Document:

<PAGE>
                                                              EXHIBIT 10(ii)(aa)

                           J. C. PENNEY COMPANY, INC.

                          MIRROR SAVINGS PLANS I and II

                        ADOPTED EFFECTIVE JANUARY 1, 1999

                        AMENDED THROUGH OCTOBER 10, 2001

--------------------------------------------------------------------------------
                                DOCUMENT HISTORY

This document contains the plans adopted on July 8, 1998 by the J. C. Penney
Company, Inc. Board of Directors effective January 1, 1999 as amended on the
following dates:

December 11, 1998           Human Resources Committee

July 14, 1999               Board of Directors
December 10, 1999           Human Resources Committee

December 11, 2000           Human Resources Committee

March 22, 2001              Human Resources and Compensation Committee

June 1, 2001                Director of Human Resources

October 10, 2001            Human Resources Committee
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<PAGE>

                           J. C. PENNEY COMPANY, INC.

                          MIRROR SAVINGS PLANS I and II

                        Adopted effective January 1, 1999

                        Amended through October 10, 2001

                                  INTRODUCTION
                                  ------------

     The J. C. Penney Company, Inc. Mirror Savings Plans I and II ("Plans") were
adopted effective January 1, 1999 as part of a program to redesign the Company's
qualified and non-qualified savings plans to optimize the retirement savings
opportunities for Associates.

     The Plans are maintained by the Company on an unfunded basis primarily for
the purpose of providing deferred compensation to a select group of management
or highly compensated employees.

     Merged into Plan II effective January 1, 1999 were the J. C. Penney
Company, Inc. 1995 Deferred Compensation Plan and the Annual Benefit Limit
Make-Up Accounts as of December 31, 1998 under the J. C. Penney Company, Inc.
Benefit Restoration Plan and the Thrift Drug, Inc. Benefit Restoration Plan. On
and after January 1, 1999 the J. C. Penney Company, Inc. 1995 Deferred
Compensation Plan is no longer in existence.
                                                                       (Plan II)

<PAGE>

                           J. C. PENNEY COMPANY, INC.
                          MIRROR SAVINGS PLANS I and II

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

Article                                                                Page
-------                                                                ----

ARTICLE ONE      DEFINITIONS.............................................1

ARTICLE TWO      ELIGIBILITY AND PARTICIPATION...........................4

   2.01      Eligibility Determined for Each Plan Year...................4
   2.02      Eligible Associate..........................................4
   2.03      Participation...............................................4
   2.04      Election to Defer...........................................5
   2.05      Deferral Amounts............................................5
   2.06      Investment Elections........................................6

ARTICLE THREE    BENEFITS................................................7

   3.01      Establishment of Accounts...................................7
   3.02      Personal Accounts...........................................7
   3.03      Company Accounts............................................7
   3.04      Mirror Company Matching Contribution........................8
   3.05      Partial-Year Mirror Company Matching Contribution...........9
   3.06      Transferred Participants...................................10

ARTICLE FOUR     TRANSFERS..............................................11

   4.01      Personal Accounts..........................................11
   4.02      Company Accounts...........................................11

ARTICLE FIVE     VESTING................................................12

   5.01      Personal Accounts..........................................12
   5.02      Company Accounts...........................................12
   5.03      Forfeitures................................................12

ARTICLE SIX      TYPE OF PLAN...........................................13

   6.01      Top Hat Plan...............................................13
   6.02      No Funding.................................................13

ARTICLE SEVEN    DISTRIBUTIONS..........................................14

<PAGE>

   7.01      Normal Form of Payment.....................................14
   7.02      Separation from Service....................................14
   7.03      Death......................................................14
   7.04      Alternate Form of Payment..................................15
   7.05      Hardship Distribution......................................15
   7.06      Fund-Specific Installments or Hardship Distributions.......16
   7.07      Form of Payments...........................................16
   7.08      Change of Control..........................................16
   7.09      Reemployed Particpants.....................................19

ARTICLE EIGHT    AMENDMENT AND TERMINATION..............................20

   8.01      Plan Amendment.............................................20
   8.02      Plan Termination...........................................20
   8.03      Automatic Plan Termination.................................20

ARTICLE NINE     MISCELLANEOUS..........................................21

   9.01      Plan Administration........................................21
   9.02      Plan Expenses..............................................21
   9.03      Effect on Other Benefits...................................21
   9.04      No Guarantee of Employment.................................22
   9.05      Disclaimer of Liability....................................22
   9.06      Severability...............................................22
   9.07      Successors.................................................22
   9.08      Governing Law..............................................22
   9.09      Construction...............................................22
   9.10      Taxes......................................................23
   9.11      Non-Assignability..........................................23
   9.12      Claims Procedure...........................................23

<PAGE>

                                   ARTICLE ONE

                                   DEFINITIONS

     As used herein, the following words and phrases have the following
respective meanings unless the context clearly indicates otherwise.

     Active Participant: A Participant who defers part of his Compensation for a
     ------------------
Plan Year (or part thereof) pursuant to an Election to Defer that satisfies the
requirements of Section 2.04.

     Associate: Any person who is classified as an associate and employed by an
     ---------
Employer if the relationship between the Employer and such person constitutes
the legal relationship of employer and employee.

     Beneficiary: The person or persons designated by the Participant on a
     -----------
beneficiary form required by the Company for this purpose to receive benefits
payable under the Plan because of the Participant's death.

     Code: The Internal Revenue Code of 1986, as amended from time to time.
     ----

     Company: J. C. Penney Company, Inc., a Delaware corporation, or its
     -------
successor(s).

     Company Account: A phantom account established in accordance with Article
     ---------------
Three to which Mirror Company Matching Contributions plus earnings are credited.

     Compensation: The total cash remuneration paid to an Associate by his
     ------------
Employer, that qualifies as wages as the term wages is defined in Code section
3401 (a), determined without regard to any reduction for workers' compensation
and state disability insurance reimbursements, and all other compensation
payments for which his Employer is required to furnish the Associate a written
statement under Code sections 6041(d), 6051(a)(3) and 6052, reduced by any
extraordinary items of special pay.

     In addition, Compensation includes any contributions made by the
Associate's Employer on behalf of the Associate pursuant to a deferral election
under any employee benefit plan containing a cash or deferred arrangement under
Section 401(k) of the Code, and any amounts that would have been received as
cash but for an election to receive benefits under a cafeteria plan meeting the
requirements of Section 125 of the Code.

     Compensation also includes eligible cash incentive payments in the year
paid to the Associate, and amounts deferred by the Active Participant pursuant
to Section 2.05 of the Plan.

     Compensation for a Plan Year shall be determined without regard to the
limitations on annual compensation under Section 401(a)(17) of the Code.

                                       1

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     An Associate who is in the service of the armed forces of the United States
during any period in which his reemployment rights are guaranteed by law will be
considered to have received the same rate of Compensation during his absence
that he was receiving immediately prior to his absence, provided he returns to
employment with an Employer within the time such rights are guaranteed.

     Eckerd Savings Plan: The Eckerd Corporation 401(k) Savings Plan, as amended
     -------------------
from time to time.

     Eligible Associate: An Associate who has satisfied the eligibility
     ------------------
requirements of the Plan for a Plan Year in accordance with Section 2.02.

     Employer: The Company and any subsidiary company or affiliate of the
     --------
Company that is a Participating Employer as defined in Article I of the Savings
Plan or Article I of the Eckerd Savings Plan.

     ERISA: The Employee Retirement Security Act of 1974, as amended from time
     -----
to time.

     Exchange Act: The Securities Exchange Act of 1934, as amended from time to
     ------------
time.

     Human Resources and Compensation Committee: The Human Resources and
     ------------------------------------------
Compensation Committee of the Board of Directors of the Company.

     Human Resources Committee: The Human Resources Committee of the Management
     -------------------------
Committee of the Company.

     Mirror Company Matching Contributions: The phantom amounts deemed to be
     -------------------------------------
contributed by the Company for each Plan Year as determined under Section 3.04.

     Mirror Investment Funds: Phantom funds established as book reserve entries
     -----------------------
in the books and records of the Company to which a Participant's deferral
amounts under the Plan are credited based on the investment elections of the
Participant. The investment returns of such funds shall be assumed to match the
returns of the same investment funds available to participants under the Savings
Plan.

     Participant: An Eligible Associate who participates in the Plan in
     -----------
accordance with Article Two, and who has not yet received a distribution of the
entire amount of his vested benefits under the Plan.

     Personal Account: A phantom account established in accordance with Article
     ----------------
Three to which a Participant's deferral amounts plus earnings are credited.

     Plan: The J. C. Penney Company, Inc. Mirror Savings Plan I (or II),
     ----
effective January 1, 1999, as amended from time to time.

                                       2

<PAGE>

     Plan Year: Each calendar year beginning with the 1999 calendar year.
     ---------

     Savings Plan: The J. C. Penney Company, Inc. Savings, Profit-Sharing and
     ------------
Stock Ownership Plan, as amended from time to time.

     Separation from Service: The termination of employment of an Eligible
     -----------------------
Associate or a Participant because of retirement, resignation, discharge,
disability or death. An Eligible Associate or Participant who transfers from one
Employer to another Employer without a break in employment shall not be deemed
to have a Separation from Service.

     Valuation Date: With respect to all Mirror Investment Funds, each day of a
     --------------
calendar year on which the New York Stock Exchange is open.

     With respect to transactions or distributions initiated by a Participant or
Beneficiary, (a) the date of receipt by the Plan Administrator of the request if
it is received prior to the close of the New York Stock Exchange, or (b) the
next trading day if the request is received after the close of the New York
Stock Exchange.

     With respect to distributions not initiated by a Participant, the date the
distribution is processed.

                                       3

<PAGE>

                                   ARTICLE TWO

                          ELIGIBILITY AND PARTICIPATION

2.01 Eligibility Determined for Each Plan Year
     -----------------------------------------

     The eligibility of each Associate to participate in the Plan as an Active
Participant is determined for each Plan Year based on the preceding Plan Year in
accordance with Section 2.02 below. Eligibility for, or participation in, the
Plan for a Plan Year does not give an Associate the right to defer part of his
Compensation under the Plan for any other Plan Year.

2.02 Eligible Associate
     ------------------

     An Associate shall be eligible to participate in the Plan as an Active
Participant for a Plan Year if the Associate for the preceding Plan Year had:

     (1)  Satisfied the eligibility requirements of the Savings Plan; and

     (2)  Earnings in excess of $80,000 (as adjusted in accordance with Section
          414(q)(1) of the Code) and less than $100,000 based on his actual
          Compensation through October 31 of such year plus his projected
          earnings from November 1 through December 31 of such year determined
          by using his Base Salary (as defined below) in effect on October 31 of
          such year.
                                                                        (Plan 1)

     (3)  Earnings of at least $100,000 based on his actual Compensation through
          October 31 of such year plus his projected earnings from November 1
          through December 31 of such year determined by using his Base Salary
          (as defined below) in effect on October 31 of such year.
                                                                       (Plan II)

     Base Salary shall mean the aggregate amount of regular wages due and
payable to an Eligible Associate in that Plan Year or calendar year designated
by his Employer as the Eligible Associate's monthly pay as reflected on the
Employer's personnel records, including any such amounts otherwise due and
payable with respect to which his Election to Defer applies hereunder.

2.03 Participation
     -------------

     An Eligible Associate for a Plan Year shall participate in the Plan for
that Plan Year as an Active Participant by making a timely Election to Defer in
accordance with Section 2.04 below. An Eligible Associate who fails to satisfy
the requirements of Section 2.04 below shall not be allowed to make an Election
to Defer and shall not be an Active Participant for that Plan Year.

     A Participant who is not an Active Participant for a Plan Year shall
continue to participate in the Plan in all respects except that such Participant
shall not have the right to defer part of his Compensation under the Plan for
that Plan Year, and shall not be

                                       4

<PAGE>

entitled to a Mirror Company Matching Contribution (as determined under Section
3.04) for that Plan Year.

2.04 Election to Defer
     -----------------

     An Eligible Associate for a Plan Year may elect to defer a percentage (as
described in Section 2.05 below) of his Compensation for such Plan Year.

     The Election to Defer for a Plan Year must be made in a manner approved by
the Plan Administrator and must be received by the Plan Administrator by
December 31 of the preceding Plan Year (or, in the case of the first Plan Year,
received by December 31, 1998). An Eligible Associate may change his Election to
Defer by filing a new Election to Defer with the Plan Administrator by the
applicable deadline.

     An Active Participant cannot change his Election to Defer during a Plan
Year for that Plan Year. An Active Participant may terminate his Election to
Defer during a Plan Year for that Plan Year but shall not be permitted to make
another Election to Defer for that Plan Year. Such termination shall be
effective as of the next available payroll period following receipt of the
termination by the Plan Administrator.

     An Election to Defer also shall terminate if:

     (1)  the Eligible Associate or Participant has a Separation from Service
          with an Employer, or

     (2)  the Plan is terminated, or

     (3)  upon a Change of Control that occurs before the date that payment of
          Compensation would have been made if not deferred.

2.05 Deferral Amounts
     ----------------

     An Active Participant for a Plan Year may defer up to 14% of his
Compensation for that Plan Year. All deferral amounts shall be in whole
percentages and made by payroll deduction.
                                                                        (Plan I)

     An Active Participant for a Plan Year may defer (a) up to 14% of his
Compensation in that Plan Year up to the Earnings Dollar Limit (as defined
below), and (b) up to 75% of his Compensation in that Plan Year that exceeds the
Earnings Dollar Limit. All deferral amounts shall be in whole percentages and
made by payroll deduction.
                                                                       (Plan II)

     The Earnings Dollar Limit of an Active Participant for a Plan Year shall be
$160,000, as adjusted for cost-of-living increases in accordance with Section
401(a)(17) of the Code.
                                                                       (Plan II)

                                       5

<PAGE>

2.06 Investment Elections
     --------------------

     A Participant shall complete an election, in the manner determined by the
Plan Administrator, requesting that all of his future deferral amounts (in whole
percentages) be applied to the purchase for him, as of the earliest practicable
Valuation Date after such amounts are deferred, of units in his Personal
Accounts within any one or more of the Mirror Investment Funds in each case at a
price equal to the value of such units as of such Valuation Date.

     Such election initially must be made prior to the commencement of his
participation in the Plan and may be changed at any time during the Plan Year.
Each such election or change in election shall be effective as soon as
administratively feasible following receipt by the Plan Administrator or its
delegate of the Participant's election.

     In the event that no timely investment election by the Participant is on
file with the Plan Administrator, such Participant shall be deemed to have
elected that all deferral amounts shall be applied to the purchase for him of
units in the Personal Account within the Mirror Investment Fund that is the
Interest Income Fund.

                                       6

<PAGE>

                                  ARTICLE THREE

                                    BENEFITS

3.01 Establishment of Accounts
     -------------------------

     A Personal Account and a Company Account within each Mirror Investment Fund
shall be established for each Participant in the Plan as if assets were invested
in a trust. All amounts credited to the Personal Accounts and Company Accounts
of a Participant shall at all times be held in the Company's general funds as
part of the Company's general assets, unless a trust is established pursuant to
Section 7.08.

     The value, including gains and losses, of such accounts and funds shall be
determined by the Plan Administrator in the same manner that the value is
determined under the Savings Plan. As of each Valuation Date, the net asset
value of a unit shall equal the net asset value of a unit as determined under
the Savings Plan.

     No funds shall be allocated by the Company to any Personal Account, Company
Account, Mirror Investment Fund, Mirror Company Matching Contribution, or
Partial-Year Mirror Company Matching Contribution under the Plan.

3.02 Personal Accounts
     -----------------

     All amounts deferred by an Active Participant pursuant to Article Two shall
be credited to his Personal Accounts within his Mirror Investment Funds
specified in his investment election.

     All phantom amounts credited to a Participant in his account as of December
31, 1998 under the J. C. Penney Company, Inc. 1995 Deferred Compensation Plan
shall be transferred and credited as of January 1, 1999 to his Personal Account
within the Mirror Investment Fund that is the Interest Income Fund. (Plan II)

3.03 Company Accounts
     ----------------

     An amount deemed to be a Mirror Company Matching Contribution for a full
year (as determined under Section 3.04 below) shall be credited to the Company
Account of each Active Participant for a Plan Year as of the date a Company
matching contribution is allocated to the accounts of participants under the
Savings Plan or the Eckerd Savings Plan for that Plan Year.

     An Active Participant must be in the active employ of an Employer on
December 31 of the Plan Year to receive credit for a Mirror Company Matching
Contribution for that Plan Year; provided, however, that an Active Participant
who had a Separation from Service before December 31 of said year shall receive
credit for a Partial-Year Mirror Company Matching Contribution (as determined
under Section 3.05 below) if he qualified for a partial-year Company matching
contribution under the Savings Plan or the Eckerd Savings Plan for such year.

                                       7

<PAGE>

     A Mirror Company Matching Contribution for a full year shall be deemed to
be invested in his Company Account within the Mirror Investment Fund that is the
Penney Common Stock Fund. A Partial-Year Mirror Company Matching Contribution
shall be deemed to be invested in his Company Accounts within his Mirror
Investment Funds in accordance with the Participant's investment election for
his Personal Accounts under this Plan.

     All phantom amounts credited to a Participant in his Annual Benefit Limit
Make-Up Account as of December 31, 1998 under the J. C. Penney Company, Inc.
Benefit Restoration Plan or the Thrift Drug, Inc. Benefit Restoration Plan shall
be transferred and credited as of January 1, 1999 to his Company Account within
the Mirror Investment Fund that is the Interest Income Fund.
                                                                       (Plan II)

     Any amount of Company contributions credited to the Participant's Company
account under the Savings Plan and subsequently cancelled so that said plan
could satisfy the average contribution percentage test (as described in the
Savings Plan) shall be credited to his Company Account within the Mirror
Investment Fund that is the Penney Common Stock Fund in the year paid.

     All amounts credited to the Company Accounts of a Participant shall be
subject to the vesting provisions of Article Five.

3.04 Mirror Company Matching Contribution
     ------------------------------------

     A.   Savings Plan Participants

     The Mirror Company Matching Contribution for an Active Participant is an
amount determined by subtracting (b) from (a) below where:

     (a)  Is the lesser of (c) or (d) below multiplied by the Company matching
          contribution rate as determined under the Savings Plan for such year;

     (b)  Is the amount of the matching contribution for a full year actually
          allocated to the Active Participant's account under the Savings Plan
          for such year;

     (c)  Is 6% multiplied by the Active Participant's Compensation for such
          year determined without regard to the limitations (i) on annual
          additions under Section 415(c)(1) of the Code, and (ii) on annual
          compensation under Section 401(a)(17) of the Code; and

     (d)  Is the amount of the Active Participant's deposits under the Savings
          Plan for the Plan Year plus the amounts deferred by the Active
          Participant pursuant to Article Two for such year.

     B.   Eckerd Savings Plan Participants

     The Mirror Company Matching Contribution for an Active Participant is an
amount determined by subtracting (b) from (a) below where:

                                       8

<PAGE>

     (a)  Is $1.50 for each $1.00 of the Active Participant's deposits under the
          Eckerd Savings Plan and amounts deferred pursuant to Article Two for
          such year to the extent the total of such deposits and deferrals do
          not exceed 2% of his Compensation for such year, and $1.00 for each
          $1.00 of his deposits under the Eckerd Savings Plan and amounts
          deferred pursuant to Article Two for such year to the extent the total
          of such deposits and deferrals exceed 2% but do not exceed 3% of his
          Compensation for such year; and

     (b)  Is the amount of the matching contribution actually allocated to the
          Active Participant's account under Section 3.03(b) of the Eckerd
          Savings Plan for such year.

     Compensation for such year shall be determined without regard to the
limitations (i) on annual additions under Section 415(c)(1) of the Code, and
(ii) on annual compensation under Section 401(a)(17) of the Code.

3.05 Partial Year Mirror Company Matching Contribution
     -------------------------------------------------

     A.   Savings Plan Participants

     The Partial-Year Mirror Company Matching Contribution is an amount
determined by subtracting (b) from (a) below where:

     (a)  Is the lessor of 50% of (c) below or 50% of (d) below;

     (b)  Is the amount of the matching contribution for a partial year actually
          allocated to the Active Participant's account under the Savings Plan
          for such year;

     (c)  Is 6% multiplied by the Active Participant's Compensation (as
          determined below) for such year determined without regard to the
          limitations on (i) annual additions under Section 415(c)(1) of the
          Code, and (ii) annual compensation under Section 401(a)(17) of the
          Code; and

     (d)  Is the amount of the Active Participant's deposits under the Savings
          Plan for the Plan year plus the amounts deferred by the Active
          Participant pursuant to Article Two for such year.

     Compensation for the purpose of (c) above shall mean the Active
Participant's actual Compensation (other than eligible cash incentive payments)
received during the Plan Year plus 1/12 of such eligible cash incentive payments
received during the Plan Year multiplied by the number of months (including
partial months) during which the Active Participant was in the active employ of
his Employer.

     B.   Eckerd Savings Plan Participants

                                       9

<PAGE>

     The Partial-Year Mirror Company Matching Contribution is the amount
determined under Section 3.04-B except that Compensation shall mean the Active
Participant's actual Compensation (other than eligible cash incentive payments)
received during the Plan Year plus 1/12 of such eligible cash incentive payments
received during the Plan Year multiplied by the number of months (including
partial months) during which the Active Participant was in the active employ of
his Employer.

3.06 Transferred Participants
     ------------------------

     In the event an Active Participant transfers employment from one Employer
to another Employer during the Plan Year without a break in service and is a
participant in both the Savings Plan and the Eckerd Savings Plan during such
Plan Year, he shall be entitled to a Mirror Company Matching Contribution
determined under Sections 3.05-A and 3.05-B except that for the purposes of
Section 3.05-A, the matching contribution rate as determined under the Savings
Plan for such year shall be applied and the 50% matching rate shall not be
applied.

                                       10

<PAGE>

                                  ARTICLE FOUR

                                    TRANSFERS

4.01 Personal Accounts
     -----------------

     A Participant may elect, once in each calendar day of the Plan Year, to
transfer an amount (in whole percentages) equal to the value of all or part of
his units in his Personal Accounts within any one or more of the Mirror
Investment Funds to another one or more of his Personal Accounts within the
Mirror Investment Funds. The value of such units shall be determined as of the
Valuation Date. A transfer is effective only if made in the manner determined by
the Plan Administrator.

4.02 Company Accounts
     ----------------

     A Participant may elect, once in each calendar day of the Plan Year, to
transfer an amount (in whole percentages) equal to the value of all or part of
his units in his Company Accounts within any one or more of the Mirror
Investment Funds to another one or more of his Company Accounts within the
Mirror Investment Funds. The value of such units shall be determined as of the
Valuation Date. A transfer is effective only if made in the manner determined by
the Plan Administrator.

     Notwithstanding any other provision of the Plan, a Participant who wishes
to make transfers from both his Personal Accounts and Company Accounts during
the same day, must do so as part of the same transaction.

                                       11

<PAGE>

                                  ARTICLE FIVE

                                     VESTING

5.01 Personal Accounts
     -----------------

     A Participant shall be 100% vested in the value of his Personal Accounts
within his Mirror Investment Funds at all times without regard to whether he is
a Participant in the Plan for any future Plan Year.

5.02 Company Accounts
     ----------------

     A.   Savings Plan Participants

     This Section 5.02A applies to Mirror Company Matching Contributions
described in Section 3.04-A, and Partial-Year Mirror Company Matching
Contributions described in Section 3.05-A. A Participant shall be vested in the
value of his Company Accounts within his Mirror Investment Funds in the same
vesting percentage attributable to the value of his Company accounts under the
Savings Plan based on his full years of service (as defined in the Savings Plan)
in accordance with the following table:

Full years of service                       Vested Percentage
---------------------                       -----------------

Less than 1                                         0%
1                                                  20%
2                                                  40%
3                                                  60%
4                                                  80%
5 or more                                         100%

     B.   Eckerd Savings Plan Participants

     This Section 5.02-B applies to Mirror Company Matching Contributions
described in Section 3.04-B, and Partial-Year Mirror Company Matching
Contributions described in Section 3.05-B. A Participant shall be 100% vested in
the value of his Company Accounts within his Mirror Investment Funds at all
times.

5.03 Forfeitures
     -----------

     A Participant who is less than 100% vested in the value of his Company
Accounts as of his Separation from Service shall forfeit the non-vested value of
his Company Accounts. In the event the Participant subsequently is re-employed
by an Employer within 5 years, the amount forfeited (without earnings) hereunder
shall be restored to his Company Accounts only if his amount forfeited under the
Savings Plan is restored to his Savings Plan Company accounts. The restoration
of forfeitures under the Plan shall be made in the same manner as the
restoration of forfeitures under the Savings Plan.

                                       12

<PAGE>

                                   ARTICLE SIX

                                  TYPE OF PLAN

6.01 Top Hat Plan
     ------------

     The Plan is intended to be a "pension plan" as defined in ERISA and is
maintained by the Company on an unfunded basis primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees. As such, the Plan is intended to be construed so as not
to provide income to any Participant or Beneficiary for purposes of the Internal
Revenue Code prior to actual receipt of benefit payments under the Plan.

     In the event that it should subsequently be determined by statute or by
regulation or ruling that the Plan is not "a plan which is unfunded and is
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of sections 201(2), 301(a)(3), 401 (a)(1), and 4021(b)(6) of ERISA and section
2520.104-24 of Chapter 29 of the Code of Federal Regulations, participation in
the Plan shall be restricted by the Plan Administrator to the extent necessary
to assure that it will be such a plan within the meaning of such sections.

     Notwithstanding any other provision of the Plan, if the benefits of a
Participant become taxable prior to distribution from the Plan, such amounts
shall be distributed as soon as practicable to the affected Participant.

6.02 No Funding
     ----------

     Plan benefits shall be payable solely from the general assets of the
Company. The Company shall not be required to, but may at its discretion,
segregate or physically set aside any funds or assets attributable to Plan
benefits. The Company shall retain title to and beneficial ownership of all
assets of the Company, including any assets which may be used to pay Plan
benefits. The cost of the Plan shall be expensed and a book reserve shall be
maintained on the Company's financial statements.

     No Participant or Beneficiary shall be deemed to have, pursuant to the
Plan, any legal or equitable interest in any specific assets of the Company. To
the extent that any Participant or Beneficiary acquires any right to receive
Plan benefits, such right shall arise merely as a result of a contractual
obligation and shall be no greater than, nor have any preference or priority
over, the rights of any general unsecured creditor of the Company.

                                       13

<PAGE>

                                  ARTICLE SEVEN

                                  DISTRIBUTIONS

7.01 Normal Form of Payment
     ----------------------

     The normal form of payment of benefits under the Plan shall be 5
substantially equal annual installments payable in accordance with Section 7.02
below.

7.02 Separation from Service
     -----------------------

     A Participant who has a Separation from Service for a reason other than
death shall be entitled to receive the vested benefits in his Personal Accounts
and Company Accounts in 5 substantially equal annual installments.

     The first annual installment shall be paid in January following the year in
which occurs his Separation from Service. Each annual installment thereafter
shall be paid in January of each year. Payment dates shall be determined by the
Plan Administrator.

     Notwithstanding the foregoing, if the present value of the participant's
vested benefits does not exceed $5,000, such benefits shall be distributed to
the Participant in a single sum payment in January following the year in which
occurs the later of (a) his Separation from Service or (b) the date of receipt
by the Plan Administrator of the Participant's notice of employment termination.
Such present value shall be determined as of the date of receipt by the Plan
Administrator of the Participant's notice of employment termination; provided,
however, that if the Participant had a Separation from Service before January 1,
2000, such present value shall be determined as of December 31, 1999. The
payment date shall be determined by the Plan Administrator.

7.03 Death
     -----

     The Beneficiary of a Participant who (1) has a Separation from Service
because of death, or (2) dies after his Separation from Service but before
receiving all of his vested Plan benefits shall be entitled to receive the
remaining annual installments to which the Participant was entitled as of the
date of death. The first annual installment payable to the Beneficiary shall be
paid in January following the Participant's date of death, or, if later, after
satisfactory proof of death is received by the Plan Administrator. Each annual
installment thereafter shall be paid in January of each year. Payment dates
shall be determined by the Plan Administrator.

     Notwithstanding the foregoing, if the present value of the participant's
vested benefits does not exceed $5,000, such benefits shall be distributed to
the Beneficiary of the Participant in a single sum payment in January following
the Participant's date of death, or, if later, after satisfactory proof of death
is received by the Plan Administrator. The payment date shall be determined by
the Plan Administrator.

     A single-sum distribution shall be paid to the estate of the Participant if
as of the date of death (1) no valid beneficiary designation by the Participant
is on file with the

                                       14

<PAGE>

Plan Administrator, (2) the Beneficiary has predeceased the Participant, or (3)
the Beneficiary has died within 30 days after the Participant's date of death.

     A single-sum distribution shall be paid to the estate of the Beneficiary if
the Beneficiary dies before receiving all benefits to which he was entitled
under the Plan.

7.04 Alternate Form of Payment
     -------------------------

     A Participant entitled to receive benefits under Section 7.02 above may
make an irrevocable election to receive (1) not more than 15 substantially equal
annual installments, or (2) a single-sum distribution. The election must be made
prior to the Participant's Separation from Service in a manner authorized by the
Plan Administrator. If no election has been made by the Participant, benefits
shall be paid in the normal form of payment in accordance with Section 7.02
above.

     The first annual installment or single-sum distribution shall be paid in
January following the year in which occurs his Separation from Service;
provided, however, that the first annual installment or single-sum distribution
shall not be paid until the January following the expiration of at least one
calendar year after the year in which the Participant's election is made. Each
annual installment thereafter shall be paid in January of each year.

     A Participant also may make an irrevocable election to defer payment of the
first installment or single-sum distribution to January of a later year provided
the election is made prior to the Participant's Separation from Service in a
manner authorized by the Plan Administrator. If no election has been made by the
Participant, benefits shall commence in accordance with Section 7.02 or Section
7.04 above, whichever is applicable.

     A Participant who elects both to change the normal form of payment and to
defer payment must make the elections at the same time.

7.05 Hardship Distribution
     ---------------------

     A Participant or Beneficiary entitled to vested benefits under the Plan may
request a single-sum distribution to satisfy a severe financial hardship
resulting from an unforseen event or emergency (as defined below) beyond his
control. The distribution shall be limited to the amount necessary to satisfy
the severe financial hardship (including any applicable federal, state or local
taxes attributable to such distribution), and shall not exceed the current value
of vested benefits payable to or on behalf of the Participant or Beneficiary.

     An unforseen event or emergency may include, but is not limited to, a
sudden and unexpected illness or accident of the Participant or Beneficiary or
his dependent, loss of his property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as the result of events
beyond his control, but shall not include the purchase of his home or the
college expenses of his child.

                                       15

<PAGE>

     The determination of the existence of a severe financial hardship and the
approval of a hardship distribution shall be made by the Director of Personnel
(or his successor by title or position) or his delegate except as provided
below. Approval shall be given only if, taking into account all of the facts and
circumstances, continued deferral of benefits or adherence to the Plan's payment
schedule would result in a severe financial hardship to the Participant or
Beneficiary. Approval shall not be granted if such hardship is or may be
relieved through insurance, by liquidation of his assets (to the extent such
liquidation would not itself cause severe financial hardship), or by terminating
his Election to Defer.

     With respect to a Participant who is a member of the Management Committee
of the Company or a Participant who is subject to Section 16(b) of the Exchange
Act, the determination of the existence of a severe financial hardship and the
approval of the hardship distribution shall be made by the Human Resources and
Compensation Committee.

     In the case of a Participant or Beneficiary who receives a partial hardship
distribution while receiving benefit payments, the regular payment schedule of
the Participant or Beneficiary shall continue following such distribution.

7.06 Fund-Specific Installments or Hardship Distributions
     ----------------------------------------------------

     The payment to a Participant or Beneficiary of installments or a hardship
distribution shall reduce the value of his accounts in his Mirror Investment
Fund(s) as designated by the Participant or Beneficiary. In the event the
Participant or Beneficiary fails to designate the Mirror Investment Funds from
which payment is to be made, the value of his Mirror Investment Funds shall be
reduced on a pro-rata basis.

7.07 Form of Payments
     ----------------

     Payment of all benefits from the Plan shall be made only by check. No
payments of Company stock shall be permitted.

7.08 Change of Control
     -----------------

     At the time of commencement of participation in the Plan, a Participant may
make an irrevocable election to have his Plan benefits paid in a single-sum
immediately upon a Change of Control (as hereafter defined). If the Participant
makes such an election as described above, his vested Plan benefits shall be
paid in a single-sum upon a Change of Control.

     If the Participant does not make such an election, then, upon a Change of
Control, assets of the Company in an amount sufficient to pay benefits then due
under the Plan shall immediately be transferred to a grantor trust to be
established by the Company for the purpose of paying benefits hereunder, and the
Personal Account and Company Account shall thereafter be paid to the Participant
from such trust in accordance with the terms of the Plan; provided that at the
time of such Change of Control, the Participant may make an irrevocable election
to have his Plan benefits paid

                                       16

<PAGE>

in a single-sum immediately, in which event the Participant's benefits shall be
reduced by 10% as a penalty for early withdrawal, and the Participant shall
receive a single-sum payment of only 90% of his benefits otherwise payable under
the Plan. On each anniversary date of the date of a Change of Control, the
Company shall transfer to the grantor trust an amount necessary to pay all
benefits accrued under the plan during the preceding twelve months.

     For purposes of this Section 7.08, a Change of Control shall be deemed to
have occurred if the event set forth in any one of the following paragraphs
shall have occurred:

     (a) any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities beneficially owned
by such Person any securities acquired directly from the Company or its
Affiliates) representing 50% or more of the combined voting power of the
Company's then outstanding securities; or

     (b) during any period of two consecutive calendar years, the following
individuals cease for any reason to constitute a majority of the number of
directors then serving as directors of the Company: individuals, who on July 14,
1999 constitute the Board of Directors of the Company and any new director
(other than a director whose initial assumption of office is in connection with
the settlement of an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board of Directors of the Company
or nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on July 14, 1999 or whose appointment, election
or nomination for election was previously so approved or recommended; or

     (c) there is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation of
entity, other than

          (i)  a merger or consolidation which would result in the voting
               securities of the Company outstanding immediately prior to such
               merger or consolidation continuing to represent (either by
               remaining outstanding or by being converted into voting
               securities of the surviving entity or any Parent thereof), in
               combination with the ownership of any trustee or other fiduciary
               holding securities under an employee benefit plan of the Company
               or any subsidiary of the Company, at least 50% of the combined
               voting power of the securities of the Company, such surviving
               entity or any Parent thereof outstanding immediately after such
               merger or consolidation, or

          (ii) a merger or consolidation effected solely to implement a
               recapitalization of the Company (or similar transaction) in which
               no Person is or becomes the Beneficial Owner, directly or
               indirectly, of securities of the Company (not including in the
               securities beneficially owned by such

                                       17

<PAGE>

               Person any securities acquired directly from the Company or its
               Affiliates) representing 50% or more of the combined voting power
               of the Company's then outstanding securities; or

     (d) the stockholders of the Company approve a plan of complete liquidation
or dissolution of the Company, or there is consummated a sale or disposition by
the Company or any of its subsidiaries of any assets which individually or as
part of a series of related transactions constitute all or substantially all of
the Company's consolidated assets, other than any such sale or disposition to an
entity at least 50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially the same
proportions as their ownership of the voting securities of the Company
immediately prior to such sale or disposition; or

     (e) the execution of a binding agreement that if consummated would result
in a Change of Control of a type specified in subparagraphs (a) or (c) above (an
"Acquisition Agreement") or of a binding agreement for the sale of disposition
of assets that, if consummated, would result in a Change of Control of a type
specified in subparagraph (d) above (an "Asset Sale Agreement") or the adoption
by the Board of Directors if the Company of a plan of complete liquidation or
dissolution of the Company that, if consummated, would result in a Change of
Control of a type specified in subparagraph (d) above (a "Plan of Liquidation"),
provided, however, that a Change of Control of the type specified in this
subparagraph (e) shall not be deemed to exist or have occurred as a result of
the execution of such Acquisition Agreement or Asset Sale Agreement, or the
adoption of such a Plan of Liquidation, from and after the Abandonment Date. As
used in this subparagraph (e), the term "Abandonment Date" shall mean the date
on which

          (i)  an Acquisition Agreement, Asset Sale Agreement or Plan of
               Liquidation is terminated (pursuant to its terms or otherwise)
               without having been consummated,

          (ii) the parties to an Acquisition Agreement or Asset Sale Agreement
               abandon the transactions contemplated thereby,

          (iii) the Company abandons a Plan of Liquidation, or

          (iv) a court or regulatory body having competent jurisdiction enjoins
               or issues a cease and desist or stop order with respect to or
               otherwise prevents the consummation of, or a regulatory body
               notifies the Company that it will not approve an Acquisition
               Agreement, Asset Sale Agreement or Plan of Liquidation or the
               transactions contemplated thereby and such injunction, order or
               notice has become final and not subject to appeal; or

     (f) the Board adopts a resolution to the effect that, for purposes of this
Plan, a Change of Control has occurred.

                                       18

<PAGE>

     Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity (i) which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions, (ii) which is
intended to reflect or track the value or performance of a particular division,
business segment or subsidiary of the Company, or (iii) which is an affiliated
company, subsidiary, or spin-off entity owned by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the Company
on the date of such spin-off.

     As used in connection with the foregoing definition of Change of Control,
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act; "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time; "Parent" shall
mean any entity that becomes the Beneficial Owner of at least 50% of the voting
power of the outstanding voting securities of the Company or of an entity that
survives any merger or consolidation of the Company or any direct or indirect
subsidiary of the Company; and `Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation or entity owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

7.09 Reemployed Participants
     -----------------------

     If the Participant is reemployed, his scheduled payments under Section 7.02
or Section 7.04 shall cease and his election, if any, under Section 7.04 shall
be void. The Participant may make a new election under Section 7.04 prior to his
subsequent Separation from Service that shall apply to any unpaid benefits and
to any additional benefits payable to or on behalf of the Participant because of
a subsequent Separation from Service.

     If no new election is made by the Participant, benefits shall be paid in
the normal form of payment in accordance with Section 7.02 above.

                                       19

<PAGE>

                                  ARTICLE EIGHT

                            AMENDMENT AND TERMINATION

8.01 Plan Amendment
     --------------

     The Human Resources and Compensation Committee may amend the Plan at any
time and from time to time, without prior notice to any Participant or
Beneficiary; provided, however, that the Human Resources Committee also may make
amendments that relate primarily to the administration of the Plan, are applied
in a uniform and consistent manner to all Participants, and are reported to the
Human Resources and Compensation Committee.

8.02 Plan Termination
     ----------------

     The Board of Directors of the Company may terminate or discontinue the Plan
at any time. If the Plan is terminated, it shall be on such terms and conditions
as the Board of Directors of the Company shall deem appropriate.

8.03 Automatic Plan Termination
     --------------------------

     This Plan is expressly conditioned on the continued deferral of income tax
on amounts deferred by a Participant under the Plan until such amounts are
actually distributed to the Participant. If, as a result of an adverse
determination by the Internal Revenue Service or a change in the tax laws or
applicable income tax regulations, amounts deferred by Participants under the
Plan become subject to income tax prior to the actual distribution of such
amounts, the Plan and each Election to Defer hereunder shall automatically
terminate as of the effective date of such change in the law without any formal
action by the Board of Directors to terminate the Plan.

                                       20

<PAGE>

                                  ARTICLE NINE

                                  MISCELLANEOUS

9.01 Plan Administration
     -------------------

     The Plan shall be administered under the direction of the Human Resources
and Compensation Committee. Except as otherwise provided below, the Benefits
Administration Committee shall be considered the Plan Administrator for purposes
of ERISA.

     The Human Resources and Compensation Committee may delegate all or some of
the responsibility for the administration of the Plan to the Human Resources
Committee or the Benefits Administration Committee in which case such Committee
shall assume such delegated power and authority in administering the Plan to
that extent; provided, however, that in no event shall the Human Resources
Committee or the Benefits Administration Committee have any power or authority
with respect to matters involving a Participant who is a member of the
Management Committee of the Company or a Participant who is subject to Section
16(b) of the Exchange Act.

     The Plan Administrator has the authority and discretion to construe and
interpret the Plan. As part of this authority, the Plan Administrator has the
discretion to resolve inconsistencies or ambiguities in the language of the
Plan, to supply omissions from or correct deficiencies in the language of the
Plan, and to adopt rules for the administration of the Plan which are not
inconsistent with the terms of the Plan. The Plan Administrator also has the
authority and discretion to resolve all questions of fact relating to any claim
for benefits as to any matter for which the Plan Administrator has
responsibility. All determinations of the Plan Administrator are final and
binding on all parties.

     Each person considered to be a fiduciary with respect to the Plan shall
have only those powers and responsibilities as are specifically given that
person under this Plan. It is intended that each such person shall be
responsible for the proper exercise of his or her own powers and
responsibilities, and shall not be responsible for any act or failure to act of
any other person considered to be a fiduciary or any act or failure to act of
any person considered to be a non-fiduciary.

9.02 Plan Expenses
     -------------

     All Plan administration expenses incurred by the Company or the Plan
Administrator shall be paid by the Company.

9.03 Effect on Other Benefits
     ------------------------

     Participation in the Plan shall not reduce any welfare benefits or
retirement benefits offered by the Company, except that the amounts deferred
under the Plan and any Plan benefits shall not be considered "Compensation" for
purposes of the Savings Plan.

                                       21

<PAGE>

9.04 No Guarantee of Employment
     --------------------------

     Neither participation in the Plan nor any action taken under the Plan shall
confer upon a Participant any right to continue in the employ of an Employer or
affect the right of such Employer to terminate the Participant's employment at
any time.

9.05 Disclaimer of Liability
     -----------------------

     The Employer shall be solely responsible for the payment of Plan benefits
hereunder. The members of the Human Resources and Compensation Committee and the
Human Resources Committee, and the officers, directors, employees, or agents of
the Company or any other Employer, shall not be liable for such benefits. Unless
otherwise required by law, no such person shall be liable for any action or
failure to act, except where such act or omission constitutes gross negligence
or willful or intentional misconduct.

9.06 Severability
     ------------

     If any provision of the Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall apply only to that provision, and shall not
affect or render invalid or unenforceable any other provision of the Plan. In
such event, the Plan shall be administered and construed as if such invalid or
unenforceable provision were not contained herein. If the application of any
Plan provision to any Participant or Beneficiary shall be held invalid or
unenforceable, the application of such provision to any other Participant or
Beneficiary shall not in any manner be affected thereby.

9.07 Successors
     ----------

     The Plan and any Election to Defer shall be binding on (i) the Company and
its successors and assigns, (ii) any Employer and its successors and assigns,
(iii) each Participant, (iv) each Beneficiary, and (v) the heirs, distributees,
and legal representatives of each Participant and Beneficiary.

9.08 Governing Law
     -------------

     Except to the extent that the Plan may be subject to the provisions of
ERISA, the Plan shall be construed and enforced according to the laws of the
State of Texas without giving effect to the conflict of laws principles thereof.
In the event limitations imposed by ERISA on legal actions do not apply, the
laws of the State of Texas shall apply, and a cause of action under the Plan
must be brought no later than four years after the date the action accrues.

9.09 Construction
     ------------

     As used herein, the masculine shall include the feminine, the singular
shall include the plural, and vice versa, unless the context clearly indicates
otherwise. Titles and headings herein are for convenience only and shall not be
considered in construing the Plan. The words "hereof," "hereunder", and other
similar compounds of the word

                                       22

<PAGE>

"here" shall mean and refer to the entire Plan and not to any particular
provision or Section.

9.10 Taxes
     -----

     Any taxes imposed on Plan benefits shall be the sole responsibility of the
Participant or Beneficiary. The Company shall deduct from Plan benefits any
federal taxes, state taxes, local taxes, or other taxes required to be withheld.
The Company shall, unless the Plan Administrator elects otherwise, withhold such
taxes at the applicable flat rate percentage. The Company shall also deduct from
any payment of Compensation, including any cash incentive payments, on the date
such payment would have been made if not deferred under this Plan Social
Security and Medicare taxes or other taxes required to be withheld on such date.

9.11 Non-Assignabilty
     ----------------

     Unless otherwise required by law, and prior to distribution to a
Participant or Beneficiary, Plan benefits shall not be subject to assignment,
transfer, sale, pledge, encumbrance, alienation, or charge by such Participant
or Beneficiary, and any attempt to do so shall be void. Plan benefits shall not
be liable for or subject to garnishment, attachment, execution, or levy, or
liable for or subject to the debts, contracts, or liabilities of the Participant
or Beneficiary; provided, however, that the Company may offset from the payment
of any Plan benefits to a Participant or Beneficiary amounts owed by the
Participant to an Employer.

9.12 Claims Procedure
     ----------------

     If a Participant or Beneficiary ("claimant") does not receive the benefits
which the claimant believes he is entitled to receive under the Plan, the
claimant may file a claim for benefits with the Director of Personnel (or his
successor by title or position). All claims must be made in writing and must be
signed by the claimant. If the claimant does not furnish sufficient information
to determine the validity of the claim, the Director of Personnel will indicate
to the claimant any additional information which is required.

     Each claim will be approved or disapproved by the Director of Personnel
within 90 days following receipt of the information necessary to process the
claim. In the event the Director of Personnel denies a claim for benefits in
whole or in part, the Director of Personnel will notify the claimant in writing
of the denial of the claim. Such notice by the Director of Personnel will also
set forth, in a manner calculated to be understood by the claimant, the specific
reasons for such denial, the specific Plan provisions on which the denial is
based, a description of any additional material or information necessary to
perfect the claim with an explanation of why such material or information
necessary, and an explanation of the Plan's claim review procedure as set forth
below. If no action is taken by the Director of Personnel on or a claim within
90 days, the claim will be deemed to be denied for purposes of the review
procedure below.

     A claimant may appeal a denial of his or her claim by requesting a review
of the decision by the Plan Administrator. An appeal must be submitted in
writing within six

                                       23

<PAGE>

months after the denial and must (i) request a review of the claim for benefits
under the Plan, (ii) set forth all the grounds upon which the claimant's request
for review is based and any facts in support thereof, and (iii) set forth any
issues or comments which the claimant deems pertinent to the appeal.

     The Plan Administrator will make a full and fair review of each appeal and
any written materials submitted in connection with the appeal. The Plan
Administrator will act upon each appeal within 60 days after receipt thereof,
unless special circumstances require an extension of the time for processing, in
which case a decision will be rendered as soon as possible but not later than
120 days after the appeal is received. The claimant will be given the
opportunity to review pertinent documents or materials upon submission of a
written request to the Plan Administrator, provided the Plan Administrator finds
the requested documents or materials pertinent to the appeal. On the basis of
its review, the Plan Administrator will make an independent determination of the
claimant's eligibility for benefits under the Plan.

     The decision of the Plan Administrator on any claim for benefits will be
final and conclusive upon all parties thereto. In the event the Plan
Administrator denies an appeal in whole or in part, the Plan Administrator will
give written notice of the decision to the claimant, which notice will set
forth, in a manner calculated to be understood by the claimant, the specific
reasons for such denial and specific reference to the pertinent Plan provisions
on which the decision was based.

                                       24

<PAGE>

                           J. C. PENNEY COMPANY, INC.

                             MIRROR SAVINGS PLAN III

                        Adopted effective August 1, 1999

                       As amended through October 10, 2001

--------------------------------------------------------------------------------

                                DOCUMENT HISTORY

          This document contains the plan adopted by Unanimous Written
          Consent of the Personnel and Compensation Committee of the J. C.
          Penney Company, Inc. Board of Directors on July 28, 1999
          effective on August 1, 1999 as amended on the following dates:

               December 10, 1999     Human Resources Committee

               December 11, 2000     Human Resources Committee

               March 22, 2001        Human Resources and Compensation
                                     Committee

               June 1, 2001          Director of Human Resources

               October 10, 2001      Human Resources Committee

--------------------------------------------------------------------------------

<PAGE>

                           J. C. PENNEY COMPANY, INC.

                             MIRROR SAVINGS PLAN III

                        Adopted effective August 1, 1999

                       As amended through October 10, 2001

                                  INTRODUCTION
                                  ------------

     The J. C. Penney Company, Inc. Mirror Savings Plan ("Plan") III was adopted
effective August 1, 1999 as part of a program to redesign the Company's
qualified and non-qualified savings plans to optimize the retirement savings
opportunities for certain Associates prior to the date they became eligible to
participate in the J. C. Penney Company, Inc. Savings, Profit-Sharing and Stock
Ownership Plan.

     The Plan is maintained by the Company on an unfunded basis primarily for
the purpose of providing deferred compensation to a select group of management
or highly compensated employees.

                                        2

<PAGE>

                           J. C. PENNEY COMPANY, INC.
                             MIRROR SAVINGS PLAN III

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

Article                                                                     Page
-------                                                                     ----

ARTICLE ONE     DEFINITIONS...................................................5

ARTICLE TWO     ELIGIBILITY AND PARTICIPATION.................................8

         2.01   Eligibility Determined for Each Plan Year.....................8
         2.02   Eligible Associate............................................8
         2.03   Participation.................................................8
         2.04   Election to Defer.............................................8
         2.05   Deferral Amounts..............................................9
         2.06   Investment Elections.........................................10

ARTICLE THREE   BENEFITS.....................................................11

         3.01   Establishment of Accounts....................................11
         3.02   Personal Accounts............................................11

ARTICLE FOUR    TRANSFERS....................................................12

         4.01   Personal Accounts............................................12

ARTICLE FIVE    VESTING......................................................13

         5.01   Personal Accounts............................................13

ARTICLE SIX     TYPE OF PLAN.................................................14

         6.01   Top Hat Plan.................................................14
         6.02   No Funding...................................................14

ARTICLE SEVEN   DISTRIBUTIONS................................................15

         7.01   Normal Form of Payment.......................................15
         7.02   Separation from Service......................................15
         7.03   Death........................................................15
         7.04   Alternate Form of Payment....................................16
         7.05   Hardship Distribution........................................16
         7.06   Fund-Specific Installments or Hardship Distributions.........17
         7.07   Form of Payments.............................................17
         7.08   Change of Control............................................17
         7.09   Reemployed Participants......................................20

                                        3

<PAGE>

ARTICLE EIGHT   AMENDMENT AND TERMINATION....................................21

         8.01   Plan Amendment...............................................21
         8.02   Plan Termination.............................................21
         8.03   Automatic Plan Termination...................................21

ARTICLE NINE    MISCELLANEOUS................................................22

         9.01   Plan Administration..........................................22
         9.02   Plan Expenses................................................22
         9.03   Effect on Other Benefits.....................................22
         9.04   No Guarantee of Employment...................................23
         9.05   Disclaimer of Liability......................................23
         9.06   Severability.................................................23
         9.07   Successors...................................................23
         9.08   Governing Law................................................23
         9.09   Construction.................................................23
         9.10   Taxes........................................................24
         9.11   Non-Assignability............................................24
         9.12   Claims Procedure.............................................24

                                        4

<PAGE>

                                   ARTICLE ONE

                                   DEFINITIONS

     As used herein, the following words and phrases have the following
respective meanings unless the context clearly indicates otherwise:

     Active Participant: A Participant who defers part of his Compensation for a
     ------------------
Plan Year (or part thereof) pursuant to an Election to Defer that satisfies the
requirements of Section 2.04.

     Associate: Any person who is classified as an associate and employed by an
     ---------
Employer if the relationship between the Employer and such person constitutes
the legal relationship of employer and employee.

     Beneficiary: The person or persons designated by the Participant on a
     -----------
beneficiary form required by the Company for this purpose to receive benefits
payable under the Plan because of the Participant's death.

     Code: The Internal Revenue Code of 1986, as amended from time to time.
     ----

     Company: J. C. Penney Company, Inc., a Delaware corporation, or its
     -------
successor(s).

     Compensation: The total cash remuneration paid to an Associate by his
     ------------
Employer, that qualifies as wages as the term wages is defined in Code section
3401(a), determined without regard to any reduction for workers' compensation
and state disability insurance reimbursements, and all other compensation
payments for which his Employer is required to furnish the Associate a written
statement under Code sections 6041(d), 6051(a)(3) and 6052, reduced by any
extraordinary items of special pay.

     In addition, Compensation includes any contributions made by the
Associate's Employer on behalf of the Associate pursuant to a deferral election
under any employee benefit plan containing a cash or deferred arrangement under
Section 401(k) of the Code, and any amounts that would have been received as
cash but for an election to receive benefits under a cafeteria plan meeting the
requirements of Section 125 of the Code.

     Compensation also includes eligible cash incentive payments in the year
paid to the Associate, and amounts deferred by the Active Participant pursuant
to Section 2.05 of the Plan.

     Compensation for a Plan Year shall be determined without regard to the
limitations on annual compensation under Section 401(a)(17) of the Code.

     An Associate who is in the service of the armed forces of the United States
during any period in which his reemployment rights are guaranteed by law will be
considered to

                                        5

<PAGE>

have received the same rate of Compensation during his absence that he was
receiving immediately prior to his absence, provided he returns to employment
with an Employer within the time such rights are guaranteed.

     Eckerd Savings Plan: The Eckerd Corporation 401(k) Savings Plan, as amended
     -------------------
from time to time.

     Eligible Associate: An Associate who has satisfied the eligibility
     ------------------
requirements of the Plan for a Plan Year in accordance with Section 2.02.

     Employer: The Company and any subsidiary company or affiliate of the
     --------
Company that is a Participating Employer as defined in Article I of the Savings
Plan or Article I of the Eckerd Savings Plan.

     ERISA: The Employee Retirement Security Act of 1974, as amended from time
     -----
to time.

     Exchange Act: The Securities Exchange Act of 1934, as amended from time to
     ------------
time.

     Human Resources and Compensation Committee: The Human Resources and
     ------------------------------------------
Compensation Committee of the Board of Directors.

     Human Resources Committee: The Human Resources Committee of the Management
     -------------------------
Committee of the Company.

     Mirror Investment Funds: Phantom funds established as book reserve entries
     -----------------------
in the books and records of the Company to which a Participant's deferral
amounts under the Plan are credited based on the investment elections of the
Participant. The investment returns of such funds shall be assumed to match the
returns of the same investment funds available to participants under the Savings
Plan.

     Participant: An Eligible Associate who participates in the Plan in
     -----------
accordance with Article Two, and who has not yet received a distribution of the
entire amount of his vested benefits under the Plan.

     Personal Account: A phantom account established in accordance with Article
     ----------------
Three to which a Participant's deferral amounts plus earnings are credited.

     Plan: The J. C. Penney Company, Inc. Mirror Savings Plan III, effective
     ----
August 1, 1999, as amended from time to time.

     Plan Year: August 1, 1999 through December 31, 1999, and each calendar year
     ---------
thereafter.

                                        6

<PAGE>

     Savings Plan: The J. C. Penney Company, Inc. Savings, Profit-Sharing and
     ------------
Stock Ownership Plan, as amended from time to time.

     Separation from Service: The termination of employment of an Eligible
     -----------------------
Associate or a Participant because of retirement, resignation, discharge,
disability or death. An Eligible Associate or Participant who transfers from one
Employer to another Employer without a break in employment shall not be deemed
to have a Separation from Service.

     Valuation Date: With respect to all Mirror Investment Funds, each day of a
     --------------
calendar year on which the New York Stock Exchange is open.

     With respect to transactions or distributions initiated by a Participant or
Beneficiary, (a) the date of receipt by the Plan Administrator of the request if
it is received prior to the close of the New York Stock Exchange, or (b) the
next trading day if the request is received after the close of the New York
Stock Exchange.

     With respect to distributions not initiated by a Participant, the date the
distribution is processed.

                                        7

<PAGE>

                                   ARTICLE TWO

                          ELIGIBILITY AND PARTICIPATION

2.01 Eligibility Determined for Each Plan Year
     -----------------------------------------

     The eligibility of each Associate to participate in the Plan as an Active
Participant is determined for each Plan Year in accordance with Section 2.02
below. Eligibility for, or participation in, the Plan for a Plan Year does not
give an Associate the right to defer part of his Compensation under the Plan for
any other Plan Year.

2.02 Eligible Associate
     ------------------

     An Associate shall be eligible to participate in the Plan as an Active
Participant for a Plan Year if the Associate has been designated as an Eligible
Associate by the Vice President and Director of Human Resources in his sole
discretion (or his successor by title or position) and has received a written
offer to participate in the Plan.

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

2.03 Participation
     -------------

     An Eligible Associate for a Plan Year shall participate in the Plan for
that Plan Year as an Active Participant by making a timely Election to Defer in
accordance with Section 2.04 below. An Eligible Associate who fails to satisfy
the requirements of Section 2.04 below shall not be allowed to make an Election
to Defer and shall not be an Active Participant for that Plan Year.

     A Participant who is not an Active Participant for a Plan Year shall
continue to participate in the Plan in all respects except that such Participant
shall not have the right to defer part of his Compensation under the Plan for
that Plan Year.

2.04 Election to Defer
     -----------------

     An Eligible Associate for a Plan Year may elect to defer a percentage (as
described in Section 2.05 below) of his Compensation for such Plan Year.

     The Election to Defer for a Plan Year must be made in a manner approved by
the Plan Administrator and must be received by the Plan Administrator

                                        8

<PAGE>

     (a)  For the Plan Year ending on December 31, 1999, before September 1,
          1999 and shall be effective on September 1, 1999, or

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

     (c)  For any Plan Year not described in (a) or (b) above, by December 31 of
          the preceding Plan Year and shall be effective on January 1 following
          such preceding Plan Year.

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

     An Eligible Associate may change his Election to Defer by filing a new
Election to Defer with the Plan Administrator by the applicable deadline.

     An Active Participant cannot change his Election to Defer during a Plan
Year for that Plan Year. An Active Participant may terminate his Election to
Defer during a Plan Year for that Plan Year but shall not be permitted to make
another Election to Defer for that Plan Year. Such termination shall be
effective as of the next available payroll period following receipt of the
termination by the Plan Administrator.

     An Election to Defer also shall terminate if:

     (1)  the Eligible Associate is eligible to participate in the J. C. Penney
          Company, Inc. Mirror Savings Plan II, or

     (2)  the Eligible Associate or Participant has a Separation from Service
          with an Employer, or

     (3)  the Plan is terminated, or

     (4)  upon a Change of Control that occurs before the date that payment of
          Compensation would have been made if not deferred.

2.05 Deferral Amounts
     ----------------

     An Active Participant for a Plan Year may defer (a) up to 14% of his
Compensation in that Plan Year up to the Earnings Dollar Limit (as defined
below), and (b) up to 75% of his Compensation in that Plan Year that exceeds the
Earnings Dollar Limit provided, however, that for the Plan Year ending on
December 31, 1999 an Active Participant may defer all or part of his
supplemental cash payments and signing bonus. All deferral

                                        9

<PAGE>

amounts shall be in whole percentages and made by payroll deduction.
Compensation in a Plan Year that is paid prior to the effective date of the
Active Participant's Election to Defer cannot be deferred for that Plan Year.

     The Earnings Dollar Limit of an Active Participant for a Plan Year shall be
shall be $160,000, as adjusted for cost-of-living increases in accordance with
Section 401(a)(17) of the Code.

2.06 Investment Elections
     --------------------

     A Participant shall complete an election, in the manner determined by the
Plan Administrator, requesting that all of his future deferral amounts (in whole
percentages) be applied to the purchase for him, as of the earliest practicable
Valuation Date after such amounts are deferred, of units in his Personal
Accounts within any one or more of the Mirror Investment Funds in each case at a
price equal to the value of such units as of such Valuation Date.

     Such election initially must be made prior to the commencement of his
participation in the Plan and may be changed at any time during the Plan Year.
Each such election or change in election shall be effective as soon as
administratively feasible following receipt by the Plan Administrator or its
delegate of the Participant's election.

     In the event that no timely investment election by the Participant is on
file with the Plan Administrator, such Participant shall be deemed to have
elected that all deferral amounts shall be applied to the purchase for him of
units in the Personal Account within the Mirror Investment Fund that is the
Interest Income Fund.

                                       10

<PAGE>

                                  ARTICLE THREE

                                    BENEFITS

3.01 Establishment of Accounts
     -------------------------

     A Personal Account within each Mirror Investment Fund shall be established
for each Participant in the Plan as if assets were invested in a trust. All
amounts credited to the Personal Accounts of a Participant shall at all times be
held in the Company's general funds as part of the Company's general assets,
unless a trust is established pursuant to Section 7.08.

     The value, including gains and losses, of such accounts and funds shall be
determined by the Plan Administrator in the same manner that the value is
determined under the Savings Plan. As of each Valuation Date, the net asset
value of a unit shall equal the net asset value of a unit as determined under
the Savings Plan.

     No funds shall be allocated by the Company to any Personal Account or
Mirror Investment Fund under the Plan.

3.02 Personal Accounts
     -----------------

     All amounts deferred by an Active Participant pursuant to Article Two shall
be credited to his Personal Accounts within his Mirror Investment Funds
specified in his investment election.

                                       11

<PAGE>

                                  ARTICLE FOUR

                                    TRANSFERS

4.01 Personal Accounts
     -----------------

     A Participant may elect, once in each calendar day of the Plan Year, to
transfer an amount (in whole percentages) equal to the value of all or part of
his units in his Personal Accounts within any one or more of the Mirror
Investment Funds to another one or more of his Personal Accounts within the
Mirror Investment Funds. The value of such units shall be determined as of the
Valuation Date. A transfer is effective only if made in the manner determined by
the Plan Administrator.

                                       12

<PAGE>

                                  ARTICLE FIVE

                                     VESTING

5.01 Personal Accounts
     -----------------

     A Participant shall be 100% vested in the value of his Personal Accounts
within his Mirror Investment Funds at all times without regard to whether he is
a Participant in the Plan for any future Plan Year.

                                       13

<PAGE>

                                   ARTICLE SIX

                                  TYPE OF PLAN

6.01 Top Hat Plan
     ------------

     The Plan is intended to be a "pension plan" as defined in ERISA and is
maintained by the Company on an unfunded basis primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees. As such, the Plan is intended to be construed so as not
to provide income to any Participant or Beneficiary for purposes of the Internal
Revenue Code prior to actual receipt of benefit payments under the Plan.

     In the event that it should subsequently be determined by statute or by
regulation or ruling that the Plan is not "a plan which is unfunded and is
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6) of ERISA and section
2520.104-24 of Chapter 29 of the Code of Federal Regulations, participation in
the Plan shall be restricted by the Plan Administrator to the extent necessary
to assure that it will be such a plan within the meaning of such sections.

     Notwithstanding any other provision of the Plan, if the benefits of a
Participant become taxable prior to distribution from the Plan, such amounts
shall be distributed as soon as practicable to the affected Participant.

6.02 No Funding
     ----------

     Plan benefits shall be payable solely from the general assets of the
Company. The Company shall not be required to, but may at its discretion,
segregate or physically set aside any funds or assets attributable to Plan
benefits. The Company shall retain title to and beneficial ownership of all
assets of the Company, including any assets which may be used to pay Plan
benefits. The cost of the Plan shall be expensed and a book reserve shall be
maintained on the Company's financial statements.

     No Participant or Beneficiary shall be deemed to have, pursuant to the
Plan, any legal or equitable interest in any specific assets of the Company. To
the extent that any Participant or Beneficiary acquires any right to receive
Plan benefits, such right shall arise merely as a result of a contractual
obligation and shall be no greater than, nor have any preference or priority
over, the rights of any general unsecured creditor of the Company.

                                       14

<PAGE>

                                  ARTICLE SEVEN

                                  DISTRIBUTIONS

7.01 Normal Form of Payment
     ----------------------

     The normal form of payment of benefits under the Plan shall be 5
substantially equal annual installments payable in accordance with Section 7.02
below.

7.02 Separation from Service
     -----------------------

     A Participant who has a Separation from Service for a reason other than
death shall be entitled to receive the vested benefits in his Personal Accounts
in 5 substantially equal annual installments.

     The first annual installment shall be paid in January following the year in
which occurs his Separation from Service. Each annual installment thereafter
shall be paid in January of each year. Payment dates shall be determined by the
Plan Administrator.

     Notwithstanding the foregoing, if the present value of the Participant's
vested benefits does not exceed $5,000, such benefits shall be distributed to
the Participant in a single sum payment in January following the year in which
occurs the later of (a) his Separation from Service or (b) the date of receipt
by the Plan Administrator of the Participant's notice of employment termination.
Such present value shall be determined as of the date of receipt by the Plan
Administrator of the Participant's notice of employment termination; provided,
however, that if the participant had a Separation from Service before January 1,
2000, such present value shall be determined as of December 31, 1999. The
payment date shall be determined by the Plan Administrator.

7.03 Death
     -----

     The Beneficiary of a Participant who (1) has a Separation from Service
because of death, or (2) dies after his Separation from Service but before
receiving all of his vested Plan benefits shall be entitled to receive the
remaining annual installments to which the Participant was entitled as of the
date of death. The first annual installment payable to the Beneficiary shall be
paid in January following the Participant's date of death, or, if later, after
satisfactory proof of death is received by the Plan Administrator. Each annual
installment thereafter shall be paid in January of each year. Payment dates
shall be determined by the Plan Administrator.

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

                                       15

<PAGE>

     A single-sum distribution shall be paid to the estate of the Beneficiary if
the Beneficiary dies before receiving all benefits to which he was entitled
under the Plan.

     Notwithstanding the foregoing, if the present value of the participant's
vested benefits does not exceed $5,000, such benefits shall be distributed to
the Beneficiary of the Participant in a single sum payment in January following
the Participant's date of death, or, if later, after satisfactory proof of death
is received by the Plan Administrator. The payment date shall be determined by
the Plan Administrator.

7.04 Alternate Form of Payment
     -------------------------

     A Participant entitled to receive benefits under Section 7.02 above may
make an irrevocable election to receive (1) not more than 15 substantially equal
annual installments, or (2) a single-sum distribution. The election must be made
prior to the Participant's Separation from Service in a manner authorized by the
Plan Administrator. If no election has been made by the Participant, benefits
shall be paid in the normal form of payment in accordance with Section 7.02
above.

     The first annual installment or single-sum distribution shall be paid in
January following the year in which occurs his Separation from Service;
provided, however, that the first annual installment or single-sum distribution
shall not be paid until the January following the expiration of at least one
calendar year after the year in which the Participant's election is made. Each
annual installment thereafter shall be paid in January of each year.

     A Participant also may make an irrevocable election to defer payment of the
first installment or single-sum distribution to January of a later year provided
the election is made prior to the Participant's Separation from Service in a
manner authorized by the Plan Administrator. If no election has been made by the
Participant, benefits shall commence in accordance with Section 7.02 or Section
7.04 above, whichever is applicable.

     A Participant who elects both to change the normal form of payment and to
defer payment must make the elections at the same time.

7.05 Hardship Distribution
     ---------------------

     A Participant or Beneficiary entitled to vested benefits under the Plan may
request a single-sum distribution to satisfy a severe financial hardship
resulting from an unforseen event or emergency (as defined below) beyond his
control. The distribution shall be limited to the amount necessary to satisfy
the severe financial hardship (including any applicable federal, state or local
taxes attributable to such distribution), and shall not exceed the current value
of vested benefits payable to or on behalf of the Participant or Beneficiary.

     An unforeseen event or emergency may include, but is not limited to, a
sudden and unexpected illness or accident of the Participant or Beneficiary or
his dependent, loss of his property due to casualty, or other similar
extraordinary and unforeseeable

                                       16

<PAGE>

circumstances arising as the result of events beyond his control, but shall not
include the purchase of his home or the college expenses of his child.

     The determination of the existence of a severe financial hardship and the
approval of a hardship distribution shall be made by the Vice President and
Director of Human Resources (or his successor by title or position) or his
delegate except as provided below. Approval shall be given only if, taking into
account all of the facts and circumstances, continued deferral of benefits or
adherence to the Plan's payment schedule would result in a severe financial
hardship to the Participant or Beneficiary. Approval shall not be granted if
such hardship is or may be relieved through insurance, by liquidation of his
assets (to the extent such liquidation would not itself cause severe financial
hardship), or by terminating his Election to Defer.

     With respect to a Participant who is a member of the Management Committee
of the Company or a Participant who is subject to Section 16(b) of the Exchange
Act, the determination of the existence of a severe financial hardship and the
approval of the hardship distribution shall be made by the Human Resources and
Compensation Committee.

     In the case of a Participant or Beneficiary who receives a partial hardship
distribution while receiving benefit payments, the regular payment schedule of
the Participant or Beneficiary shall continue following such distribution.

7.06 Fund-Specific Installments or Hardship Distributions
     ----------------------------------------------------

     The payment to a Participant or Beneficiary of installments or a hardship
distribution shall reduce the value of his accounts in his Mirror Investment
Fund(s) as designated by the Participant or Beneficiary. In the event the
Participant or Beneficiary fails to designate the Mirror Investment Funds from
which payment is to be made, the value of his Mirror Investment Funds shall be
reduced on a pro-rata basis.

7.07 Form of Payments
     ----------------

     Payment of all benefits from the Plan shall be made only by check. No
payments of Company stock shall be permitted.

7.08 Change of Control
     -----------------

     At the time of commencement of participation in the Plan, a Participant may
make an irrevocable election to have his Plan benefits paid in a single-sum
immediately upon a Change of Control (as hereafter defined). If the Participant
makes such an election as described above, his vested Plan benefits shall be
paid in a single-sum upon a Change of Control.

     If the Participant does not make such an election, then, upon a Change of
Control, assets of the Company in an amount sufficient to pay benefits then due
under the Plan

                                       17

<PAGE>

shall immediately be transferred to a grantor trust to be established by the
Company for the purpose of paying benefits hereunder, and the Personal Account
and Company Account shall thereafter be paid to the Participant from such trust
in accordance with the terms of the Plan; provided that at the time of such
Change of Control, the Participant may make an irrevocable election to have his
Plan benefits paid in a single-sum immediately, in which event the Participant's
benefits shall be reduced by 10% as a penalty for early withdrawal, and the
Participant shall receive a single-sum payment of only 90% of his benefits
otherwise payable under the Plan. On each anniversary date of the date of a
Change of Control, the Company shall transfer to the grantor trust an amount
necessary to pay all benefits accrued under the Plan during the preceding twelve
months.

     For purposes of this Section 7.08, a Change of Control shall be deemed to
have occurred if the event set forth in any one of the following paragraphs
shall have occurred:

     (a) any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities beneficially owned
by such Person any securities acquired directly from the Company or its
Affiliates) representing 50% or more of the combined voting power of the
Company's then outstanding securities; or

     (b) during any period of two consecutive calendar years, the following
individuals cease for any reason to constitute a majority of the number of
directors then serving as directors of the Company: individuals, who on July 14,
1999 constitute the Board of Directors of the Company and any new director
(other than a director whose initial assumption of office is in connection with
the settlement of an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board of Directors of the Company
or nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on July 14, 1999 or whose appointment, election
or nomination for election was previously so approved or recommended; or

     (c) there is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation or
entity, other than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any Parent
thereof), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 50% of the combined voting power of the
securities of the Company, such surviving entity or any Parent thereof
outstanding immediately after such merger or consolidation, or (ii) a merger or
consolidation effected solely to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its Affiliates) representing 50% or more of the combined
voting power of the Company's then outstanding securities; or

                                       18

<PAGE>

     (d) the stockholders of the Company approve a plan of complete liquidation
or dissolution of the Company, or there is consummated a sale or disposition by
the Company or any of its subsidiaries of any assets which individually or as
part of a series of related transactions constitute all or substantially all of
the Company's consolidated assets, other than any such sale or disposition to an
entity at least 50% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially the same
proportions as their ownership of the voting securities of the Company
immediately prior to such sale or disposition; or

     (e) the execution of a binding agreement that if consummated would result
in a Change of Control of a type specified in subparagraphs (a) or (c) above (an
"Acquisition Agreement") or of a binding agreement for the sale or disposition
of assets that, if consummated, would result in a Change of Control of a type
specified in subparagraph (d) above (an "Asset Sale Agreement") or the adoption
by the Board of Directors of the Company of a plan of complete liquidation or
dissolution of the Company that, if consummated, would result in a Change of
Control of a type specified in subparagraph (d) above (a "Plan of Liquidation"),
provided, however, that a Change of Control of the type specified in this
subparagraph (e) shall not be deemed to exist or have occurred as a result of
the execution of such Acquisition Agreement or Asset Sale Agreement, or the
adoption of such a Plan of Liquidation, from and after the Abandonment Date. As
used in this subparagraph (e), the term "Abandonment Date" shall mean the date
on which (i) an Acquisition Agreement, Asset Sale Agreement or Plan of
Liquidation is terminated (pursuant to its terms or otherwise) without having
been consummated, (ii) the parties to an Acquisition Agreement or Asset Sale
Agreement abandon the transactions contemplated thereby, (iii) the Company
abandons a Plan of Liquidation, or (iv) a court or regulatory body having
competent jurisdiction enjoins or issues a cease and desist or stop order with
respect to or otherwise prevents the consummation of, or a regulatory body
notifies the Company that it will not approve an Acquisition Agreement, Asset
Sale Agreement or Plan of Liquidation or the transactions contemplated thereby
and such injunction, order or notice has become final and not subject to appeal;
or

     (f) the Board adopts a resolution to the effect that, for purposes of this
Plan, a Change of Control has occurred.

     Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity (i) which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions, (ii) which is
intended to reflect or track the value or performance of a particular division,
business segment or subsidiary of the Company, or (iii) which is an affiliated
company, subsidiary, or spin-off entity owned by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the Company
on the date of such spin-off.

                                       19

<PAGE>

     As used in connection with the foregoing definition of Change of Control,
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act; "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time; "Parent" shall
mean any entity that becomes the Beneficial Owner of at least 50% of the voting
power of the outstanding voting securities of the Company or of an entity that
survives any merger or consolidation of the Company or any direct or indirect
subsidiary of the Company; and "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation or entity owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

7.09 Reemployed Participants
     -----------------------

     If the Participant is reemployed, his scheduled payments under Section 7.02
or Section 7.04 shall cease and his election, if any, under Section 7.04 shall
be void. The Participant may make a new election under Section 7.04 prior to his
subsequent Separation from Service that shall apply to any unpaid benefits and
to any additional benefits payable to or on behalf of the Participant because of
a subsequent Separation from Service.

     If no new election is made by the Participant, benefits shall be paid in
the normal form of payment in accordance with Section 7.02 above.

                                       20

<PAGE>

                                  ARTICLE EIGHT

                            AMENDMENT AND TERMINATION

8.01 Plan Amendment
     --------------

     The Human Resources and Compensation Committee may amend the Plan at any
time and from time to time, without prior notice to any Participant or
Beneficiary; provided, however, that the Human Resources Committee also may make
amendments that relate primarily to the administration of the Plan, are applied
in a uniform and consistent manner to all Participants, and are reported to the
Human Resources and Compensation Committee.

8.02 Plan Termination
     ----------------

     The Board of Directors of the Company may terminate or discontinue the Plan
at any time. If the Plan is terminated, it shall be on such terms and conditions
as the Board of Directors of the Company shall deem appropriate.

8.03 Automatic Plan Termination
     --------------------------

     This Plan is expressly conditioned on the continued deferral of income tax
on amounts deferred by a Participant under the Plan until such amounts are
actually distributed to the Participant. If, as a result of an adverse
determination by the Internal Revenue Service or a change in the tax laws or
applicable income tax regulations, amounts deferred by Participants under the
Plan become subject to income tax prior to the actual distribution of such
amounts, the Plan and each Election to Defer hereunder shall automatically
terminate as of the effective date of such change in the law without any formal
action by the Board of Directors to terminate the Plan.

                                       21

<PAGE>

                                  ARTICLE NINE

                                  MISCELLANEOUS

9.01 Plan Administration
     -------------------

     The Plan shall be administered under the direction of the Benefit Plans
Review Committee. Except as otherwise provided below, the Benefits
Administration Committee shall be considered the Plan Administrator for purposes
of ERISA.

     The Human Resources and Compensation Committee may delegate all or some of
the responsibility for the administration of the Plan to the Human Resources
Committee or the Benefits Administration Committee in which case such Committee
shall assume such delegated power and authority in administering the Plan to
that extent; provided, however, that in no event shall the Human Resources
Committee or the Benefits Administration Committee have any power or authority
with respect to matters involving a Participant who is a member of the
Management Committee of the Company or a Participant who is subject to Section
16(b) of the Exchange Act.

     The Plan Administrator has the authority and discretion to construe and
interpret the Plan. As part of this authority, the Plan Administrator has the
discretion to resolve inconsistencies or ambiguities in the language of the
Plan, to supply omissions from or correct deficiencies in the language of the
Plan, and to adopt rules for the administration of the Plan which are not
inconsistent with the terms of the Plan. The Plan Administrator also has the
authority and discretion to resolve all questions of fact relating to any claim
for benefits as to any matter for which the Plan Administrator has
responsibility. All determinations of the Plan Administrator are final and
binding on all parties.

     Each person considered to be a fiduciary with respect to the Plan shall
have only those powers and responsibilities as are specifically given that
person under this Plan. It is intended that each such person shall be
responsible for the proper exercise of his or her own powers and
responsibilities, and shall not be responsible for any act or failure to act of
any other person considered to be a fiduciary or any act or failure to act of
any person considered to be a non-fiduciary.

9.02 Plan Expenses
     -------------

     All Plan administration expenses incurred by the Company or the Plan
Administrator shall be paid by the Company.

9.03 Effect on Other Benefits
     ------------------------

     Participation in the Plan shall not reduce any welfare benefits or
retirement benefits offered by the Company, except that the amounts deferred
under the Plan and any Plan benefits shall not be considered "Compensation" for
purposes of the Savings Plan.

                                       22

<PAGE>

9.04 No Guarantee of Employment
     --------------------------

     Neither participation in the Plan nor any action taken under the Plan shall
confer upon a Participant any right to continue in the employ of an Employer or
affect the right of such Employer to terminate the Participant's employment at
any time.

9.05 Disclaimer of Liability
     -----------------------

     The Employer shall be solely responsible for the payment of Plan benefits
hereunder. The members of the Human Resources and Compensation Committee and the
Human Resources Committee, and the officers, directors, employees, or agents of
the Company or any other Employer, shall not be liable for such benefits. Unless
otherwise required by law, no such person shall be liable for any action or
failure to act, except where such act or omission constitutes gross negligence
or willful or intentional misconduct.

9.06 Severability
     ------------

     If any provision of the Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall apply only to that provision, and shall not
affect or render invalid or unenforceable any other provision of the Plan. In
such event, the Plan shall be administered and construed as if such invalid or
unenforceable provision were not contained herein. If the application of any
Plan provision to any Participant or Beneficiary shall be held invalid or
unenforceable, the application of such provision to any other Participant or
Beneficiary shall not in any manner be affected thereby.

9.07 Successors
     ----------

     The Plan and any Election to Defer shall be binding on (i) the Company and
its successors and assigns, (ii) any Employer and its successors and assigns,
(iii) each Participant, (iv) each Beneficiary, and (v) the heirs, distributees,
and legal representatives of each Participant and Beneficiary.

9.08 Governing Law
     -------------

     Except to the extent that the Plan may be subject to the provisions of
ERISA, the Plan shall be construed and enforced according to the laws of the
State of Texas without giving effect to the conflict of laws principles thereof.
In the event limitations imposed by ERISA on legal actions do not apply, the
laws of the State of Texas shall apply, and a cause of action under the Plan
must be brought no later than four years after the date the action accrues.

9.09 Construction
     ------------

     As used herein, the masculine shall include the feminine, the singular
shall include the plural, and vice versa, unless the context clearly indicates
otherwise. Titles and headings herein are for convenience only and shall not be
considered in construing the

                                       23

<PAGE>

Plan. The words "hereof," "hereunder", and other similar compounds of the word
"here" shall mean and refer to the entire Plan and not to any particular
provision or Section.

9.10 Taxes
     -----

     Any taxes imposed on Plan benefits shall be the sole responsibility of the
Participant or Beneficiary. The Company shall deduct from Plan benefits any
federal taxes, state taxes, local taxes, or other taxes required to be withheld.
The Company shall, unless the Plan Administrator elects otherwise, withhold such
taxes at the applicable flat rate percentage. The Company shall also deduct from
any payment of Compensation, including any cash incentive payments, on the date
such payment would have been made if not deferred under this Plan Social
Security and Medicare taxes or other taxes required to be withheld on such date.

9.11 Non-Assignability
     -----------------

     Unless otherwise required by law, and prior to distribution to a
Participant or Beneficiary, Plan benefits shall not be subject to assignment,
transfer, sale, pledge, encumbrance, alienation, or charge by such Participant
or Beneficiary, and any attempt to do so shall be void. Plan benefits shall not
be liable for or subject to garnishment, attachment, execution, or levy, or
liable for or subject to the debts, contracts, or liabilities of the Participant
or Beneficiary; provided, however, that the Company may offset from the payment
of any Plan benefits to a Participant or Beneficiary amounts owed by the
Participant to an Employer.

9.12 Claims Procedure
     ----------------

     If a Participant or Beneficiary ("claimant") does not receive the benefits
which the claimant believes he is entitled to receive under the Plan, the
claimant may file a claim for benefits with the Director of Personnel (or his
successor by title or position). All claims must be made in writing and must be
signed by the claimant. If the claimant does not furnish sufficient information
to determine the validity of the claim, the Director of Personnel will indicate
to the claimant any additional information which is required.

     Each claim will be approved or disapproved by the Director of Personnel
within 90 days following receipt of the information necessary to process the
claim. In the event the Director of Personnel denies a claim for benefits in
whole or in part, the Director of Personnel will notify the claimant in writing
of the denial of the claim. Such notice by the Director of Personnel will also
set forth, in a manner calculated to be understood by the claimant, the specific
reasons for such denial, the specific Plan provisions on which the denial is
based, a description of any additional material or information necessary to
perfect the claim with an explanation of why such material or information
necessary, and an explanation of the Plan's claim review procedure as set forth
below. If no action is taken by the Director of Personnel on or a claim within
90 days, the claim will be deemed to be denied for purposes of the review
procedure below.

                                       24

<PAGE>

     A claimant may appeal a denial of his or her claim by requesting a review
of the decision by the Plan Administrator. An appeal must be submitted in
writing within six months after the denial and must (i) request a review of the
claim for benefits under the Plan, (ii) set forth all the grounds upon which the
claimant's request for review is based and any facts in support thereof, and
(iii) set forth any issues or comments which the claimant deems pertinent to the
appeal.

     The Plan Administrator will make a full and fair review of each appeal and
any written materials submitted in connection with the appeal. The Plan
Administrator will act upon each appeal within 60 days after receipt thereof,
unless special circumstances require an extension of the time for processing, in
which case a decision will be rendered as soon as possible but not later than
120 days after the appeal is received. The claimant will be given the
opportunity to review pertinent documents or materials upon submission of a
written request to the Plan Administrator, provided the Plan Administrator finds
the requested documents or materials pertinent to the appeal. On the basis of
its review, the Plan Administrator will make an independent determination of the
claimant's eligibility for benefits under the Plan.

     The decision of the Plan Administrator on any claim for benefits will be
final and conclusive upon all parties thereto. In the event the Plan
Administrator denies an appeal in whole or in part, the Plan Administrator will
give written notice of the decision to the claimant, which notice will set
forth, in a manner calculated to be understood by the claimant, the specific
reasons for such denial and specific reference to the pertinent Plan provisions
on which the decision was based.

                                       25

<PAGE>

                                  APPROVAL FORM
                                  -------------

     Pursuant to authority granted to me by the Board of Directors of J.C.
Penney Company, Inc. at its meeting held on December 5, 2001, I hereby approve
the amendments to the J.C. Penney Company, Inc. Pension Plan, the J.C. Penney
Company, Inc. Savings, Profit-Sharing and Stock Ownership Plan, the J.C. Penney
Company, Inc. Benefit Restoration Plan, the Supplemental Retirement Program for
Management Profit-Sharing Associates of J.C. Penney Company, Inc., the J.C.
Penney Company, Inc. Voluntary Early Retirement Plan, the J.C. Penney Company,
Inc. Mirror Savings Plans I, II, and III, the J.C. Penney Company, Inc.
Separation Pay Plan, and the JCP Telecom Systems, Inc. Early Retirement Plan in
the forms annexed hereto as Exhibit A.

     Dated as of January 27, 2002.

                                                 /s/ Gary L. Davis
                                                --------------------------------
                                                Gary L. Davis
                                                Executive Vice President,
                                                Chief Human Resources and
                                                Administration Officer

Approval of Counsel:

 /s/ T.P. Blaylock
-------------------------------------
T.P. Blaylock

 /s/ M.E. White
-------------------------------------
M.E. White

<PAGE>

                                    EXHIBIT A
                                    ---------

     WHEREAS, the Board of Directors of J.C. Penney Company, Inc. authorized an
Agreement and Plan of Merger (the "Merger Agreement") between J.C. Penney
Company, Inc. ("Company"), J.C. Penney Holdings, Inc., a Delaware corporation
("Holdings"), and JCP Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Holdings ("Merger Sub");

     WHEREAS, pursuant to the Merger Agreement, Merger Sub will merge with and
into the Company, with Company surviving as a wholly-owned subsidiary of
Holdings (the "Merger");

     WHEREAS, pursuant to the Merger, Holdings will amend and restate its
certificate of incorporation to inter alia, change its name to "J.C. Penney
Company, Inc.";

     WHEREAS, pursuant to the Merger, the Company will amend and restate its
certificate of incorporation to inter alia, change its name to "J.C. Penney
Corporation, Inc.";

     NOW, THEREFORE, as authorized by the Board of Directors on December 5,
2001, the J.C. Penney Company, Inc. Pension Plan (As Amended and Restated
Effective January 1, 2001); the J.C. Penney Company, Inc. Savings,
Profit-Sharing and Stock Ownership Plan; the J.C. Penney Company, Inc. Benefit
Restoration Plan, the Supplemental Retirement Program for Management
Profit-Sharing Associates of J.C. Penney Company, Inc.; the J.C. Penney Company,
Inc. Voluntary Early Retirement Plan; the J.C. Penney Company, Inc. Mirror
Savings Plans I, II, and III, the J.C. Penney Company, Inc. Separation Pay Plan,
and the JCP Telecom Systems, Inc. Early Retirement Plan be, and they hereby are,
amended, effective as of January 27, 2002, as set forth in Exhibits 1, 2, 3, 4,
5, 6, 7, and 8, respectively.

<PAGE>

                                   EXHIBIT 5
                                   ---------

                                 AMENDMENT TO
                          J. C. PENNEY COMPANY, INC.
                      MIRROR SAVINGS PLANS I, II AND III

1.     The names of the Plans are changed effective January 27, 2002 to J. C.
       Penney Corporation, Inc. Mirror Savings Plan I, J. C. Penney
       Corporation, Inc. Mirror Savings Plan II, and J. C. Penney Corporation,
       Inc. Mirror Savings Plan III in each place they appear including the
       definitions in Article One of each Plan.

2.     The definitions in Article One entitled Company and Savings Plan are
                                               -------     ------------
       amended effective January 27, 2002 and a new definition entitled Parent
                                                                        ------
       Company is added effective January 27, 2002 to read as follows:
       -------

       Company: Prior to January 27, 2002, J. C. Penney Company, Inc., a
       -------
       Delaware corporation, and on and after January 27, 2002, J. C. Penney
       Corporation, Inc., a Delaware corporation. The term "Company" will also
       include any successor employer, if the successor employer expressly
       agrees in writing as of the effective date of succession to continue the
       Plan.

       Parent Company: J. C. Penney Company, Inc., a Delaware corporation,
       --------------
       and any successor corporation.

       Savings Plan: Prior to January 27, 2002, the J. C. Penney Company, Inc.
       ------------
       Savings Plan, as amended from time to time, and on and after January 27,
       2002, the J. C. Penney Corporation, Inc. Savings Plan, as amended from
       time to time.

3.     Section 2.05 is amended effective January 1, 2002 to delete "$160,000"
       and to substitute therefor "$200,000".

4.     Section 7.08 is amended effective January 27, 2002 to delete the word
       "Company" and to substitute therefor the words "Parent Company" in each
       place in which it appears.<PAGE>
                                                              EXHIBIT 10(ii)(ab)

                            INDEMNIFICATION AGREEMENT

                                      among

                           J. C. PENNEY COMPANY, INC.,

                         J. C. PENNEY CORPORATION, INC.

                                       and

                            ________________________

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

                                       1

<PAGE>

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

                                       2

<PAGE>

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

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

                                       3

<PAGE>

terms set forth in said resolution; and

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

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

                                       4

<PAGE>

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

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

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

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

                                       5

<PAGE>

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

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

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

                                       6

<PAGE>

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

                                       7

<PAGE>

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

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

                                       8

<PAGE>

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

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

                                       9

<PAGE>

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

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

                                       10

<PAGE>

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

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

                                       11

<PAGE>

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

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

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

                                       12

<PAGE>

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

                                       13

<PAGE>

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

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

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

                                       14

<PAGE>

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

          (d) For purposes of this Agreement:

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

                                       15

<PAGE>

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

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

                                       16

<PAGE>

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

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

                                       17

<PAGE>

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

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

                                       18

<PAGE>

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

                                       19

<PAGE>

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

                                       20

<PAGE>

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

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

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

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

                                       21

<PAGE>

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

                                       22

<PAGE>

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

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

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

                                       23

<PAGE>

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

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

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

                                       24

<PAGE>

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

                                       25

<PAGE>

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

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

                                       26

<PAGE>

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

                                       27

<PAGE>

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

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

                                       28

<PAGE>

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

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

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

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

                                       29

<PAGE>

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

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

                                      30

<PAGE>

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

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

                                       31

<PAGE>

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

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

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

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

                                       32

<PAGE>

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

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

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

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

             If Mailed:

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

             If Delivered:

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

                                       33

<PAGE>

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

              If Mailed:

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

              If Delivered:

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

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

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

                                       34

<PAGE>

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

ATTEST:                              J. C. PENNEY COMPANY, INC.

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

ATTEST:                              J. C. PENNEY CORPORATION, INC.

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

                                     INDEMNITEE

                                     By:__________________________________
                                     Name:
                                     Title:
                                     Address:

                                       35

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