.

         (B)  Neither the merger or consolidation of the Company with or into
any other corporation, nor the merger or consolidation of any other corporation
with or into the Company, nor the sale, transfer or lease of all or any portion
of the assets of the Company, shall be deemed to be a dissolution, liquidation
or winding up of the affairs of the Company for purposes of this Section 4, but
the holders of Series B Preferred Stock shall nevertheless be entitled in the
event of any such merger or consolidation to the rights provided by Section 8
hereof.

                                      B-4
<PAGE>
 
         (C)  Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, stating the payment date or dates
when, and the place or places where, the amounts distributable to holders of
Series B Preferred Stock in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than twenty (20) days
prior to any payment date stated therein, to the holders of Series B Preferred
Stock, at the address shown on the books of the Company or any transfer agent
for the Series B Preferred Stock.

         Section 5.  Conversion into Common Stock.

         (A)  A holder of shares of Series B Preferred Stock shall be entitled,
at any time prior to the close of business on the date fixed for redemption of
such shares pursuant to Section 6, 7 or 8 hereof, to cause any or all of such
shares to be converted into shares of Common Stock, initially at a conversion
rate equal to the ratio of $600.00 to the amount which initially shall be $60.00
and which shall be adjusted as hereinafter provided (and, as so adjusted, is
hereinafter sometimes referred to as the "Conversion Price") (that is, a
conversion rate initially equivalent to ten shares of Common Stock for each
share of Series B Preferred Stock so converted but that is subject to adjustment
as the Conversion Price is adjusted as hereinafter provided).

         (B)  Any holder of shares of Series B Preferred Stock desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the shares of Series B Preferred Stock being
converted, duly assigned or endorsed for transfer to the Company (or accompanied
by duly executed stock powers relating thereto), at the principal executive
office of the Company or the offices of the transfer agent for the Series B
Preferred Stock or such office or offices in the continental United States of an
agent for conversion as may from time to time be designated by notice to the
holders of the Series B Preferred Stock by the Company or the transfer agent for
the Series B Preferred Stock, accompanied by written notice of conversion.  Such
notice of conversion shall specify (i) the number of shares of Series B
Preferred Stock to be converted and the name or names in which such holder
wishes the certificate or certificates for Common Stock and for any shares of
Series B Preferred Stock not to be so converted to be issued, and (ii) the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion.

         (C)  Upon surrender of a certificate representing a share or shares of
Series B Preferred Stock for conversion, the Company shall issue and send by
hand delivery (with receipt to be acknowledged) or by first-class mail, postage
prepaid, to the holder thereof or to such holder's designee, at the address
designated by such 

                                      B-5
<PAGE>
 
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled upon conversion. In the event that there
shall have been surrendered a certificate or certificates representing shares of
Series B Preferred Stock, only part of which are to be converted, the Company
shall issue and deliver to such holder or such holder's designee a new
certificate or certificates representing the number of shares of Series B
Preferred Stock which shall not have been converted.

         (D)  The issuance by the Company of shares of Common Stock upon a
conversion of shares of Series B Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof or (ii)
the commencement of business on the second business day after the surrender of
the certificate or certificates for the shares of Series B Preferred Stock to be
converted, duly assigned or endorsed for transfer to the Company (or accompanied
by duly executed stock powers relating thereto) as provided by this Resolution.
On and after the effective day of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock in respect of any period prior to such effective date.  The
Company shall not be obligated to pay any dividends which shall have been
declared and shall be payable to holders of shares of Series B Preferred Stock
on a Dividend Payment Date if such Dividend Payment Date for such dividend shall
coincide with or be on or subsequent to the effective date of conversion of such
shares.

         (E)  The Company shall not be obligated to deliver to holders of Series
B Preferred Stock any fractional share or shares of Common Stock issuable upon
any conversion of such shares of Series B Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.

         (F)  Whenever the Company shall issue shares of Common Stock upon
conversion of shares of Series B Preferred Stock as contemplated by this Section
5, the Company shall issue together with each such share of Common Stock one
right to purchase Series A Preferred Stock of the Company (or other securities
in lieu thereof) pursuant to the Rights Agreement dated as of January 28, 1986
between the Company and Morgan Guaranty Trust Company as Rights Agent, as such
agreement may from time to time be amended, or any rights issued to holders of
Common Stock of the Company in addition thereto or in replacement therefor,
whether or not such rights shall be exercisable at such time, but only if such
rights are issued and outstanding and held by other holders of Common Stock of
the Company at such time and have not expired.

                                      B-6
<PAGE>
 
         (G)  The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of shares of Series B Preferred Stock as herein provided, free from
any preemptive rights, such number of shares of Common Stock as shall from time
to time be issuable upon the conversion of all the shares of Series B Preferred
Stock then outstanding.  The Company shall prepare and shall use its best
efforts to obtain and keep in force such governmental or regulatory permits or
other authorizations as may be required by law, and shall comply with all
requirements as to registration or qualification of the Common Stock, in order
to enable the Company lawfully to issue and deliver to each holder of record of
Series B Preferred Stock such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of Series B
Preferred Stock then outstanding and convertible into shares of Common Stock.

         Section 6.  Redemption At the Option of the Company.

         (A)  The Series B Preferred Stock shall be redeemable, in whole or in
part, at the option of the Company at any time after July 1, 1991, or on or
before July 1, 1991 if permitted by paragraph (C) or (D) of this Section 6, at
the following redemption prices per share:

              During the Twelve-
              Month Period                  Price Per
              Beginning July 2,               Share
              ------------------            ---------

                   1988. . . . . . . . . . . $ 647.40
                   1989. . . . . . . . . . . $ 642.66
                   1990. . . . . . . . . . . $ 637.92
                   1991. . . . . . . . . . . $ 633.18
                   1992. . . . . . . . . . . $ 628.44
                   1993. . . . . . . . . . . $ 623.70
                   1994. . . . . . . . . . . $ 618.96
                   1995. . . . . . . . . . . $ 614.22
                   1996. . . . . . . . . . . $ 609.48
                   1997. . . . . . . . . . . $ 604.74


and thereafter at $600.00 per share, plus, in each case, an amount equal to all
accumulated and unpaid dividends thereon to the date fixed for redemption.
Payment of the redemption price shall be made by the Company in cash or shares
of Common Stock, or a combination thereof, as permitted by paragraph (E) of this
Section 6.  From and after the date fixed for redemption, dividends on shares of

                                      B-7
<PAGE>
 
Series B Preferred Stock called for redemption will cease to accrue, such shares
will no longer be deemed to be outstanding and all rights in respect of such
shares of the Company shall cease, except the right to receive the redemption
price.  If less than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, the Company shall either redeem a portion of the shares of
each holder determined pro rata based on the number of shares held by each
holder or shall select the shares to be redeemed by lot, as may be determined by
the Board of Directors of the Company.

         (B)  Unless otherwise required by law, notice of redemption will be
sent to the holders of Series B Preferred Stock at the address shown on the
books of the Company or any transfer agent for the Series B Preferred Stock by
first class mail, postage prepaid, mailed not less than twenty (20) days nor
more than sixty (60) days prior to the redemption date. Each such notice shall
state: (i) the redemption date; (ii) the total number of shares of the Series B
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the redemption price; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the conversion rights of the shares to be redeemed,
the period within which conversion rights may be exercised, and the Conversion
Price and number of shares of Common Stock issuable upon conversion of a share
of Series B Preferred Stock at the time. Upon surrender of the certificates for
any shares so called for redemption and not previously converted (properly
endorsed or assigned for transfer, if the Board of Directors of the Company
shall so require and the notice shall so state), such shares shall be redeemed
by the Company at the date fixed for redemption and at the redemption price set
forth in this Section 6.

         (C)  In the event of a change in the federal tax law of the United
States of America which has the effect of precluding the Company from claiming
any of the tax deductions for dividends paid on the Series B Preferred Stock
when such dividends are used as provided under Section 404(k)(2) of the Internal
Revenue Code of 1986, as amended and in effect on the date shares of Series B
Preferred Stock are initially issued, the Company may, in its sole discretion
and notwithstanding anything to the contrary in paragraph (A) of this Section 6,
elect to redeem such shares for the amount payable in respect of the shares upon
liquidation of the Company pursuant to Section 4 hereof.

         (D)  Notwithstanding anything to the contrary in paragraph (A) of this
Section 6, the Company may elect to redeem any or all of the shares of Series B
Preferred Stock at any time on or prior to July 1, 1991 on the terms and
conditions set forth in paragraphs (A) and (B) of this Section 6, if the last
reported sales price, 

                                      B-8
<PAGE>
 
regular way, of a share of Common Stock, as reported on the New York Stock
Exchange Composite Tape or, if the Common Stock is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which such stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
on the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") or, if the Common Stock is not quoted
on such National Market System, the average of the closing bid and asked prices
in over-the-counter market as reported by NASDAQ, for at least twenty (20)
trading days within a period of thirty (30) consecutive trading days ending
within five (5) days of the notice of redemption equals or exceeds one hundred
fifty percent (150%) of the Conversion Price (giving effect equitably in making
such calculation to any adjustments required by Section 9 hereof).

         (E)  The Company, at its option, may make payment of the redemption
price required upon redemption of shares of Series B Preferred Stock in cash or
in shares of Common Stock, or in a combination of such shares and cash, any such
shares to be valued for such purpose at their Fair Market Value (as defined in
paragraph (G) of Section 9 hereof, provided, however, that in calculating their
Fair Market Value the Adjustment Period shall be deemed to be the five (5)
consecutive trading days preceding, and including, the date of redemption).

                                      B-9
<PAGE>
 
         Section 7.  Other Redemption Rights.

         Shares of Series B Preferred Stock shall be redeemed by the Company for
cash or, if the Company so elects, in shares of Common Stock, or a combination
of such shares and cash, any such shares of Common Stock to be valued for such
purpose as provided by paragraph (E) of Section 6, at a redemption price of
$600.00 per share plus accumulated and unpaid dividends thereon to the date
fixed for redemption, at the option of the holder, at any time and from time to
time upon notice to the Company given not less than five (5) business days prior
to the date fixed by the holder in such notice for such redemption, when and to
the extent necessary (i) for such holder to provide for distributions required
to be made under, or to satisfy an investment election provided to participants
in accordance with, the J. C. Penney Company, Inc. Savings, Profit-Sharing and
Stock Ownership Plan, dated and effective as of August 22, 1988, as the same may
be amended, or any successor plan (the "Plan") to participants in the Plan or
(ii) for such holder to make payment of principal, interest or premium due and
payable (whether as scheduled or upon acceleration) on the 8.17% ESOP Notes Due
July 1, 1998 of the trust under the Plan or any indebtedness incurred by the
holder for the benefit of the Plan.

         Section 8.  Consolidation, Merger, etc.

                                      B-10
<PAGE>
 
         (A)  In the event that the Company shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged solely for
or changed, reclassified or converted solely into stock of any successor or
resulting company (including the Company) that constitutes "qualifying employer
securities" with respect to a holder of Series B Preferred Stock within the
meaning of Section 409(e) of the Internal Revenue Code of 1986, as amended, and
Section 407(c)(5) of the Employee Retirement Income Security Act of 1974, as
amended, or any successor provisions of law, and, if applicable, for a cash
payment in lieu of fractional shares, if any, the shares of Series B Preferred
Stock of such holder shall be assumed by and shall become preferred stock of
such successor or resulting company, having in respect of such company insofar
as possible the same powers, preferences and relative, participating, optional
or other special rights (including the redemption rights provided by Sections 6,
7 and 8 hereof), and the qualifications, limitations or restrictions thereon,
that the Series B Preferred Stock had immediately prior to such transaction,
except that after such transaction each share of the Series B Preferred Stock
shall be convertible, otherwise on the terms and conditions provided by Section
5 hereof, into the qualifying employer securities so receivable by a holder of
the number of shares of Common Stock into which such shares of Series B
Preferred Stock could have been converted immediately prior to such transaction
if such holder of Common Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash or other property (other
than such qualifying employer securities and a cash payment, if applicable, in
lieu of fractional shares) receivable upon such transaction (provided that, if
the kind or amount of qualifying employer securities receivable upon such
transaction is not the same for each non-electing share, then the kind and
amount of qualifying employer securities receivable upon such transaction for
each non-electing share shall be the kind and amount so receivable per share by
a plurality of the non-electing shares). The rights of the Series B Preferred
Stock as preferred stock of such successor or resulting company shall
successively be subject to adjustments pursuant to Section 9 hereof after any
such transaction as nearly equivalent to the adjustments provided for by such
section prior to such transaction. The Company shall not consummate any such
merger, consolidation or similar transaction unless all then outstanding shares
of the Series B Preferred Stock shall be assumed and authorized by the successor
or resulting company as aforesaid.

         (B)  In the event that the Company shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged for or
changed, reclassified or converted into other stock or securities or cash or any
other property, or any combination thereof, other than any such consideration
which is constituted solely of qualifying employer securities (as referred to in
paragraph (A) of this Section 8) and cash payments, if applicable, in lieu of
fractional shares,

                                      B-11
<PAGE>
 
outstanding shares of Series B Preferred Stock shall, without any action on the
part of the Company or any holder thereof (but subject to paragraph (C) of this
Section 8), be deemed converted by virtue of such merger, consolidation or
similar transaction immediately prior to such consummation into the number of
shares of Common Stock into which such shares of Series B Preferred Stock could
have been converted at such time and each share of Series B Preferred Stock
shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate amount
of stock, securities, cash or other property (payable in like kind) receivable
by a holder of the number of shares of Common Stock into which such shares of
Series B Preferred Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election as to the kind or amount of stock, securities, cash or other property
receivable upon such transaction (provided that, if the kind or amount of stock,
securities, cash or other property receivable upon such transaction is not the
same for each non-electing share, then the kind and amount of stock, securities,
cash or other property receivable upon such transaction for each non-electing
share shall be the kind and amount so receivable per share by a plurality of the
non-electing shares).

                                      B-12
<PAGE>
 
         (C)  In the event the Company shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Section 8, then the Company shall as soon as practicable thereafter
(and in any event at least ten (10) business days before consummation of such
transaction) give notice of such agreement and the material terms thereof to
each holder of Series B Preferred Stock and each such holder shall have the
right to elect, by written notice to the Company, to receive, upon consummation
of such transaction (if and when such transaction is consummated), from the
Company or the successor of the Company, in redemption and retirement of such
Series B Preferred Stock, a cash payment equal to the amount payable in respect
of shares of Series B Preferred Stock upon liquidation of the Company pursuant
to Section 4 hereof.  No such notice of redemption shall be effective unless
given to the Company prior to the close of business on the fifth business day
prior to consummation of such transaction, unless the Company or the successor
of the Company shall waive such prior notice, but any notice of redemption so
given prior to such time may be withdrawn by notice of withdrawal given to the
Company prior to the close of business on the fifth business day prior to
consummation of such transaction.

         Section 9.  Anti-dilution Adjustments.

         (A)  In the event the Company shall, at any time or from time to time
while any of the shares of the Series B Preferred Stock are outstanding, (i) pay
a dividend or make a distribution in respect of the Common Stock in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
in each case whether by reclassification of shares, recapitalization of the
Company (including a recapitalization effected by a merger or consolidation to
which Section 8 hereof does not apply) or otherwise, the Conversion Price in
effect immediately prior to such action shall be adjusted by multiplying such
Conversion Price by the fraction the numerator of which is the number of shares
of Common Stock outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding immediately after such
event.  An adjustment made pursuant to this paragraph 9(A) shall be given
effect, upon payment of such a dividend or distribution, as of the record date
for the determination of shareholders entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the effective date thereof.

         (B)  In the event that the Company shall, at any time or from time to
time while any of the shares of Series B Preferred Stock are outstanding, issue
to holders of shares of Common Stock as a dividend or distribution, including by
way of a reclassification of shares or a recapitalization of the Company, any
right or 

                                      B-13
<PAGE>
 
warrant to purchase shares of Common Stock (but not including as such a right or
warrant any security convertible into or exchangeable for shares of Common
Stock) at a purchase price per share less than the Fair Market Value (as
hereinafter defined) of a share of Common Stock on the date of issuance of such
right or warrant, then, subject to the provisions of paragraphs (E) and (F) of
this Section 9, the Conversion Price shall be adjusted by multiplying such
Conversion Price by the fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the number of shares of Common Stock which could be purchased at
the Fair Market Value of a share of Common Stock at the time of such issuance
for the maximum aggregate consideration payable upon exercise in full of all
such rights or warrants and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock that could be
acquired upon exercise in full of all such rights and warrants.

         (C)  In the event the Company shall, at any time or from time to time
while any of the shares of Series B Preferred Stock are outstanding, issue, sell
or exchange shares of Common Stock (other than pursuant to any right or warrant
to purchase or acquire shares of Common Stock (including as such a right or
warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Company or any subsidiary of the Company heretofore or
hereafter adopted) for a consideration having a Fair Market Value on the date of
such issuance, sale or exchange less than the Fair Market Value of such shares
on the date of such issuance, sale or exchange, then, subject to the provisions
of paragraphs (E) and (F) of this Section 9, the Conversion Price shall be
adjusted by multiplying such Conversion Price by the fraction the numerator of
which shall be the sum of (i) the Fair Market Value of all the shares of Common
Stock outstanding on the day immediately preceding the first public announcement
of such issuance, sale or exchange plus (ii) the Fair Market Value of the
consideration received by the Company in respect of such issuance, sale or
exchange of shares of Common Stock, and the denominator of which shall be the
product of (i) the Fair Market Value of a share of Common Stock on the day
immediately preceding the first public announcement of such issuance, sale or
exchange multiplied by (ii) the sum of the number of shares of Common Stock
outstanding on such day plus the number of shares of Common Stock so issued,
sold or exchanged by the Company.  In the event the Company shall, at any time
or from time to time while any shares of Series B Preferred Stock are
outstanding, issue, sell or exchange any right or warrant to purchase or acquire
shares of Common Stock (including as such a right or warrant any security
convertible into or exchangeable for shares of Common Stock), other than any
such issuance to holders of shares of Common Stock as a 

                                      B-14
<PAGE>
 
dividend or distribution (including by way of a reclassification of shares or a
recapitalization of the Company) and other than pursuant to any employee or
director incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Company or any subsidiary of the
Company heretofore or hereafter adopted, for a consideration having a Fair
Market Value on the date of such issuance, sale or exchange less than the Non-
Dilutive Amount (as hereinafter defined), then, subject to the provisions of
paragraphs (E) and (F) of this Section 9, the Conversion Price shall be adjusted
by multiplying such Conversion Price by a fraction the numerator of which shall
be the sum of (i) the Fair Market Value of all the shares of Common Stock
outstanding on the day immediately preceding the first public announcement of
such issuance, sale or exchange plus (ii) the Fair Market Value of the
consideration received by the Company in respect of such issuance, sale or
exchange of such right or warrant plus (iii) the Fair Market Value at the time
of such issuance of the consideration which the Company would receive upon
exercise in full of all such rights or warrants, and the denominator of which
shall be the product of (i) the Fair Market Value of a share of Common Stock on
the day immediately preceding the first public announcement of such issuance,
sale or exchange multiplied by (ii) the sum of the number of shares of Common
Stock outstanding on such day plus the maximum number of shares of Common Stock
which could be acquired pursuant to such right or warrant at the time of the
issuance, sale or exchange of such right or warrant (assuming shares of Common
Stock could be acquired pursuant to such right or warrant at such time).

         (D)  In the event the Company shall, at any time or from time to time
while any of the shares of Series B Preferred Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Company (including a recapitalization or
reclassification effected by a merger or consolidation to which Section 8 hereof
does not apply) or effect a Pro Rata Repurchase (as hereinafter defined) of
Common Stock, the Conversion Price in effect immediately prior to such
Extraordinary Distribution or Pro Rata Repurchase shall, subject to paragraphs
(E) and (F) of this Section 9, be adjusted by multiplying such Conversion Price
by the fraction the numerator of which is (i) the product of (x) the number of
shares of Common Stock outstanding immediately before such Extraordinary
Distribution or Pro Rata Repurchase multiplied by (y) the Fair Market Value (as
herein defined) of a share of Common Stock on the record date with respect to an
Extraordinary Distribution, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase, or on
the date of purchase with respect to any Pro Rata Repurchase which is not a
tender offer, as the case may be, minus (ii) the Fair Market Value of the
Extraordinary Distribution or the aggregate purchase price of the Pro Rata
Repurchase, as the case may be, and the denominator of which shall be the

                                      B-15
<PAGE>
 
product of (A) the number of shares of Common Stock outstanding immediately
before such Extraordinary Dividend or Pro Rata Repurchase minus, in the case of
a Pro Rata Repurchase, the number of shares of Common Stock repurchased by the
Company multiplied by (B) the Fair Market Value of a share of Common Stock on
the record date with respect to an Extraordinary Distribution or on the
applicable expiration date (including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase or on the date of purchase with respect to
any Pro Rata Repurchase which is not a tender offer, as the case may be.  The
Company shall send each holder of Series B Preferred Stock (i) notice of its
intent to make any dividend or distribution and (ii) notice of any offer by the
Company to make a Pro Rata Repurchase, in each case at the same time as, or as
soon as practicable after, such offer is first communicated (including by
announcement of a record date in accordance with the rules of any stock exchange
on which the Common Stock is listed or admitted to trading) to holders of Common
Stock.  Such notice shall indicate the intended record date and the amount and
nature of such dividend or distribution, or the number of shares subject to such
offer for a Pro Rata Repurchase and the purchase price payable by the Company
pursuant to such offer, as well as the Conversion Price and the number of shares
of Common Stock into which a share of Series B Preferred Stock may be converted
at such time.

         (E)  Notwithstanding any other provisions of this Section 9, the
Company shall not be required to make any adjustment of the Conversion Price
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.

         (F)  If the Company shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Company or any rights or warrants to purchase or acquire any such security,
which transaction does not result in an adjustment to the Conversion Price
pursuant to the foregoing provisions of this Section 9, the Board of Directors
of the Company shall consider whether such action is of such a nature that an
adjustment to the Conversion Price should equitably be made in respect of such
transaction.  If in such case the Board of Directors of the Company determines
that an adjustment to the Conversion Price should be made, an adjustment shall
be made effective as of such date, as determined by the Board of Directors of
the Company.  The determination of the Board of Directors of the Company as to
whether an adjustment to the Conversion Price should be made pursuant to the
foregoing provisions of this paragraph 9(F), and, if so, as to what adjustment
should be made and when, shall be final and binding on the Company and all
stockholders of the 

                                      B-16
<PAGE>
 
Company. The Company shall be entitled to make such additional adjustments in
the Conversion Price, in addition to those required by the foregoing provisions
of this Section 9, as shall be necessary in order that any dividend or
distribution in shares of capital stock of the Company, subdivision,
reclassification or combination of shares of stock of the Company or any
recapitalization of the Company shall not be taxable to holders of the Common
Stock.

         (G)  For purposes of this Resolution, the following definitions shall
apply:

         "Extraordinary Distribution" shall mean any dividend or other
distribution (effected while any of the shares of Series B Preferred Stock are
outstanding) (i) of cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and distributions
made during the preceding period of 12 months, when combined with the aggregate
amount of all Pro Rata Repurchases (for this purpose, including only that
portion of the aggregate purchase price of such Pro Rata Repurchase which is in
excess of the Fair Market Value of the Common Stock repurchased as determined on
the applicable expiration date (including all extensions thereof) of any tender
offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase
with respect to any other Pro Rata Repurchase which is not a tender offer or
exchange offer made during such period ), exceeds twelve and one-half percent
(12-1/2%) of the aggregate Fair Market Value of all shares of Common Stock
outstanding on the record date for determining the shareholders entitled to
receive such Extraordinary Distribution and (ii) any shares of capital stock of
the Company (other than shares of Common Stock), other securities of the Company
(other than securities of the type referred to in paragraph (B) of this Section
9), evidences of indebtedness of the Company or any other person or any other
property (including shares of any subsidiary of the Company), or any combination
thereof.  The Fair Market Value of an Extraordinary Distribution for purposes of
paragraph (D) of this Section 9 shall be the sum of the Fair Market Value of
such Extraordinary Distribution plus the amount of any cash dividends which are
not Extraordinary Distributions made during such twelve month period and not
previously included in the calculation of an adjustment pursuant to paragraph
(D) of this Section 9.

         "Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Company or any other issuer
which are publicly traded, the average of the Current Market Prices (as
hereinafter defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined).  "Current Market Price" of publicly traded
shares of Common Stock or any other class of capital stock or other security of
the Company or any other issuer for a day shall mean the last reported sales
price, regular way, or, in case no sale takes place on such day, the average of
the reported closing bid and 

                                      B-17
<PAGE>
 
asked prices, regular way, in either case as reported on the New York Stock
Exchange Composite Tape or, if such security is not listed or admitted to
trading on the New York Stock Exchange, on the principal national securities
exchange on which such security is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the NASDAQ
National Market System or, if such security is not quoted on such National
Market System, the average of the closing bid and asked prices on each such day
in the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on each such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day as furnished by any New
York Stock Exchange member firm regularly making a market in such security
selected for such purpose by the Board of Directors of the Company or a
committee thereof on each trading day during the Adjustment Period. "Adjustment
Period" shall mean the period of five (5) consecutive trading days, selected by
the Board of Directors of the Company or a committee thereof, during the 20
trading days preceding, and including, the date as of which the Fair Market
Value of a security is to be determined. The "Fair Market Value" of any security
which is not publicly traded or of any other property shall mean the fair value
thereof as determined by an independent investment banking or appraisal firm
experienced in the valuation of such securities or property selected in good
faith by the Board of Directors of the Company or a committee thereof, or, if no
such investment banking or appraisal firm is in the good faith judgment of the
Board of Directors or such committee available to make such determination, as
determined in good faith by the Board of Directors of the Company or such
committee.

         "Non-Dilutive Amount" in respect of an issuance, sale or exchange by
the Company of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock) shall mean the remainder of (i) the product of the Fair Market
Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock which could be acquired on such date upon the exercise
in full of such rights and warrants  (including upon the conversion or exchange
of all such convertible or exchangeable securities), whether or not exercisable
(or convertible or exchangeable) at such date, minus (ii) the aggregate amount
payable pursuant to such right or warrant to purchase or acquire such maximum
number of shares of Common Stock; provided, however, that in no event shall the
Non-Dilutive Amount be less than zero.  For purposes of the foregoing sentence,
in the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Company.

                                      B-18
<PAGE>
 
         "Pro Rata Repurchase" shall mean any purchase of shares of Common Stock
by the Company or any subsidiary thereof, whether for cash, shares of capital
stock of the Company, other securities of the Company, evidences of indebtedness
of the Company or any other person or any other property (including shares of a
subsidiary of the Company), or any combination thereof, effected while any of
the shares of Series B Preferred Stock are outstanding, pursuant to any tender
offer or exchange offer subject to Section 13(e) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any successor provision of law, or
pursuant to any other offer available to substantially all holders of Common
Stock; provided, however, that no purchase of shares by the Company or any
subsidiary thereof made in open market transactions shall be deemed a Pro Rata
Repurchase.  For purposes of this paragraph 9(G), shares shall be deemed to have
been purchased by the Company or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act, on the date
shares of Series B Preferred Stock are initially issued by the Company or on
such other terms and conditions as the Board of Directors of the Company or a
committee thereof shall have determined are reasonably designed to prevent such
purchases from having a material effect on the trading market for the Common
Stock.

         (H)  Whenever an adjustment to the Conversion Price and the related
voting rights of the Series B Preferred Stock is required pursuant to this
Resolution, the Company shall forthwith place on file with the transfer agent
for the Common Stock and the Series B Preferred Stock if there be one, and with
the Secretary of the Company, a statement signed by two officers of the Company
stating the adjusted Conversion Price determined as provided herein and the
resulting conversion ratio, and the voting rights (as appropriately adjusted),
of the Series B Preferred Stock.  Such statement shall set forth in reasonable
detail such facts as shall be necessary to show the reason and the manner of
computing such adjustment, including any determination of Fair Market Value
involved in such computation.  Promptly after each adjustment to the Conversion
Price and the related voting rights of the Series B Preferred Stock, the Company
shall mail a notice thereof and of the then prevailing conversion ratio to each
holder of shares of the Series B Preferred Stock.

         Section 10.  Ranking; Attributable Capital and Adequacy of Surplus;
Retirement of Shares.

                                      B-19
<PAGE>
 
         (A)  The Series B Preferred Stock shall rank senior to the Series A
Preferred Stock and the Common Stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution and winding up of the
Company, and, unless otherwise provided in the Restated Certificate of
Incorporation of the Company, as amended, or a Certificate of Designations
relating to a subsequent series of Preferred Stock, without par value, of the
Company, the Series B Preferred Stock shall rank junior to all other series of
the Company's Preferred Stock, without par value, as to the payment of dividends
and the distribution of assets on liquidation, dissolution or winding up.

         (B)  The capital of the Company allocable to the Series B Preferred
Stock for purposes of the Delaware General Corporation Law (the "Corporation
Law") shall be $600.00 per share.  In addition to any vote of stockholders
required by law, the vote of the holders of a majority of the outstanding shares
of Series B Preferred Stock shall be required to increase the par value of the
Common Stock or otherwise increase the capital of the Company allocable to the
Common Stock for the purpose of the Corporation Law if, as a result thereof, the
surplus of the Company for purposes of the Corporation Law would be less than
the amount of Preferred Dividends that would accrue on the then outstanding
shares of Series B Preferred Stock during the following three years.

         (C)  Any shares of Series B Preferred Stock acquired by the Company by
reason of the conversion or redemption of such shares as provided by this
Resolution, or otherwise so acquired, shall be retired as shares of Series B
Preferred Stock and restored to the status of authorized but unissued shares of
preferred stock, without par value, of the Company, undesignated as to series,
and may thereafter be reissued as part of a new series of such preferred stock
as permitted by law.

         Section 11.  Miscellaneous.

         (A)  All notices referred to herein shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
thereof or three (3) business days after the mailing thereof if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice under the terms of this Resolution) with postage prepaid, addressed:
(i) if to the Company, to its office at 14841 North Dallas Parkway, Dallas Texas
75240 (Attention: Secretary) or to the transfer agent for the Series B Preferred
Stock, or other agent of the Company designated as permitted by this Resolution
or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as the
case may be, to such holder at the address of such holder as listed in the stock
record books of the Company (which may include the records of any transfer agent
for the Series B Preferred Stock or Common Stock, as the case may be) or (iii)
to such other address as the Company 

                                      B-20
<PAGE>
 
or any such holder, as the case may be, shall have designated by notice
similarly given.

         (B)  The term "Common Stock" as used in this Resolution means the
Company's Common Stock of 50c par value, as the same exists at the date of
filing of a Certificate of Designations relating to Series B Preferred Stock or
any other class of stock resulting from successive changes or reclassification
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value.  In the event that, at
any time as a result of an adjustment made pursuant to Section 9 of this
Resolution, the holder of any share of the Series B Preferred Stock upon
thereafter surrendering such shares for conversion shall become entitled to
receive any shares or other securities of the Company other than shares of
Common Stock, the Conversion Price in respect of such other shares or securities
so receivable upon conversion of shares of Series B Preferred Stock shall
thereafter be adjusted, and shall be subject to further adjustment from time to
time, in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in Section 9 hereof, and the
provisions of Sections 1 through 8 and 10 and 11 of this Resolution with respect
to the Common Stock shall apply on like or similar terms to any such other
shares or securities.

         (C)  The Company shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series B Preferred Stock or shares of Common Stock or other securities issued
on account of Series B Preferred Stock pursuant hereto or certificates
representing such shares or securities.  The Company shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series B Preferred Stock or
Common Stock or other securities in a name other than that in which the shares
of Series B Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Company the amount of any
such tax or has established, to the satisfaction of the Company, that such tax
has been paid or is not payable.

         (D)  In the event that a holder of shares of Series B Preferred Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series B Preferred Stock should be made or
the address to which the certificate or certificates representing such shares,
or such payment, should be sent, the Company shall be entitled to register such
shares, and 

                                      B-21
<PAGE>
 
make such payment, in the name of the holder of such Series B Preferred Stock as
shown on the records of the Company and to send the certificate or certificates
representing such shares, or such payment, to the address of such holder shown
on the records of the Company.

         (E)  Unless otherwise provided in the Restated Certificate of
Incorporation, as amended, of the Company, all payments in the form of
dividends, distributions on voluntary or involuntary dissolution, liquidation or
winding-up or otherwise made upon the shares of Series B Preferred Stock and any
other stock ranking on a parity with the Series B Preferred Stock with respect
to such dividend or distribution shall be made pro rata, so that amounts paid
per share on the Series B Preferred Stock and such other stock shall in all
cases bear to each other the same ratio that the required dividends,
distributions or payments, as the case may be, then payable per share on the
shares of the Series B Preferred Stock and such other stock bear to each other.

         (F)  The Company may appoint, and from time to time discharge and
change, a transfer agent for the Series B Preferred Stock.  Upon any such
appointment or discharge of a transfer agent, the Company shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
B Preferred Stock.
--------------------

                                      B-22