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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52 weeks ended January 25, 1997 Commission file number 1-4947-1
J. C. Penney Funding Corporation
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0101524
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(State of incorporation) (I.R.S. Employer ID No.)
6501 LEGACY DRIVE, PLANO, TEXAS 75024-3698
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 431-1000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: None
----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 500,000 shares of Common
Stock of $100 par value, as of March 17, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of Registrant's 1996 Annual Report ("1996 Annual Report") are
incorporated into Parts I, II, and IV. Portions of J. C. Penney Company, Inc.'s
1996 Annual Report to Stockholders ("JCPenney's 1996 Annual Report") are
incorporated into Part I.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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PART I
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1. BUSINESS.
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J. C. Penney Funding Corporation ("Funding"), which was incorporated in
Delaware in 1964, is a wholly-owned subsidiary of J. C. Penney Company, Inc.
("JCPenney"), also incorporated in Delaware. Funding's executive offices are
located in JCPenney's offices in Plano, Texas. Its business consists of
financing a portion of JCPenney's operations through loans to JCPenney, the
purchase of customer receivable balances that arise from the retail credit sales
of JCPenney, or a combination of both. No receivables have been purchased by
Funding since 1985.
JCPenney, a company founded by James Cash Penney in 1902 and incorporated in
1924, is a major retailer operating over 1,200 JCPenney department stores in all
50 states, Puerto Rico, Mexico, and Chile. The major portion of JCPenney's
business consists of providing merchandise and services to consumers through
department stores that include catalog departments. JCPenney stores market
predominantly family apparel, jewelry, shoes, accessories, and home
furnishings. JCPenney also operates a chain of drugstores. With the completion
of its acquisition of Eckerd Corporation on February 27, 1997, JCPenney's
drugstore operations total approximately 2,700 stores located predominantly
throughout the northeast, southeast, and Sunbelt regions of the United States.
Additionally, JCPenney owns and operates several insurance companies, which
market life, health, accident and credit insurance. JCPenney's total revenues
for the 52 weeks ended January 25, 1997 were $23.6 billion and net income was
$565 million. Pursuant to the terms of financing agreements between Funding and
JCPenney, payments from JCPenney to Funding are designed to produce earnings
sufficient to cover Funding's fixed charges, principally interest on borrowings,
at a coverage ratio mutually agreed upon between Funding and JCPenney. (See
"Loan Agreement" and "Receivables Agreement", below.) The earnings to fixed
charges coverage ratio has historically been, and in fiscal 1996 was, at least
1.5 to 1.
Operations of Funding. To finance the operations of JCPenney as described
---------------------
under "Business" above, Funding sells its short-term notes (commercial paper) to
investors through dealer-placed programs. The short-term notes are guaranteed on
a subordinated basis by JCPenney. Funding has, from time to time, issued long-
term debt in public and private markets in the United States and abroad. Prior
to April 3, 1992, Funding issued commercial paper and master notes to investors
on a direct issue basis. Funding also has in place arrangements for short-term
bank borrowings. Short-term debt in fiscal 1996 averaged $2,041 million compared
to $2,145 million in fiscal 1995 and $1,990 million in fiscal 1994. Short-term
debt rates averaged 5.5 percent in fiscal 1996, compared to 5.9 percent in
fiscal 1995 and 4.6 percent in fiscal 1994.
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Interest expense decreased in fiscal 1996 compared to fiscal 1995 due to lower
borrowing levels and lower short-term interest rates. Interest expense
increased in fiscal 1995 as compared to fiscal 1994 due to higher borrowing
levels and higher short-term interest rates.
Credit Operations of JCPenney. Virtually all types of merchandise and
-----------------------------
services sold by JCPenney in the United States, Puerto Rico, Mexico, and Chile
may be purchased on JCPenney's revolving credit card. In addition, JCPenney
accepts American Express, Diners Club (Mexico only), Discover (United States and
Puerto Rico only), MasterCard, and Visa at JCPenney stores, catalog, and
drugstores throughout the 50 states, Puerto Rico, Mexico, and Chile. For
additional information regarding the credit card operations of JCPenney, see
"Net Interest and Credit Operations" (page 16), which appears in the section of
JCPenney's 1996 Annual Report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Receivables" (page 24), which
appears in the section of JCPenney's 1996 Annual Report entitled "Notes to
Consolidated Financial Statements", and "Credit Operations", "Pre-tax cost of
JCPenney credit card", "Credit sales", and "Key JCPenney credit card
information" (page 36), which appear in the section of JCPenney's 1996 Annual
Report entitled "Supplemental Information (Unaudited)", on the pages indicated
in the parenthetical references, which are incorporated by reference herein.
Funding has never incurred any losses from JCPenney's retail credit
operation since, pursuant to the Receivables Agreement, JCPenney itself
administers the customer receivables when sold to Funding, receives all finance
charge revenue on those customer receivables, and bears all related costs.
Loan Agreement. Funding and JCPenney are parties to a Loan Agreement, dated
--------------
as of January 28, 1986, as amended ("Loan Agreement"), which provides for
unsecured loans to be made from time to time by Funding to JCPenney for the
general business purposes of JCPenney, subject to the terms and conditions of
the Loan Agreement. The loans may be either senior loans or subordinated loans,
at the election of JCPenney, provided that, without the consent of the Board of
Directors of Funding, the principal amount of loans outstanding at any time
under the Loan Agreement may not exceed specified limits. Currently such limits
may not exceed $8 billion in the aggregate for all loans and $1 billion in the
aggregate for all subordinated loans. The terms of each loan under the Loan
Agreement shall be as agreed upon at the time of such loan by Funding and
JCPenney, provided that Funding may require upon demand that any loan be paid,
and JCPenney may prepay without premium any loan, in whole or in part at any
time. Under the terms of the Loan Agreement, JCPenney and Funding agree from
time to time upon a mutually-acceptable earnings coverage of Funding's interest
and other fixed charges. If at the end of each fiscal quarter during which a
loan is outstanding, the earnings
3
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coverage of Funding's interest and other fixed charges is less than the agreed
upon ratio, JCPenney will pay to Funding an additional amount sufficient to
provide for such coverage to be not less than the agreed upon ratio. In the
event that JCPenney and Funding have not agreed upon a mutually acceptable ratio
for any fiscal quarter, that applicable quarterly payment with respect to such
period will include an amount equal to the excess, if any, of one and one-half
percent of the daily average of the aggregate principal amount outstanding on
all loans during such period, over the aggregate amount of interest accrued on
all such loans during such period.
Receivables Agreement. Since December 1, 1985, JCPenney has not sold an
---------------------
undivided interest in any of its customer receivables to Funding. The
Receivables Agreement between Funding and JCPenney, as amended ("Receivables
Agreement"), continues to be in full force and effect and while no purchases of
JCPenney customer receivables by Funding are presently contemplated, JCPenney
may again commence sales of its customer receivables to Funding.
The Receivables Agreement sets forth the terms and provisions governing
sales of customer receivables (other than specified types of customer
receivables immaterial in amount) by JCPenney to Funding. At the end of each
monthly accounting period, JCPenney may sell to Funding an undivided interest in
its undefaulted customer receivables which are not sold or contracted to be sold
by JCPenney to anyone other than Funding. Settlements are made as of the end of
each such monthly accounting period with respect to collections, defaults, and
other adjustments to customers' accounts occurring during that month.
The purchase price for the customer receivables acquired by Funding from
JCPenney is equal to the aggregate dollar amount of such customer receivables.
JCPenney pays to Funding at the end of each monthly accounting period a discount
in an amount agreed upon from time to time. In the event of a failure to agree
as to the amount of the discount, the amount to be paid is one-half of one
percent of the average daily closing balance of conveyed customer receivables
held by Funding during such monthly accounting period less the average daily
closing balance of the Contract Reserve Account during such period.
In addition, at the time of purchase of customer receivables from JCPenney,
Funding withholds from the purchase price, and adds to the Contract Reserve
Account, the lesser of (i) five percent of the amount of customer receivables
then being purchased, or (ii) the amount, if any, by which the amount in the
Contract Reserve Account is less than five percent of the total amount of
customer receivables then owned by Funding. If the amount in the Contract
Reserve Account should exceed five percent of the total amount of customer
receivables owned by Funding at the end of any monthly accounting period, such
excess is to be paid to JCPenney in accordance with the Receivables Agreement.
If any portion of a customer receivable becomes more than 180 days past due or
if the
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customer is, in the judgment of JCPenney, unable to make further payment, such
customer receivable is considered to be in default for the purposes of the
Receivables Agreement and is charged against the Contract Reserve Account.
Collections with respect to any such defaulted customer receivable are credited
to the Contract Reserve Account. As described above, all bad debts written off
to date have been covered by the Contract Reserve Account.
Funding acquires all of JCPenney's right, title, and interest in and to the
undivided portion of the customer receivables being conveyed to it. All sales
of customer receivables to Funding are without recourse to JCPenney. However,
in the event of returned, rejected, or repossessed merchandise to which any
previously conveyed undefaulted customer receivable relates, or in the event of
a breach of a warranty made by JCPenney in the Receivables Agreement to which
any previously conveyed undefaulted customer receivable relates, JCPenney is
obligated to pay to Funding the amount by which Funding has been damaged.
Either party has the right at any time to terminate the further sale or
purchase, as the case may be, of customer receivables under the Receivables
Agreement.
Certain state laws provide for recording or other notice formalities in
connection with the assignment of accounts receivable. Funding does not deem it
appropriate to utilize such procedures in connection with customer receivables
purchased from JCPenney. In the event of the bankruptcy or receivership of
JCPenney, it is possible that creditors of JCPenney might be deemed to have
superior rights to some or all of the customer receivables previously purchased
by Funding.
Committed Bank Credit Facilities. Committed bank credit facilities available
--------------------------------
to Funding and JCPenney as of January 25, 1997 amounted to $6.0 billion. In
1996, Funding and JCPenney amended the two existing syndicated revolving credit
facilities and entered into two new syndicated revolving credit facilities with
a group of domestic and international banks. The "Existing" facilities, which
support commercial paper borrowing arrangements, include a $1.5 billion, 364-day
revolver and a $1.5 billion, five-year revolver. The 364-day revolver includes a
$750 million seasonal credit line for the August to January period, thus
allowing JCPenney to match its seasonal borrowing requirements. The
"Acquisition" facilities provided short term funding for JCPenney's acquisition
of Eckerd Corporation and are also comprised of a $1.5 billion, 364-day
revolver, and a $1.5 billion, five-year revolver. As of January 25, 1997, $1.5
billion was borrowed under the five-year "Acquisition" facility and $400 million
was borrowed under the 364-day "Acquisition" facility. The outstanding
borrowings under the "Acquisition" facilities were paid off on February 18,
1997. (See page 6 of Funding's 1996 Annual Report which is incorporated herein
by reference.)
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Employment. Funding has had no employees since April 30, 1992.
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General. Legislation regulating consumer credit has been enacted in all
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states and federally. Funding's operations have not been affected by such
legislation since Funding does not deal directly with consumers.
2. PROPERTIES.
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Funding owns no physical properties.
3. LEGAL PROCEEDINGS.
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Funding has no material legal proceedings pending against it.
PART II
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5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
-------------------------------------
JCPenney owns all of Funding's outstanding common stock. Funding's common
stock is not traded, and no dividends have been, or are currently intended to
be, declared by Funding on its common stock.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The Balance Sheets of Funding as of January 25, 1997, January 27, 1996, and
January 28, 1995, and the related statements of income, reinvested earnings, and
cash flows for the years then ended, appearing on pages 3 through 5 of Funding's
1996 Annual Report, together with the related notes and the Independent
Auditors' Report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing on page 6 of Funding's 1996 Annual Report, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on page 2 thereof, the section of Funding's 1996 Annual
Report entitled "Five Year Financial Summary" appearing on page 7 thereof, and
the unaudited quarterly financial highlights ("Quarterly Data") appearing on
page 8 thereof, are incorporated herein by reference in response to Item 8 of
Form 10-K.
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
---------------------------------------------
Funding has had no change in or disagreements with its independent certified
public accountants on accounting matters and/or financial disclosure.
6
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PART IV
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14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
--------------------------------------------
(a)(1) All Financial Statements.
See Item 8 of this Form 10-K for financial statements incorporated by
reference to Funding's 1996 Annual Report.
(a)(2) Financial Statement Schedules.
All schedules have been omitted as they are inapplicable or not
required under the rules, or the information has been submitted in the
financial statements or in the notes to the financial statements
incorporated by reference to Funding's 1996 Annual Report.
(a)(3) Exhibits.
See separate Exhibit Index on pages G-1 through G-5.
(b) Reports on Form 8-K filed during the fourth quarter of fiscal 1996.
None.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. C. PENNEY FUNDING CORPORATION
--------------------------------
(Registrant)
By /s/ R. B. Cavanaugh
-------------------------------
R. B. Cavanaugh
Chairman of the Board
Dated: March 25, 1997
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ R. B. Cavanaugh
- ---------------------
R. B. Cavanaugh Chairman of the Board March 25, 1997
(principal executive
officer); Director
S. F. Walsh*
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S. F. Walsh President March 25, 1997
(principal financial
officer); Director
W. J. Alcorn*
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W. J. Alcorn Controller (principal March 25, 1997
accounting officer)
D. A. McKay*
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D. A. McKay Director March 25, 1997
*By /s/ R. B. Cavanaugh
---------------------
R. B. Cavanaugh
Attorney-in-fact
9
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EXHIBIT INDEX
Exhibit
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3. (i) Articles of Incorporation
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(a) Certificate of Incorporation of Funding, effective April 13, 1964
(incorporated by reference to Exhibit 3(a) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 29, 1994*).
(b) Certificate of Amendment of Certificate of Incorporation, effective
January 1, 1969 (incorporated by reference to Exhibit 3(b) to
Funding's Annual Report on Form 10-K for the 52 weeks ended January
29, 1994*).
(c) Certificate of Amendment of Certificate of Incorporation, effective
August 11, 1987 (incorporated by reference to Exhibit 3(c) to
Funding's Annual Report on Form 10-K for the 52 weeks ended January
29, 1994*).
(d) Certificate of Amendment of Certificate of Incorporation, effective
April 10, 1988 (incorporated by reference to Exhibit 3(d) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).
(ii) Bylaws
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(a) Bylaws of Funding, as amended to May 19, 1995 (incorporated by
reference to Exhibit 3(ii) to Funding's Quarterly Report on Form 10-Q
for the 13 and 39 weeks ended October 26, 1996*).
4. Instruments defining the rights of security holders, including indentures
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(a) Issuing and Paying Agency Agreement dated as of March 16, 1992,
between J. C. Penney Funding Corporation and Morgan Guaranty Trust
Company of New York (incorporated by reference to Exhibit 4(a) to
Funding's Current Report on Form 8-K, Date of Report - April 3,
1992*).
(b) Issuing and Paying Agency Agreement dated as of February 3, 1997,
between J.C. Penney Funding Corporation and The Chase Manhattan Bank.
(c) Guaranty dated as of February 17, 1997, executed by J. C. Penney
Company, Inc.
G-1
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EXHIBIT INDEX
Exhibit
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(d) Amended and Restated 364-Day Revolving Credit Agreement dated as of
December 3, 1996, among J. C. Penney Company, Inc.,J. C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty Trust
Company of New York, as Agent for the Lenders, and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank,
N.A., Credit Suisse, and NationsBank of Texas, N.A., as Co-Agents for
the Lenders.
(e) Amended and Restated Five-Year Revolving Credit Agreement dated as of
December 3, 1996, among J. C. Penney Company, Inc., J. C. Penney
Funding Corporation, the Lenders party thereto, Morgan Guaranty Trust
Company of New York, as Agent for the Lenders, and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank,
N.A., Credit Suisse, and NationsBank of Texas, N.A., as Co-Agents for
the Lenders.
(f) 364-Day Revolving Credit Agreement dated as of December 3, 1996, among
J. C. Penney Company, Inc., J. C. Penney Funding Corporation, the
Lenders party thereto, Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and NationsBank of Texas, N.A., as Co-
Agents for the Lenders, and Credit Suisse, as Administrative Agent for
the Lenders.
(g) Five-Year Revolving Credit Agreement dated as of December 3, 1996,
among J. C. Penney Company, Inc., J. C. Penney Funding Corporation,
the Lenders party thereto, Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and NationsBank of Texas, N.A., as Co-
Agents for the Lenders, and Credit Suisse, as Administrative Agent for
the Lenders.
(h) Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
Penney Funding Corporation and J.P. Morgan Securities Inc.
(incorporated by reference to Exhibit 10(a) to Funding's Current
Report on Form 8-K, Date of Report -April 3, 1992*).
(i) Commercial Paper Dealer Agreement dated March 16, 1992 between J. C.
Penney Funding Corporation and The First Boston Corporation
(incorporated by reference to Exhibit 10(b) to Funding's Current
Report on Form 8-K, Date of Report - April 3, 1992*).
G-2
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EXHIBIT INDEX
Exhibit
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(j) Commercial Paper Dealer Agreement dated May 3, 1994 between J. C.
Penney Funding Corporation and Merrill Lynch Money Markets Inc.
(incorporated by reference to Exhibit 4(g) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 28, 1995*).
(k) Commercial Paper Dealer Agreement dated January 25, 1995 between J. C.
Penney Funding Corporation and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 4(h) to Funding's Annual Report
on Form 10-K for the 52 weeks ended January 28, 1995*).
(l) Commercial Paper Dealer Agreement dated February 7, 1997 between J. C.
Penney Funding Corporation and Credit Suisse First Boston
Corporation.**
(m) Guaranty dated as of December 3, 1996, executed by J.C. Penney
Company, Inc. with respect to the Amended and Restated 364-Day and
Five-Year Revolving Credit Agreements, each dated as of December 3,
1996.
(n) Guaranty dated as of December 3, 1996, executed by J.C. Penney
Company, Inc. with respect to the 364-Day and Five-Year Revolving
Credit Agreements, each dated as of December 3, 1996.
Instruments evidencing long-term debt, previously issued but now fully
prepaid, have not been filed as exhibits hereto because none of the debt
authorized under any such instrument exceeded 10 percent of the total assets
of the Registrant. The Registrant agrees to furnish a copy of any of its
long-term debt instruments to the Securities and Exchange Commission upon
request.
10. Material Contracts
------------------
THE CORPORATION HAS NO COMPENSATORY PLANS OR ARRANGEMENTS REQUIRED TO
BE FILED AS EXHIBITS TO THIS REPORT PURSUANT TO ITEM 14(c) OF THIS
REPORT.
(a) Amended and Restated Receivables Agreement dated as of January 29,
1980 between J. C. Penney Company, Inc. and J. C. Penney Financial
Corporation (incorporated by reference to Exhibit 10(a) to Funding's
Annual Report on Form 10-K for the 52 weeks ended January 29, 1994*).
(b) Amendment No. 1 to Amended and Restated Receivables Agreement dated as
of January 25, 1983 between J. C. Penney Company, Inc. and J. C.
Penney Financial Corporation (incorporated by reference to Exhibit
10(b) to Funding's Annual Report on Form 10-K for the 52 weeks ended
January 29, 1994*).
(c) Loan Agreement dated as of January 28, 1986 between J. C. Penney
Company, Inc. and J. C. Penney Financial Corporation (incorporated by
reference to Exhibit 1 to
G-3
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EXHIBIT INDEX
Exhibit
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Funding's Current Report on Form 8-K, Date of Report -January 28,
1986*).
(d) Amendment No. 1 to Loan Agreement dated as of January 28, 1986 between
J. C. Penney Company, Inc. and J. C. Penney Financial Corporation
(incorporated by reference to Exhibit 1 to Funding's Current Report on
Form 8-K, Date of Report -December 31, 1986*).
(e) Amendment No. 2 to Loan Agreement dated as of January 28, 1986 between
J. C. Penney Company, Inc. and J. C. Penney Funding Corporation.
(f) Line of Credit Agreement dated as of July 1, 1994, between J. C.
Penney Funding Corporation and J. C. Penney Chile, Inc. (incorporated
by reference to Exhibit 10(e) to Funding's Annual Report on Form 10-K
for the 52 weeks ended January 28, 1995*).
* SEC file number 1-4947-1
** Funding has entered into identical Commercial Paper Dealer Agreements
dated February 7, 1997 with each of Merrill Lynch Money Markets Inc.,
J.P. Morgan Securities Inc., and Morgan Stanley & Co. Incorporated,
which agreements are omitted pursuant to Instruction 2 to Item 601 of
Regulation S-K. Funding agrees to furnish a copy of any of such
agreements to the Securities and Exchange Commission upon request.
13. Annual Report to Security Holders
---------------------------------
Excerpt from Funding's 1996 Annual Report.
23. Consent of Independent Certified Public Accountants
---------------------------------------------------
24. Power of Attorney
-----------------
27. Financial Data Schedule
-----------------------
Financial Data Schedule for the 52 week period ended January 25, 1997.
G-4
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EXHIBIT INDEX
Exhibit
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99. Additional Exhibits
-------------------
Excerpt from JCPenney's 1996 Annual Report to Stockholders.
G-5
<PAGE>
Exhibit 4(b)
ISSUING AND PAYING AGENCY AGREEMENT
This Agreement, dated as of February 3 1997, is by and between J.C. Penney
Funding Corporation (the "ISSUER") and The Chase Manhattan Bank ("CHASE").
1. APPOINTMENT AND ACCEPTANCE
The Issuer hereby appoints Chase as its issuing and paying agent in
connection with the issuance and payment of certain short-term promissory notes
of the Issuer (the "Notes"), as further described herein, and Chase agrees to
act as such agent upon the terms and conditions contained in this Agreement.
2. COMMERCIAL PAPER PROGRAMS
The Issuer may establish one or more commercial paper programs under this
Agreement by delivering to Chase a completed program schedule (the "PROGRAM
SCHEDULE"), with respect to each such program. Chase has given the Issuer a copy
----
of the current form of Program Schedule and the Issuer shall complete and return
its first Program Schedule to Chase prior to or simultaneously with the
execution of this Agreement. In the event that any of the information provided
in, or attached to, a Program Schedule shall change, the Issuer shall promptly
inform Chase of such change in writing.
3. NOTES
All Notes issued by the Issuer under this Agreement shall be short-term
promissory notes, exempt from the registration requirements of the Securities
Act of 1933, as amended, as indicated on the Program Schedules, and from
applicable state securities laws. The Notes may be placed by dealers (the
"DEALERS") pursuant to Section 4 hereof. Notes shall be issued in either
certificated or book-entry form.
4. AUTHORIZED REPRESENTATIVES
The Issuer shall deliver to Chase a duly adopted corporate resolution from
the Issuer's Board of Directors (or other governing body) authorizing the
issuance of Notes under each program established pursuant to this Agreement and
a certificate of incumbency, with specimen signatures attached, of those
officers, employees and agents of the Issuer authorized to take certain actions
with respect to the Notes as provided in this Agreement (each such person is
hereinafter referred to as an "AUTHORIZED REPRESENTATIVE"). Until Chase receives
any subsequent incumbency certificates of the Issuer, Chase shall be entitled to
rely on the last incumbency certificate delivered to it for the purpose of
determining the Authorized Representatives. The Issuer represents and warrants
that each Authorized Representative may appoint other officers, employees and
agents of the Issuer (the "DELEGATES"), including without limitation any
Dealers, to issue instructions to Chase under this Agreement, and take other
actions on the Issuer's behalf hereunder, provided that notice of the
appointment of each Delegate is delivered to Chase in writing. Each such
appointment shall remain in effect unless and until revoked by the Issuer in a
written notice to Chase.
5. CERTIFICATED NOTES
If and when the Issuer intends to issue certificated notes ("CERTIFICATED
NOTES"), the Issuer and Chase shall agree upon the form of such Notes.
Thereafter, the Issuer shall from time to time deliver to Chase adequate
supplies of Certificated Notes which will be in bearer
December 4, 1996
<PAGE>
form, serially numbered, and shall be executed by the manual or facsimile
signature of an Authorized Representative. Chase will acknowledge receipt of any
supply of Certificated Notes received from the Issuer, noting any exceptions to
the shipping manifest or transmittal letter (if any), and will hold the
Certificated Notes in safekeeping for the Issuer in accordance with Chase's
customary practices. Chase shall not have any liability to the Issuer to
determine by whom or by what means a facsimile signature may have been affixed
on Certificated Notes, or to determine whether any facsimile or manual signature
is genuine, if such facsimile or manual signature resembles the specimen
signature attached to the Issuer's certificate of incumbency with respect to
such Authorized Representative. Any Certificated Note bearing the manual or
facsimile signature of a person who is an Authorized Representative on the date
such signature was affixed shall bind the Issuer after completion thereof by
Chase, notwithstanding that such person shall have ceased to hold his or her
office on the date such Note is countersigned or delivered by Chase.
6. BOOK-ENTRY NOTES
The Issuer's book-entry notes ("BOOK-ENTRY NOTES") shall not be issued in
physical form, but their aggregate face amount shall be represented by a master
note (the "MASTER NOTE") in the form of Exhibit A executed by the Issuer
pursuant to the book-entry commercial paper program of The Depository Trust
Company ("DTC"). Chase shall maintain the Master Note in safekeeping, in
accordance with its customary practices, on behalf of Cede & Co., the registered
owner thereof and nominee of DTC. As long as Cede & Co. is the registered owner
of the Master Note, the beneficial ownership interest therein shall be shown on,
and the transfer of ownership thereof shall be effected through, entries on the
books maintained by DTC and the books of its direct and indirect participants.
The Master Note and the Book-Entry Notes shall be subject to DTC's rules and
procedures, as amended from time to time. Chase shall not be liable or
responsible for sending transaction statements of any kind to DTC's participants
or the beneficial owners of the Book-Entry Notes, or for maintaining,
supervising or reviewing the records of DTC or its participants with respect to
such Notes. In connection with DTC's program, the Issuer understands that as one
of the conditions of its participation therein, it shall be necessary for the
Issuer and Chase to enter into a Letter of Representations, in the form of
Exhibit B hereto, and for DTC to receive and accept such Letter of
Representations. In accordance with DTC's program, Chase shall obtain from the
CUSIP Service Bureau a written list of CUSIP numbers for Issuer's Book-Entry
Notes, and Chase shall deliver such list to DTC. The CUSIP Service Bureau shall
bill the Issuer directly for the fee or fees payable for the list of CUSIP
numbers for the Issuer's Book-Entry Notes.
7. ISSUANCE INSTRUCTIONS TO CHASE; PURCHASE PAYMENTS
The Issuer understands that all instructions under this Agreement are to be
directed to Chase's Commercial Paper Operations Department. Chase shall provide
the Issuer, or, if applicable, the Issuer's Dealers, with access to Chase's
Money Market Issuance System or other electronic means (collectively, the
"SYSTEM") in order that Chase may receive electronic instructions for the
issuance of Notes. Electronic instructions will be subject to a separate license
agreement issued by Chase in the event that the Issuer elects to use Chase's
communications software to access the System. Electronic instructions must be
transmitted in accordance with the procedures furnished by Chase to the Issuer
or its Dealers in connection with the System. These transmissions shall be the
equivalent to the giving of a duly authorized written and signed instruction
which Chase may act upon without liability. In the event that the System is
inoperable at any time, an Authorized Representative or a Delegate may deliver
written, telephone or facsimile instructions to Chase, which instructions shall
be verified in accordance with any security procedures
2
<PAGE>
agreed upon by the parties. Chase shall incur no liability to the Issuer in
acting upon instructions believed by Chase in good faith to have been given by
an Authorized Representative or a Delegate. In the event that a discrepancy
exists between a telephonic instruction and a written confirmation, the
telephonic instruction will be deemed the controlling and proper instruction.
Chase may electronically record any conversations made pursuant to this
Agreement, and the Issuer hereby consents to such recordings. All issuance
instructions regarding the Notes must be received by 1:00 P.M. New York time in
order for the Notes to be issued or delivered on the same day.
(a) ISSUANCE AND PURCHASE OF BOOK-ENTRY NOTES. Upon receipt of
-----------------------------------------
issuance instructions from the Issuer or its Dealers with respect to Book-
Entry Notes, Chase shall transmit such instructions to DTC and direct DTC
to cause appropriate entries of the Book-Entry Notes to be made in
accordance with DTC's applicable rules, regulations and procedures for
book-entry commercial paper programs. Chase shall assign CUSIP numbers to
the Issuer's Book-Entry Notes to identify the Issuer's aggregate principal
amount of outstanding Book-Entry Notes in DTC's system, together with the
aggregate unpaid interest (if any) on such Notes. Promptly following DTC's
established settlement time on each issuance date, Chase shall access DTC's
system to verify whether settlement has occurred with respect to the
Issuer's Book-Entry Notes. Prior to the close of business on such business
day, Chase shall deposit immediately available funds in the amount of the
proceeds due the Issuer (if any) to the Issuer's account at Chase and
designated in the applicable Program Schedule (the "ACCOUNT"), provided
--------
that Chase has received DTC's confirmation that the Book-Entry Notes have
----
settled in accordance with DTC's applicable rules, regulations and
procedures. Chase shall have no liability to the Issuer whatsoever if any
DTC participant purchasing a Book-Entry Note fails to settle or delays in
settling its balance with DTC or if DTC fails to perform in any respect.
(b) ISSUANCE AND PURCHASE OF CERTIFICATED NOTES. Upon receipt of
-------------------------------------------
issuance instructions with respect to Certificated Notes, Chase shall: (a)
complete each Certificated Note as to principal amount, date of issue,
maturity date, place of payment, and rate or amount of interest (if such
Note is interest bearing) in accordance with such instructions; (b)
countersign each Certificated Note; and (c) deliver each Certificated Note
in accordance with the Issuer's instructions, except as otherwise set forth
below. Whenever Chase is instructed to deliver any Certificated Note by
mail, Chase shall strike from the Certificated Note the word "Bearer,"
insert as payee the name of the person so designated by the Issuer and
effect delivery by mail to such payee or to such other person as is
specified in such instructions to receive the Certificated Note. The Issuer
understands that, in accordance with the custom prevailing in the
commercial paper market, delivery of Certificated Notes shall be made
before the actual receipt of payment for such Notes in immediately
available funds, even if the Issuer instructs Chase to deliver a
Certificated Note against payment. Therefore, once Chase has delivered a
Certificated Note to the designated recipient, the Issuer shall bear the
risk that such recipient may fail to remit payment of such Note or return
such Note to Chase. Delivery of Certificated Notes shall be subject to the
rules of the New York Clearing House in effect at the time of such
delivery. Funds received in payment of Certificated Notes shall be credited
to the Account.
3
<PAGE>
8. USE OF SALES PROCEEDS IN ADVANCE OF PAYMENT
Chase shall not be obligated to credit the Issuer's Account unless and
until payment of the purchase price of each Note is received by Chase. From time
to time, Chase, in its sole discretion, may permit the Issuer to have use of
funds payable with respect to a Note prior to Chase's receipt of the sales
proceeds of such Note. If Chase makes a deposit, payment or transfer of funds on
behalf of the Issuer before Chase receives payment for any Note, such deposit,
payment or transfer of funds shall represent an advance by Chase to the Issuer
to be repaid promptly, and in any event on the same day as it is made, from the
proceeds of the sale of such Note, or by the Issuer if such proceeds are not
received by Chase.
9. PAYMENT OF MATURED NOTES
On any day when a Note matures or is prepaid, the Issuer shall transmit, or
cause to be transmitted, to the Account, prior to 2:30 P.M. New York time on the
same day, an amount of immediately available funds sufficient to pay the
aggregate principal amount of such Note and any applicable interest due. Chase
shall pay the interest (if any) and principal on a Book-Entry Note to DTC in
immediately available funds, which payment shall be by net settlement of Chase's
account at DTC. Chase shall pay Certificated Notes upon presentment. Chase shall
have no obligation under the Agreement to make any payment for which there is
not sufficient, available and collected funds in the Account, and Chase may,
without liability to the Issuer, refuse to pay any Note that would result in an
overdraft to the Account.
10. OVERDRAFTS
(a) Intraday overdrafts with respect to each Account shall be subject to
Chase's policies as in effect from time to time.
(b) An overdraft will exist in an Account if Chase, in its sole discretion,
(i) permits an advance to be made pursuant to Section 8 and,
notwithstanding the provisions of Section 8, such advance is not repaid in
full on the same day as it is made, or (ii) pays a Note pursuant to Section
9 in excess of the available collected balance in such Account. Overdrafts
shall be subject to Chase's established banking practices, including,
without limitation, the imposition of interest, funds usage charges and
administrative fees. The Issuer shall repay any such overdraft, fees and
charges no later than the next business day, together with interest on the
overdraft at the rate established by Chase for the Account, computed from
and including the date of the overdraft to the date of repayment.
11. NO PRIOR COURSE OF DEALING
No prior action or course of dealing on the part of Chase with respect to
advances of the purchase price or payments of matured Notes shall give rise to
any claim or cause of action by the Issuer against Chase in the event that Chase
refuses to pay or settle any Notes for which the Issuer has not timely provided
funds as required by this Agreement.
4
<PAGE>
12. RETURN OF CERTIFICATED NOTES
Chase will in due course cancel any Certificated Note presented for payment
and return such Note to the Issuer. Chase shall also cancel and return to the
Issuer any spoiled or voided Certificated Notes. Promptly upon written request
of the Issuer or at the termination of this Agreement, Chase shall destroy all
blank, unissued Certificated Notes in its possession and furnish a certificate
to the Issuer certifying such actions.
13. INFORMATION FURNISHED BY CHASE
Upon the reasonable request of the Issuer, Chase shall promptly provide the
Issuer with information with respect to any Note issued and paid hereunder,
provided, that the Issuer delivers such request in writing and, to the extent
- --------------
applicable, includes the serial number or note number, principal amount, payee,
date of issue, maturity date, amount of interest (if any) and place of payment
of such Note.
14. REPRESENTATIONS AND WARRANTIES
The Issuer represents and warrants that: (i) it has the right, capacity and
authority to enter into this Agreement; and (ii) it will comply with all of its
obligations and duties under this Agreement. The Issuer further represents and
agrees that each Note issued and distributed upon its instruction pursuant to
this Agreement shall constitute the Issuer's representation and warranty to
Chase that such Note is a legal, valid and binding obligation of the Issuer, and
that such Note is being issued in a transaction which is exempt from
registration under the Securities Act of 1933, as amended, and any applicable
state securities law.
15. DISCLAIMERS
Neither Chase nor its directors, officers, employees or agents shall be
liable for any act or omission under this Agreement except in the case of
negligence or willful misconduct. IN NO EVENT SHALL CHASE BE LIABLE FOR SPECIAL,
INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND WHATSOEVER (INCLUDING BUT
NOT LIMITED TO LOST PROFITS), EVEN IF CHASE HAS BEEN ADVISED OF THE LIKELIHOOD
OF SUCH LOSS OR DAMAGE AND REGARDLESS OF THE FORM OF ACTION. In no event shall
Chase be considered negligent in consequence of complying with DTC's rules,
regulations and procedures. The duties and obligations of Chase, its directors,
officers, employees or agents shall be determined by the express provisions of
this Agreement and they shall not be liable except for the performance of such
duties and obligations as are specifically set forth herein and no implied
covenants shall be read into this Agreement against them. Neither Chase nor its
directors, officers, employees or agents shall be required to ascertain whether
any issuance or sale of any Notes (or any amendment or termination of this
Agreement) has been duly authorized or is in compliance with any other agreement
to which the Issuer is a party (whether or not Chase is also a party to such
agreement).
16. INDEMNIFICATION
The Issuer agrees to indemnify and hold harmless Chase, its directors,
officers, employees and agents from and against any and all liabilities, claims,
losses, damages, penalties, costs and expenses (including attorneys' fees and
disbursements) suffered or incurred by or asserted or assessed against Chase or
any of them arising out of Chase or any of them acting as the Issuer's agent
under this Agreement, except for such liability,
5
<PAGE>
claim, loss, damage, penalty, cost or expense resulting from the negligence or
willful misconduct of Chase, its directors, officers, employees or agents. This
indemnity will survive the termination of this Agreement with respect to events
or circumstances arising or occurring prior to such termination.
17. OPINION OF COUNSEL
The Issuer shall deliver to Chase all documents it may reasonably request
relating to the existence of the Issuer and authority of the Issuer for this
Agreement, including, without limitation, an opinion of counsel, substantially
in the form of Exhibit C hereto.
18. NOTICES
All notices, confirmations and other communications hereunder shall (except
to the extent otherwise expressly provided) be in writing and shall be sent by
first-class mail, postage prepaid, by telecopier or by hand, addressed as
follows, or to such other address as the party receiving such notice shall have
previously specified to the party sending such notice:
If to the Issuer: Treasurer's Department - Banking
P.O. Box 10001
Dallas TX 75301-1304
Attention: Commercial Paper Manager
Telephone: (972) 431-2063
Facsimile: (972) 431-2044
If to Chase concerning the daily issuance and redemption of Notes:
Attention: Commercial Paper Operations
55 Water Street, 2nd Floor
New York NY 10041
Telephone: (212) 638-0536
Facsimile: (212) 638-7375
All other: Attention: Commercial Paper Service Delivery Unit
450 W. 33rd Street, 15th Floor
New York NY 10001-2697
Telephone: (212) 946-3108
Facsimile: (212) 946-8181
19. COMPENSATION
The Issuer shall pay compensation for services pursuant to this Agreement
in accordance with the pricing schedules furnished by Chase to the Issuer from
time to time and upon such payment terms as the parties shall determine. The
Issuer shall also reimburse Chase for any fees and charges imposed by DTC with
respect to services provided in connection with the Book-Entry Notes.
20. BENEFIT OF AGREEMENT
This Agreement is solely for the benefit of the parties hereto and no other
person shall acquire or have any right under or by virtue hereof.
6
<PAGE>
21. TERMINATION
This Agreement may be terminated at any time by either party by written
notice to the other, but such termination shall not affect the respective
liabilities of the parties hereunder arising prior to such termination.
22. FORCE MAJEURE
In no event shall Chase be liable for any failure or delay in the
performance of its obligations hereunder because of circumstances beyond Chase's
control, including, but not limited to, acts of God, flood, war (whether
declared or undeclared), terrorism, fire, riot, strikes or work stoppages for
any reason, embargo, government action, including any laws, ordinances,
regulations or the like which restrict or prohibit the providing of the services
contemplated by this Agreement, inability to obtain material, equipment, or
communications or computer facilities, or the failure of equipment or
interruption of communications or computer facilities, and other causes beyond
Chase's control whether or not of the same class or kind as specifically named
above.
23. ENTIRE AGREEMENT
This Agreement, together with the exhibits attached hereto, constitutes the
entire agreement between Chase and the Issuer with respect to the subject matter
hereof and supersedes in all respects all prior proposals, negotiations,
communications, discussions and agreements between the parties concerning the
subject matter of this Agreement.
24. WAIVERS AND AMENDMENTS
No failure or delay on the part of any party in exercising any power or
right under this Agreement shall operate as a waiver, nor does any single or
partial exercise of any power or right preclude any other or further exercise,
or the exercise of any other power or right. Any such waiver shall be effective
only in the specific instance and for the purpose for which it is given. No
amendment, modification or waiver of any provision of this Agreement shall be
effective unless the same shall be in writing and signed by the Issuer and
Chase.
25. BUSINESS DAY
Whenever any payment to be made hereunder shall be due on a day which is
not a business day for Chase, then such payment shall be made on Chase's next
succeeding business day.
26. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original and such counterparts together shall constitute but one
instrument.
27. HEADINGS
The headings in this Agreement are for purposes of reference only and shall
not in any way limit or otherwise affect the meaning or interpretation of any of
the terms of this Agreement.
7
<PAGE>
28. GOVERNING LAW
This Agreement and the Notes shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the conflict of laws provisions thereof.
29. JURISDICTION AND VENUE
Each party hereby irrevocably and unconditionally submits to the
jurisdiction of the United States District Court for the Southern District of
New York and any New York State court located in the Borough of Manhattan in New
York City and of any appellate court from any thereof for the purposes of any
legal suit, action or proceeding arising out of or relating to this Agreement (a
"PROCEEDING"). Each party hereby irrevocably agrees that all claims in respect
of any Proceeding may be heard and determined in such Federal or New York State
court and irrevocably waives, to the fullest extent it may effectively do so,
any objection it may now or hereafter have to the laying of venue of any
Proceeding in any of the aforementioned courts and the defense of an
inconvenient forum to the maintenance of any Proceeding.
30. ACCOUNT CONDITIONS
Each Account shall be subject to Chase's account conditions, as in effect
from time to time.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by duly authorized officers as of the day and year
first-above written.
THE CHASE MANHATTAN BANK J.C. PENNEY FUNDING
CORPORATION
By: /s/ LLOYD A. BAGGS By: /s/ ROBERT B. CAVANAUGH
--------------------------- -----------------------------
Name: Lloyd A. Baggs Name: Robert B. Cavanaugh
------------------------- ---------------------------
Title: Vice President Title: Chairman of The Board
------------------------ --------------------------
Date: 02/07/97 Date: 2/6/97
------------------------- ---------------------------
9
<PAGE>
EXHIBIT 4(c)
GUARANTY
--------
This Guaranty is executed as of this 7th day of February, 1997 by J. C.
Penney Company, Inc., a Delaware corporation ("Guarantor"), in favor of J. C.
Penney Funding Corporation, a Delaware corporation ("Borrower"), and the holders
("Holders") from time to time of Borrower's Commercial Paper (as defined below).
RECITALS:
--------
WHEREAS, Borrower is a wholly-owned subsidiary of Guarantor;
WHEREAS, Borrower from time to time has issued its short-term commercial
paper, at least eighty-five percent of such proceeds having been loaned to
Guarantor pursuant to that certain Loan Agreement dated as of January 28, 1986
between Borrower and Guarantor (as amended from time to time, the "Loan
Agreement");
WHEREAS, Borrower at any time may terminate its obligation to make loans to
Guarantor, pursuant to the terms of the Loan Agreement;
WHEREAS, Borrower is willing to continue to make loans to Guarantor
pursuant to the Loan Agreement on the condition that Guarantor guarantee
Borrower's outstanding commercial paper (the "Outstanding Paper") and all
commercial paper hereafter issued by
<PAGE>
Borrower pursuant to its dealer placement commercial paper program entered into
with Credit Suisse First Boston Corporation, J. P. Morgan Securities Inc.,
Merrill Lynch Money Markets Inc., Morgan Stanley & Co. Incorporated, or any such
other brokers or dealers which Borrower may from time to time select to assist
in the placement of its commercial paper or otherwise (collectively with the
Outstanding Paper, the "Commercial Paper"); and
WHEREAS, Guarantor is willing to guarantee the Commercial Paper on the
terms set forth herein.
NOW, THEREFORE, in consideration of the premises, Guarantor hereby agrees
as follows:
1. Subject to the terms and conditions of subordination set forth in this
Guaranty, Guarantor hereby unconditionally guarantees in favor of the Holders,
the prompt payment when due of all interest, principal, and other amounts owing
under the Commercial Paper (collectively, the "Guaranteed Debt"). This is an
unconditional guaranty of payment, and in the event of default by Borrower in
the payment of interest, principal, or any other amounts payable under the
Guaranteed Debt, the Holders may institute legal proceedings directly against
Guarantor to enforce this Guaranty without first proceeding against Borrower.
2. Guarantor acknowledges that it has received and will receive direct or
indirect benefit from the making of this Guaranty, the issuance of the
Commercial Paper, and the creation of the Guaranteed Debt.
-2-
<PAGE>
3. (a) The Guaranteed Debt shall be subordinated and subject in right of
payment to the prior payment in full of any and all other indebtedness for
borrowed money incurred, created, assumed, or otherwise guaranteed by Guarantor
(collectively referred to as the Guarantor's "Senior Debt").
(b) In the event of (i) any dissolution or winding-up or total or partial
liquidation or reorganization of Guarantor, whether voluntary or involuntary, or
any bankruptcy, insolvency, receivership or similar proceeding relative to
Guarantor, or (ii) any default in the payment of principal (including any
acceleration or required prepayments or amortization) of or interest on any
Senior Debt of Guarantor, then, subject to the provisions of subsection (d)
below, the Holders shall not be entitled to receive any payment under this
Guaranty on account of the Guaranteed Debt unless and until all Senior Debt
shall have been paid in full or otherwise discharged.
(c) In the event that the Guaranteed Debt, or any part thereof, is declared
due and payable prior to its stated maturity, then all principal of and interest
and any other amounts due on all Senior Debt outstanding at the time of such
declaration as to the Guaranteed Debt shall first be paid in full, before any
payment is made by Guarantor upon the Guaranteed Debt.
(d) In no event shall any Holder be required by this subordination to
refund any amounts paid to it pursuant to this Guaranty on account of the
Guaranteed Debt prior to the events specified in subsections (b) and (c) above,
and prior to such
-3-
<PAGE>
events the Holder shall be entitled to be paid hereunder as agreed and to
collect any sums due such Holder hereunder by any lawful means.
(e) The provisions of this Section are for the purpose of defining the
relative rights of the holders of any Senior Debt, on the one hand, and the
Holders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Holders, the obligation of Guarantor, which is
unconditional and absolute, to guarantee the prompt payment when due of the
Guaranteed Debt in accordance with the terms and provisions thereof; nor shall
anything herein prevent the Holders from exercising all remedies otherwise
permitted by applicable law upon default hereunder, subject to the rights, if
any, under this Section of any Senior Debt holder.
4. The substantive laws of the state of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
J. C. PENNEY COMPANY, INC.,
a Delaware corporation
By: /s/ Robert B. Cavanaugh
----------------------------------
Name: Robert B. Cavanaugh
--------------------------------
Title: Vice President and Treasurer
-------------------------------
-4-
<PAGE>
EXHIBIT 4(d)
COMPOSITE CONFORMED COPY
================================================================================
J. C. PENNEY COMPANY, INC.
J. C. PENNEY FUNDING CORPORATION
--------------------
$1,500,000,000
364-DAY REVOLVING CREDIT AGREEMENT
Dated as of December 16, 1993,
As Amended and Restated as of December 7, 1994,
As Amended as of December 6, 1995
And as Amended and Restated as of December 3, 1996
--------------------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent,
BANK OF AMERICA ILLINOIS, BANKERS TRUST COMPANY, THE CHASE
MANHATTAN BANK, CITIBANK, N.A., CREDIT SUISSE and
NATIONSBANK OF TEXAS, N.A.,
as Co-Agents
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
I. DEFINITIONS
1.01 Defined Terms............................ 1
1.02 Terms Generally.......................... 21
II. THE CREDITS
2.01 Commitments.............................. 21
2.02 Loans.................................... 22
2.03 Competitive Bid Procedure................ 24
2.04 Standby Borrowing Procedure.............. 27
2.05 Refinancings............................. 28
2.06 Fees..................................... 29
2.07 Repayment of Loans; Evidence of the
Borrowers' Obligations.................. 29
2.08 Interest on Loans........................ 30
2.09 Default Interest......................... 31
2.10 Alternate Rate of Interest............... 31
2.11 Termination and Reduction
of Commitments.......................... 32
2.12 Prepayment............................... 32
2.13 Reserve Requirements;
Change in Circumstances................. 33
2.14 Change in Legality....................... 35
2.15 Indemnity................................ 36
2.16 Pro Rata Treatment....................... 37
2.17 Sharing of Setoffs....................... 38
2.18 Payments................................. 39
2.19 Taxes.................................... 39
2.20 Mitigation; Duties of Lenders
and the Agent........................... 42
2.21 Changes in the Available Commitment...... 46
2.22 Optional Increase in Commitments......... 46
III. REPRESENTATIONS AND WARRANTIES
3.01 Organization; Powers..................... 47
3.02 Authorization............................ 47
3.03 Enforceability........................... 47
3.04 Governmental Approvals................... 48
3.05 Financial Statements..................... 48
3.06 No Material Adverse Change............... 48
3.07 Title to Properties; Possession
</TABLE>
<PAGE>
Contents, p. 3
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
Under Leases............................. 48
3.08 Restricted Subsidiaries.................. 49
3.09 Litigation; Compliance with
Laws.................................... 49
3.10 Agreements............................... 49
3.11 Federal Reserve Regulations.............. 50
3.12 Investment Company Act;
Public Utility Holding Company
Act..................................... 50
3.13 Use of Proceeds.......................... 50
3.14 Tax Returns.............................. 50
3.15 No Material Misstatements................ 51
3.16 Employee Benefit Plans................... 51
3.17 Support Agreements....................... 51
IV. CONDITIONS OF LENDING
4.01 All Borrowings........................... 51
4.02 First Borrowing [INTENTIONALLY OMITTED].. 52
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and Properties..... 52
5.02 Insurance................................ 53
5.03 Obligations and Taxes.................... 53
5.04 Financial Statements, Reports, etc....... 53
5.05 Litigation and Other Notices............. 55
5.06 ERISA.................................... 55
5.07 Maintaining Records; Access to
Properties and Inspections.............. 56
5.08 Use of Proceeds.......................... 57
5.09 Pari-Passu............................... 57
5.10 Support Agreements....................... 57
VI. NEGATIVE COVENANTS
6.01 Limitation on Liens--JCPenney............ 57
6.02 Limitations on Senior Funded
Indebtedness............................ 61
6.03 Limitations with Respect to
Restricted Subsidiaries................. 61
6.04 Mergers, Consolidations, Sales of
Assets and Acquisitions................. 63
6.05 Limitations on Liens--Funding............ 64
6.06 Conduct of Funding's Business............ 66
VII. EVENTS OF DEFAULT..................................... 68
</TABLE>
<PAGE>
Contents, p. 4
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C> <C>
VIII. THE AGENT............................................. 72
IX. MISCELLANEOUS
9.01 Notices.................................. 75
9.02 Survival of Agreement.................... 76
9.03 Binding Effect........................... 76
9.04 Successors and Assigns................... 76
9.05 Expenses; Indemnity...................... 79
9.06 Right of Setoff.......................... 80
9.07 Applicable Law........................... 81
9.08 Waivers; Amendment....................... 81
9.09 Interest and Charges..................... 82
9.10 Entire Agreement......................... 83
9.11 Severability............................. 83
9.12 Counterparts............................. 83
9.13 Headings................................. 83
9.14 Jurisdiction; Consent to Service
of Process.............................. 83
9.15 Confidentiality.......................... 84
9.16 Liability of Borrowers................... 85
9.17 No Collateral............................ 85
</TABLE>
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Standby Borrowing Request
Exhibit B Form of Opinion [INTENTIONALLY OMITTED]
Exhibit C Form of Guaranty
EXHIBIT D Pricing Schedule
Schedule 2.01 Commitments
Schedule 3.06 Material Adverse Change
Schedule 3.08 Restricted Subsidiaries
Schedule 3.09 Material Litigation
<PAGE>
364-DAY REVOLVING CREDIT AGREEMENT dated as of December 16,
1993, as amended and restated as of December 7, 1994, as amended
as of December 6, 1995 and as amended and restated as of December
3, 1996 (as so amended and restated, and as the same may be
further amended, modified, extended or restated from time to time,
the "Agreement"), among J. C. PENNEY COMPANY, INC. a Delaware
corporation ("JCPenney"), J. C. PENNEY FUNDING CORPORATION, a
Delaware corporation ("Funding"), the lenders listed in Schedule
2.01 (as of any date, together with any permitted assigns
hereunder on such date, the "Lenders"), MORGAN GUARANTY TRUST
COMPANY OF NEW YORK ("Morgan"), as agent for the Lenders (in such
capacity, the "Agent") and BANK OF AMERICA ILLINOIS, BANKERS TRUST
COMPANY, THE CHASE MANHATTAN BANK, CITIBANK, N.A., CREDIT SUISSE
and NATIONSBANK OF TEXAS, N.A. as co-agents for the Lenders (in
such capacity, the "Co-Agents").
The Borrowers (as herein defined) have requested the Lenders to extend
credit to the Borrowers in order to enable them to borrow on a standby revolving
credit basis on and after the Closing Date (as herein defined) and at any time
and from time to time prior to the Maturity Date (as herein defined) an
aggregate principal amount not in excess of $1,500,000,000 at any time
outstanding. The Borrowers have also requested the Lenders to provide a
procedure pursuant to which the Borrowers may invite the Lenders to bid on an
uncommitted basis on borrowings by the Borrowers scheduled to mature on or prior
to the Maturity Date. The proceeds of such borrowings are to be used for
general corporate purposes, including, without limitation, working capital
requirements, liquidity and the repayment of maturing commercial paper and other
indebtedness of the Borrowers. The Lenders will extend such credit to the
Borrowers on the terms and subject to the conditions herein set forth.
Accordingly, the Borrowers, the Lenders, the Agent and the Co-Agents
agree as follows:
<PAGE>
6
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
--------------
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing
----------------
requested by any Borrower pursuant to Section 2.03(a) for any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of
1%) equal to the sum of (a) a rate per annum equal to the product of (i) the
Fixed CD Rate in effect for such Interest Period and (ii) Statutory Reserves,
plus (b) the Assessment Rate. For purposes hereof, the term "Fixed CD Rate"
shall mean the arithmetic average (rounded upwards, if necessary, to the next
1/100 of 1%) of the prevailing rates per annum bid at or about 10:00 a.m., New
York City time, to the Agent on the first Business Day of the Interest Period
applicable to such CD Borrowing by three New York City negotiable certificate of
deposit dealers of recognized standing selected by the Agent for the purchase at
face value of negotiable certificates of deposit of major United States money
center banks in a principal amount approximately equal to the product of (x) the
aggregate principal amount of such CD Borrowing as specified in the related
Competitive Bid Request and (y) the percentage which the Agent's Commitment
represents of the Total Commitment and with a maturity comparable to such
Interest Period.
"Additional Costs" shall mean, with respect to any Lender, any
----------------
increased costs or reduction in amounts received or receivable or reduction in
return on capital incurred or suffered by such Lender and in respect of which
such Lender is entitled to request compensation in accordance with Section 2.13.
"Administrative Fees" shall have the meaning assigned to such term in
-------------------
Section 2.06(b).
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly
<PAGE>
7
through one or more intermediaries, Controls or is Controlled by or is under
common Control with the person specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 0.50%. For purposes hereof, "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the rates quoted to the Agent on
such day for such transactions by three Federal funds brokers of recognized
standing selected by it. If for any reason the Agent shall have determined
(which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations in
accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate shall be effective on the
date such change is announced publicly.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the office or branch of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan opposite such Lender's name on Schedule
2.01 or such other office or branch of such Lender (or of an Affiliate of such
Lender) as such Lender may from time to time, in accordance with the terms of
this Agreement, specify to the Agent and the Borrowers as the office or branch
by which its Loans of such Type are to be made and maintained.
"Assessment Rate" shall mean for any date the then current net annual
---------------
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
actually employed by the Agent in determining amounts payable by the Agent to
the Federal Deposit Insurance Corporation (or any successor) for insurance by
such Corporation (or such successor) of time deposits made in dollars at the
Agent's domestic offices.
<PAGE>
8
"Available Commitment" shall mean an amount at any date equal to the
--------------------
lesser of (a) the Total Commitment and (b) (i) for the period from and including
February 1 of any calendar year to and including July 31 of any calendar year,
$750,000,000, and (ii) for the period from and including August 1 of any
calendar year to and including January 31 of the next calendar year,
$750,000,000 or such greater amount as the Borrowers shall elect in accordance
with Section 2.21.
"Board" shall mean the Board of Governors of the Federal Reserve System
-----
of the United States.
"Borrowers" shall mean JCPenney and Funding.
---------
"Borrowing" shall mean a Loan or a group of Loans of a single Type made
---------
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) to
the same Borrower on a single date and as to which a single Interest Period is
in effect.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
-------- -------
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CD Borrowing" shall mean a Competitive Borrowing comprised of CD
------------
Loans.
"CD Loan" shall mean any Competitive Loan bearing interest at a rate
-------
determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"Closing Date" shall mean December 3, 1996.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
----------
such Lender hereunder as set forth as of the Closing Date in Schedule 2.01
hereto and, thereafter, in the Register (or as otherwise determined by the
parties hereto in the event of manifest error in the Register), as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to
<PAGE>
9
Section 2.11 or increased from time to time pursuant to Section 2.22. The
Commitment of each Lender shall automatically and permanently terminate on the
Maturity Date if not terminated earlier pursuant to the terms hereof.
"Commitment Termination Date" shall have the meaning assigned to such
---------------------------
term in Section 2.11(d).
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
---------------
Loan pursuant to Section 2.03.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
--------------------
Lender pursuant to Section 2.03(b), (a) in the case of a Eurodollar Competitive
Loan or a CD Loan, the Competitive Margin, and (b) in the case of a Fixed Rate
Loan, the fixed rate of interest offered by the Lender making such Competitive
Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section
-----------------------
2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03 by the Borrower requesting such Borrowing.
"Competitive Loan" shall mean a Loan from a Lender to a Borrower
----------------
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan, a CD Loan or a Fixed Rate Loan.
"Competitive Margin" shall mean, as to any Eurodollar Competitive Loan
------------------
or CD Loan, the margin (expressed as a percentage rate per annum in the form of
a decimal to no more than four decimal places) to be added to or subtracted from
the LIBO Rate or the Adjusted CD Rate, as applicable, in order to determine the
interest rate applicable to such Eurodollar Competitive Loan or CD Loan, as
specified in the Competitive Bid relating to such Eurodollar Competitive Loan or
CD Loan.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
<PAGE>
10
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
--------------
America.
"Eligible Assignee" shall mean (a) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having total assets in
excess of $1,000,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is described in this clause; and (c) the central bank of any
country which is a member of the Organization for Economic Cooperation and
Development.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time, and the rules and regulations
promulgated thereunder, as from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) that is a member of a group of which any Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing interest
-----------------------
at a rate determined by reference to the LIBO Rate in accordance with the
provisions of Article II.
"Events of Default" shall have the meaning assigned to such term in
-----------------
Article VII.
<PAGE>
11
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.06(a).
"Facility Fee Percentage" shall mean the facility fee percentage
-----------------------
determined daily in accordance with the Pricing Schedule.
"Fees" shall mean the Facility Fees and the Administrative Fees.
----
"Fixed Rate Borrowing" shall mean a Competitive Borrowing comprised of
--------------------
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
---------------
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
related Competitive Bid.
"Funded Indebtedness" of any corporation shall mean, at any date for
-------------------
the determination thereof, without duplication, the outstanding aggregate
principal amount of (a) all indebtedness created, incurred or assumed by such
corporation (including, in the case of any Borrower, the Loans made to such
Borrower) which by its terms is not payable on demand and which matures by its
terms, or which by its terms such corporation has the right at its option to
renew or extend to a date, more than one year after the date of determination,
whether outstanding on the Closing Date or thereafter created, incurred or
assumed (including the current portion of any indebtedness which shall
constitute Funded Indebtedness at the time of its incurrence), and which is (i)
for money borrowed or (ii) evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or assets, including
securities, (b) any indebtedness of others of the kinds described in the
preceding clause (a) for the payment of which such corporation is responsible or
liable as guarantor or otherwise and (c) amendments, renewals and refundings of
any such indebtedness; provided, however, that such term shall not include any
-------- -------
obligations under leases or any guarantees of obligations of others under
leases. It is understood that for the purposes of this definition the term
"principal" when used at any date with respect to any indebtedness issued at a
discount shall mean the amount of principal of such indebtedness that could be
declared due and payable on that date upon the occurrence of one or more events
permitting the acceleration of such indebtedness pursuant to the terms of such
indebtedness.
<PAGE>
12
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a consistent basis.
"Governmental Authority" shall mean any court or governmental agency,
----------------------
authority, instrumentality or regulatory body, in each case whether Federal,
state, local or foreign.
"Indenture" shall mean the Indenture dated as of April 1, 1994, between
---------
JCPenney and Bank of America National Trust and Savings Association, as trustee.
"Index Debt" shall mean JCPenney's senior unsecured, non credit-
----------
enhanced, publicly held long-term indebtedness.
"Interest Payment Date" shall mean, with respect to any Loan, the last
---------------------
day of the Interest Period applicable thereto and, in the case of a Eurodollar
Loan with an Interest Period of more than three months' duration or a CD Loan or
Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days' duration, as the case may
be, been applicable to such Loan and, in addition, the date of any refinancing
or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing that is
---------------
a Standby Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3, 6 or, subject to availability from each Lender,
12 months thereafter, as the Borrower requesting such Borrowing may elect, (b)
as to any ABR Borrowing, the period commencing on the date of such Borrowing and
ending on the date specified in the related Standby Borrowing Request (which
date shall in no event be later than 5 Business Days after the date of such
Borrowing), (c) as to any Eurodollar Borrowing that is a Competitive Borrowing,
the period commencing on the date of such Borrowing and ending on the date
specified in the Competitive Bids in which the offers to make the Eurodollar
Competitive Loans comprising such Borrowing were extended (which date shall be
(A) the numerically corresponding day (or, if there is no numerically
corresponding day, the last day) in the calendar month that is 1, 2, 3, 6, 9 or
12 months after the date of such
<PAGE>
13
Borrowing or (B) such other date as shall be specified in such Competitive Bids)
and (d) as to any CD Borrowing or Fixed Rate Borrowing, the period specified in
the Competitive Bids in which the offers to make the CD Loans or Fixed Rate
Loans comprising such Borrowing were extended, commencing on the date of such
Borrowing (which period shall be a period of 30, 60, 90, 180 or 360 days'
duration or such other duration as shall be specified in such Competitive Bids);
provided, however, that (x) if any Interest Period would end on a day other than
- -------- -------
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of Eurodollar Loans only, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, (y) no Interest Period may
be selected that ends later than the Maturity Date then in effect and (z) the
Interest Period for any ABR Loan or CD Loan made in lieu of, or resulting from
the conversion of, a Eurodollar Loan pursuant to Section 2.10 or 2.14 shall be
determined in accordance with the provisions of such Section. Interest shall
accrue from and including the first day of an Interest Period to but excluding
the last day of such Interest Period.
"Investment" shall mean, with respect to each of Funding and its
----------
Subsidiaries only, any acquisition of any of the capital stock of any
corporation, or any acquisition of indebtedness of, or any capital contribution,
loan or advance to, or any guarantee of an obligation of, any person, except (i)
any loan or advance made in connection with the lease, purchase or construction
of office space for Funding or any of its Subsidiaries or the purchase of
materials, supplies, services or equipment for the offices of Funding or any of
its Subsidiaries and (ii) any guarantee or endorsement made in the ordinary
course of business in connection with the deposit of items for collection or any
guarantee of an obligation of an agent or an employee of Funding or any of its
Subsidiaries that is required to meet applicable legal requirements.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the average of the rates at which dollar
deposits approximately equal in principal amount to (i) in the case of a Standby
Borrowing, each LIBO Reference Lender's portion of such Eurodollar Borrowing and
(ii) in the case of a Competitive Borrowing, the principal amounts that would
have been each LIBO Reference Lender's portion of such Competitive Borrowing had
such Competitive Borrowing been a
<PAGE>
14
Standby Borrowing, and for a maturity comparable to such Interest Period are
offered to the principal London office of the applicable LIBO Reference Lender
in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIBO Reference Lenders" shall mean Morgan Guaranty Trust Company of
----------------------
New York, Credit Suisse and The First National Bank of Chicago, or such other or
additional Lenders as the Borrowers, the Agent and the Required Lenders shall
designate in writing as "LIBO Reference Lenders".
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge or security interest in or on such asset.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made as
----
a Eurodollar Loan, a CD Loan, a Fixed Rate Loan or an ABR Loan, as permitted
hereby.
"Margin Stock" shall have the meaning given such term under Regulation
------------
U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on
-----------------------
the business, assets or financial condition of (i) JCPenney and the Restricted
Subsidiaries, taken as a whole, or (ii) Funding and its Subsidiaries, taken as a
whole, (b) a material impairment of the ability of any Borrower to perform any
of its obligations under this Agreement or (c) a material impairment of the
rights of or benefits available to the Lenders under this Agreement (other than
any such impairment of rights or benefits that is primarily attributable to (x)
action taken by or against one or more Lenders (excluding any action against one
or more Lenders taken by any Borrower or Restricted Subsidiary) or (y)
circumstances that are unrelated to any Borrower).
"Material Subsidiary" shall mean, at any date of determination, any
-------------------
Restricted Subsidiary then having consolidated assets in an amount greater than
1% of the consolidated assets of JCPenney and its Subsidiaries, as reflected in
the then most recently published annual audited financial statements of
JCPenney.
"Maturity Date" shall mean December 2, 1997.
-------------
"Maximum Amount" shall mean, with respect to any amount owing to any
--------------
Lender under this Agreement or in
<PAGE>
15
connection herewith, the maximum amount of interest that such Lender is
permitted to charge under applicable law on such amount.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
-------
thereto that is a nationally recognized rating agency.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Net Tangible Assets" shall mean the aggregate amount at which the
-------------------
assets of JCPenney and all Restricted Subsidiaries are reflected, in accordance
with GAAP as in effect on the Closing Date, on the asset side of the
consolidated balance sheet, as at the close of a monthly accounting period
(selected by JCPenney) ending within the 65 days next preceding the date of
determination, of JCPenney and the Restricted Subsidiaries (after deducting all
valuation and qualifying reserves relating to said assets), except any of the
following described items that may be included among said assets:
(a) trademarks, patents, goodwill and similar intangibles;
(b) investments in and advances to Non-Restricted Subsidiaries; and
(c) capital lease property rights,
after deducting from such amount current liabilities (other than deferred tax
effects) as reflected, in accordance with GAAP as in effect on the Closing Date,
on such balance sheet.
"Non-Restricted Subsidiary" shall mean any Subsidiary other than the
-------------------------
Restricted Subsidiaries.
"Officer's Certificate" of any corporation shall mean a certificate
---------------------
signed by a Responsible Officer of such corporation.
<PAGE>
16
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"Penney Supplier" shall mean any person that supplies goods or services
---------------
to JCPenney or any Subsidiary.
"Penney Supplier Receivables" shall mean the obligations of Penney
---------------------------
Suppliers for the payment of money for goods or services sold by JCPenney or any
Subsidiary to Penney Suppliers for use in goods or services to be supplied to
JCPenney or any Subsidiary.
"person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
Governmental Authority.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code that
is maintained for employees of any Borrower or ERISA Affiliate.
"Pricing Schedule" shall mean the Pricing Schedule attached as Exhibit
----------------
D hereto.
"Prime Rate" shall mean the rate of interest publicly announced by
----------
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Principal Property" shall mean all real property and tangible personal
------------------
property owned by JCPenney or a Restricted Subsidiary constituting a part of any
store, warehouse or distribution center located within one of the 50 states of
the United States or the District of Columbia, exclusive of motor vehicles,
mobile materials-handling equipment and other rolling stock, cash registers and
other point of sale recording devices and related equipment, and data processing
and other office equipment; provided, however, that such term shall not include
-------- -------
any such property constituting a part of any such store, warehouse or
distribution center unless the net book value of all real property (including
leasehold improvements) and store fixtures constituting a part of such store,
warehouse or distribution center exceeds .25% of Stockholders' Equity.
"Receivables" shall mean the obligations of customers for the payment
-----------
of money arising under agreements between such customers and JCPenney or any
Subsidiary.
<PAGE>
17
"Register" shall have the meaning assigned to such term in Section
--------
9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Lenders" shall mean, at any time, (a) for the purposes of
----------------
terminating the Commitments pursuant to clause (x) of Article VII, Lenders
having Commitments representing at least 66-2/3% of the Total Commitment, (b)
for purposes of acceleration pursuant to clause (y) of Article VII, Lenders
holding Loans representing at least 66-2/3% of the aggregate principal amount of
the Loans outstanding and (c) for all other purposes, Lenders having Commitments
representing greater than 50% of the Total Commitment or, if the Commitments
shall have been terminated, Lenders holding Loans representing greater than 50%
of the aggregate principal amount of the Loans outstanding.
"Responsible Officer" of any corporation shall mean the chairman, vice
-------------------
chairman, president, chief financial officer, treasurer or controller of such
corporation or any executive or senior vice president of such corporation.
"Restricted Subsidiary" shall mean any Subsidiary of JCPenney (other
---------------------
than Funding) which JCPenney shall, by an Officer's Certificate of JCPenney,
have designated as a Restricted Subsidiary and the designation of which as a
Restricted Subsidiary shall not have been cancelled by an Officer's Certificate
of JCPenney; provided, however, that neither the designation of a Subsidiary as
-------- -------
a Restricted Subsidiary nor the cancellation of such designation shall be
operative if the immediate effect of such designation or
<PAGE>
18
cancellation shall be to make Net Tangible Assets less than 200% of the Senior
Funded Indebtedness of JCPenney and the Restricted Subsidiaries on a pro forma
basis (eliminating intercompany items); and provided, further, that any
-------- -------
Officer's Certificate designating a Subsidiary as a Restricted Subsidiary or
cancelling such designation shall set forth the Net Tangible Assets and Senior
Funded Indebtedness of JCPenney and its Restricted Subsidiaries on a pro forma
basis (eliminating intercompany items) and show compliance with the first
proviso of this paragraph. Any such designation or cancellation of such
designation may be made more than once with respect to any Subsidiary.
"S&P" shall mean Standard & Poor's Ratings Services and any successor
---
thereto that is a nationally recognized rating agency.
"Seasonal Availability Period" shall mean the period from and including
----------------------------
August 1 of any calendar year to and including January 31 of the next calendar
year.
"SEC" shall mean the Securities and Exchange Commission.
---
"Senior Funded Indebtedness" of JCPenney shall mean any Funded
--------------------------
Indebtedness of JCPenney unless in any instrument or instruments evidencing or
securing such Funded Indebtedness or pursuant to which the same is outstanding,
or in any amendment, renewal, extension or refunding of such Funded
Indebtedness, it is provided that such Funded Indebtedness is subordinate in
right of payment to the Loans (a) in the event of any dissolution or winding-up
or total or partial liquidation or reorganization of JCPenney, whether voluntary
or involuntary, or any bankruptcy, insolvency, receivership or similar
proceedings relative to JCPenney and (b) in the event of any default in the
payment of principal (including any required prepayments or amortization) of or
interest on any Loans of JCPenney. "Senior Funded Indebtedness" of any
Restricted Subsidiary means any Funded Indebtedness of such Restricted
Subsidiary and the aggregate preference on involuntary liquidation of any class
of stock of such Restricted Subsidiary ranking, either as to payment of
dividends or distribution of assets, prior to any other class of stock of such
Restricted Subsidiary.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
<PAGE>
19
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-4.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrowers pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan or an ABR Loan.
"Standby Margin" shall mean on any date with respect to each Standby
--------------
Loan made as part of any ABR Borrowing, 0, and with respect to each Standby Loan
made as part of any Eurodollar Standby Borrowing, the "Euro-Dollar Margin"
determined daily in accordance with the Pricing Schedule.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the actual reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the Agent is
subject for new negotiable nonpersonal time deposits in dollars of over $100,000
with maturities approximately equal to the applicable Interest Period.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"Stockholders' Equity" shall mean the sum, as at the close of a monthly
--------------------
accounting period (selected by JCPenney) ending within the 65 days next
preceding the date of determination, of (a) the aggregate of capital, capital
stock, capital surplus, capital in excess of par value of stock, reinvested
earnings, earned surplus and net income retained for use in the business
(however the foregoing may be designated), after deducting the cost of shares of
capital stock of JCPenney held in its treasury, of JCPenney and its consolidated
Subsidiaries, determined in accordance with GAAP, plus (b) the amount reflected
in such determination as deferred tax effects.
"Subsidiary" shall mean (a) any corporation of which JCPenney, directly
----------
or indirectly, owns more than 50% of the outstanding stock which at the time
shall have by the terms thereof ordinary voting power to elect directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency, or (b) any such corporation of which such
<PAGE>
20
percentage of shares of outstanding stock of the character described in the
foregoing clause (a) shall at the time be owned, directly or indirectly, (i) by
JCPenney and one or more Subsidiaries as defined in the foregoing clause (a) or
(ii) by one or more such Subsidiaries.
"Support Agreements" shall mean (a) the Amended and Restated
------------------
Receivables Agreement dated as of January 29, 1980, between JCPenney and Funding
(formerly J. C. Penney Financial Corporation), as amended by Amendment No. 1
thereto dated as of January 25, 1983, (b) the Loan Agreement dated as of January
28, 1986, between JCPenney and Funding, as amended by Amendment No. 1 thereto
dated as of December 26, 1986 and by Amendment No. 2 thereto dated as of
November 22, 1996, in each case as amended or modified from time to time in
compliance with Section 5.10 and (c) the subordinated Guaranty of the
obligations of Funding dated as of December 3, 1996, executed by JCPenney in
favor of the Lenders and attached hereto as Exhibit C.
"Taxes" shall mean, with respect to any Lender or Agent, any and all
-----
U.S. Federal income taxes after application of any relevant treaty or convention
and all interest and penalties with respect thereto, attributable to any payment
made by any Borrower hereunder to such Lender or Agent.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Tranche A Credit Agreement" shall mean the $1,500,000,000 Five-Year
--------------------------
Credit Agreement amended and restated as of the Closing Date among the
Borrowers, the financial institutions named therein as lenders (which include
certain of the Lenders), Morgan Guaranty Trust Company of New York as Agent for
the Lenders, and Bank of America Illinois, Bankers Trust Company, the Chase
Manhattan Bank, Citibank, N.A., Credit Suisse and NationsBank of Texas, N.A. as
Co-Agents for the Lenders, as such agreement may be amended from time to time.
"Transactions" shall have the meaning assigned to such term in Section
------------
3.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall
<PAGE>
21
include the LIBO Rate, the Adjusted CD Rate, and the Alternate Base Rate and, in
the case of any Fixed Rate Loan, the fixed percentage rate per annum specified
by the Lender making such Loan in its related Competitive Bid.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the Closing Date applied on a basis consistent with the application
used in preparing JCPenney's audited consolidated financial statements referred
to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrowers at any
time and from time to time on and after the Closing Date and until the earlier
of the Maturity Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment, subject, however, to the conditions that (a) at no time shall the
outstanding aggregate principal amount of all Loans made by all Lenders exceed
the Available Commitment and (b) at all times the outstanding aggregate
principal amount of all Standby Loans made by each Lender to a Borrower shall
equal the product of (i) the percentage which its Commitment represents of the
Total Commitment times (ii) the outstanding aggregate principal amount of all
Standby Loans made to such Borrower pursuant to Section 2.04. Subject to
Section 2.03(h), any Lender may at its discretion make Competitive Loans in an
aggregate principal amount up to the amount of the Available Commitment of the
Lenders hereunder. Each Lender's Commitment as of the Closing Date
<PAGE>
22
is set forth opposite its respective name in Schedule 2.01 and, after the
Closing Date, each Lender's Commitment shall be set forth opposite its
respective name in the Register. Such Commitments may be terminated, reduced or
extended from time to time pursuant to Section 2.11 and increased from time to
time pursuant to Section 2.22.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and reborrow hereunder, on and after the Closing Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of
------
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
-------- -------
Standby Loan shall not by itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. The Standby Loans or Competitive
Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in
an aggregate principal amount which is an integral multiple of $5,000,000 and
not less than $25,000,000 (or, if less, an aggregate principal amount equal to
the Available Commitment on the date of such Borrowing minus the outstanding
aggregate principal amount on such date of all Competitive Loans) and (ii) in
the case of Standby Loans, in an aggregate principal amount which is an integral
multiple of $5,000,000 and not less than $25,000,000 (or an aggregate principal
amount equal to the remaining available balance of the Available Commitment).
(b) Subject to Sections 2.10 and 2.14, each Competitive Borrowing
shall be comprised entirely of Eurodollar Competitive Loans, CD Loans or Fixed
Rate Loans, and each Standby Borrowing shall be comprised entirely of Eurodollar
Standby Loans or ABR Loans, as the Borrower requesting such Competitive
Borrowing or Standby Borrowing may specify pursuant to Section 2.03 or 2.04, as
the case may be.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Agent in New York, New York, not later than
12:00 noon, New York City time (11:00 a.m., New York City
<PAGE>
23
time, in the case of a Eurodollar Loan), and the Agent shall by 2:00 p.m., New
York City time, credit the amounts so received as instructed by the Borrower of
such Loan or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Lenders. Competitive Loans shall be made by the
Lender or Lenders whose Competitive Bids therefor are accepted pursuant to
Section 2.03 in the amounts so accepted and Standby Loans shall be made by the
Lenders pro rata in accordance with Section 2.16. Unless the Agent shall have
received notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to the Agent such Lender's portion of such
Borrowing, the Agent may assume that such Lender has made such portion available
to it on the date of such Borrowing in accordance with this paragraph (c) and
may, in reliance upon such assumption, make a corresponding amount available on
such date to the Borrower requesting such Borrowing. If and to the extent that
such Lender shall not have made such portion available to the Agent, such Lender
and such Borrower severally agree to pay or repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to such Borrower until the date such
amount is repaid to the Agent at (i) in the case of such Borrower, the interest
rate applicable at the time to the Loans comprising such Borrowing and (ii) in
the case of such Lender, the Federal Funds Effective Rate; provided, however,
-------- -------
that such Borrower shall not in any event have any liability in respect of such
repayment under Section 2.15. If such Lender shall pay to the Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part of
such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.
(e) The Loans of each Type made by each Lender shall be made through
and maintained at such Lender's Applicable Lending Office for Loans of such
Type. Any Lender may change its Applicable Lending Office for any Type of Loans
without the prior written consent of JCPenney so long as (i) such Lender shall
have no knowledge that such change would cause it to be unlawful for such Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan and (ii) such Lender
shall not be entitled to
<PAGE>
24
recoupment, reimbursement or indemnification in accordance with the terms and
conditions of Sections 2.13 and 2.15 to the extent that such Lender shall have
had knowledge at the time of such change in Applicable Lending Office that such
entitlement would arise as a result of such change.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, a Borrower shall hand deliver, telex or telecopy to the Agent
a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to
be received by the Agent (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 shall be rejected
and the Agent shall promptly notify the appropriate Borrower of such rejection
by telex or telecopier. Such request shall in each case refer to this Agreement
and specify (x) that the Borrowing then being requested is to be a Eurodollar
Borrowing, a CD Borrowing or a Fixed Rate Borrowing, (y) the date of such
Borrowing (which shall be a Business Day) and the aggregate principal amount
thereof (which shall be, subject to the third sentence of Section 2.02(a), in a
minimum principal amount of $25,000,000 and in an integral multiple of
$5,000,000 and (z) the Interest Period with respect thereto (which may not end
after the Maturity Date). Promptly after its receipt of a Competitive Bid
Request that is not rejected as aforesaid, the Agent shall invite by telex or
telecopier (in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on
the terms and conditions of this Agreement, to make Competitive Loans pursuant
to the Competitive Bid Request.
(b) The Agent may, in its sole discretion, make one or more
Competitive Bids to the appropriate Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by the Agent must be submitted to
the Borrower via telex or telecopier, in the form of Exhibit A-3 hereto, (i) in
the case of a Eurodollar Borrowing or CD Borrowing, not later than 8:30 a.m.,
New York City time, three Business Days before a proposed Competitive Borrowing
and (ii) in the case of a Fixed Rate Borrowing, not later than 8:30 a.m., New
York City time, on the day of a proposed Competitive Borrowing. Each Lender
may, in its sole discretion, make one or more Competitive Bids to the
<PAGE>
25
appropriate Borrower responsive to such Borrower's Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Agent via telex or
telecopier, in the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar
Borrowing or CD Borrowing, not later than 9:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in the case of a
Fixed Rate Borrowing, not later than 9:00 a.m., New York City time, on the day
of a proposed Competitive Borrowing. Multiple bids will be accepted by the
Agent. Competitive Bids that do not conform substantially to the format of
Exhibit A-3 may be rejected by the Agent after conferring with, and upon the
instruction of, the Borrower requesting such Competitive Bids, and the Agent
shall notify the Lender making such nonconforming bid of such rejection as soon
as practicable. Each Competitive Bid shall refer to this Agreement and specify
(x) the principal amount (which shall be in an integral multiple of $5,000,000
(unless such principal amount shall equal the entire principal amount of the
Competitive Borrowing requested by such Borrower) and which may equal such
entire principal amount) of the Competitive Loan or Loans that the Lender is
willing to make to the Borrower requesting such Competitive Bid, (y) the
Competitive Bid Rate or Rates at which the Lender is prepared to make the
Competitive Loan or Loans and (z) the Interest Period and the last day thereof.
If any Lender shall elect not to make a Competitive Bid, such Lender shall so
notify the Agent via telex or telecopier (A) in the case of a Eurodollar
Borrowing or a CD Borrowing, not later than 9:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (B) in the case of a
Fixed Rate Borrowing, not later than 9:00 a.m., New York City time, on the day
of a proposed Competitive Borrowing; provided, however, that failure by any
-------- -------
Lender to give such notice shall not cause such Lender to be obligated to make
any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid
submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Agent shall notify the appropriate Borrower by telex or
telecopier not later than (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, 10:00 a.m., New York City time, three Business Days before the
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
10:00 a.m., New York City time, on the day of the proposed Competitive Borrowing
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Agent shall send a copy
of all Competitive Bids to such
<PAGE>
26
Borrower for its records as soon as practicable after completion of the bidding
process set forth in this Section 2.03.
(d) The appropriate Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d) and paragraph (h) below,
accept or reject any Competitive Bid referred to in paragraph (c) above. Such
Borrower shall notify the Agent by telex or telecopier not later than (i) in the
case of a Eurodollar Borrowing or a CD Borrowing, 11:30 a.m., New York City
time, three Business Days before the proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 11:30 a.m., New York City
time, on the day of the proposed Competitive Borrowing whether and to what
extent it has decided to accept or reject any or all of the bids referred to in
paragraph (c) above; provided, however, that (v) the failure by such Borrower to
-------- -------
give such notice shall be deemed to be a rejection of all the bids referred to
in paragraph (c) above, (w) such Borrower shall not accept a bid made at a
particular Competitive Bid Rate if it has decided to reject a bid made at a
lower Competitive Bid Rate, (x) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
related Competitive Bid Request, (y) if such Borrower shall accept a bid or bids
made at a particular Competitive Bid Rate but the amount of such bid or bids
shall cause the total amount of bids to be accepted by such Borrower to exceed
the amount specified in the related Competitive Bid Request, then such Borrower
shall accept a portion of such bid or bids in an amount equal to the amount
specified in the related Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (z) except pursuant to clause (y) above, no bid shall be accepted
for a Competitive Loan unless the principal amount of such Competitive Loan is
in an integral multiple of $5,000,000 or is equal to the entire principal amount
of the Competitive Borrowing being requested by such Borrower; provided further,
-------- -------
however, that if a Competitive Loan must be in an amount less than $5,000,000
- -------
because of the provisions of clause (y) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (y) the amounts shall be rounded to
integral multiples of $1,000,000
<PAGE>
27
in a manner which shall be in the discretion of such Borrower. A notice given
pursuant to this paragraph (d) by the appropriate Borrower shall be irrevocable.
(e) The Agent shall promptly notify each bidding Lender whether or not
its Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Rate) by telex or telecopier sent by the Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) The Borrowers shall not make more than 10 Competitive Bid Requests
during any 30-day period.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
(h) At no time shall the outstanding aggregate principal amount of all
Competitive Loans made by all Lenders exceed the Available Commitment in effect
at such time.
(i) The Agent shall hold in confidence each Competitive Bid received
by the Agent until such Competitive Bid has been disclosed to the appropriate
Borrower pursuant to paragraph (d) above.
SECTION 2.04. Standby Borrowing Procedure. In
----------------------------
order to request a Standby Borrowing, a Borrower shall hand deliver, telex or
telecopy a Standby Borrowing Request in the form of Exhibit A-4 to the Agent (a)
in the case of a Standby Borrowing that is a Eurodollar Borrowing, not later
than 11:00 a.m., New York City time, three Business Days before a proposed
borrowing and (b) in the case of an ABR Borrowing, not later than 10:00 a.m.,
New York City time, on the day of a proposed borrowing. A Borrower shall be
deemed to have given a Standby Borrowing Request if it (i) notifies an officer
of the Agent identified in Section 9.01 by telephone of the content of such
Standby Borrowing Request not later than the relevant time set forth above for
delivery thereof and (ii) delivers such Standby Borrowing Request to the Agent
as soon as practicable; provided, however, that a Borrower shall not have any
-------- -------
right to receive the proceeds of a Standby Borrowing unless the Agent has
received the related written Standby Borrowing Request. Such notice shall be
irrevocable and shall in each case specify (i) whether the Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Standby Borrowing (which shall be a Business Day) and the amount
<PAGE>
28
thereof; and (iii) the Interest Period with respect thereto. If no election as
to the Type of Standby Borrowing is specified in any such notice, then the
requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period
with respect to any Standby Borrowing is specified in any such notice, then the
Borrower requesting such Borrowing shall be deemed to have selected an Interest
Period of one month's duration, in the case of a Eurodollar Borrowing, or five
days' duration, in the case of an ABR Borrowing. If a Borrower shall not have
given notice in accordance with this Section 2.04 of its election to refinance a
Standby Borrowing of such Borrower prior to the end of the Interest Period in
effect for such Borrowing, then such Borrower shall (unless such Borrowing is
repaid at the end of such Interest Period) be deemed to have given notice of an
election to refinance such Borrowing with an ABR Borrowing. The Agent shall
promptly advise the Lenders of any notice given pursuant to this Section 2.04
and of each Lender's portion of the requested Borrowing.
SECTION 2.05. Refinancings. Any Borrower may refinance all or any
-------------
part of any Borrowing of such Borrower with a Borrowing of the same or a
different Type made pursuant to Section 2.03 or Section 2.04, subject to the
conditions and limitations set forth herein and elsewhere in this Agreement,
including refinancings of Competitive Borrowings with Standby Borrowings and
Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid in accordance with Section 2.07 with
the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Agent or by the Agent to the
appropriate Borrower pursuant to Section 2.02(c); provided, however, that (i) if
-------- -------
the principal amount extended by a Lender in a refinancing is greater than the
principal amount extended by such Lender in the Borrowing being refinanced, then
such Lender shall pay such difference to the Agent for distribution to the
Lenders described in (ii) below, (ii) if the principal amount extended by a
Lender in the Borrowing being refinanced is greater than the principal amount
being extended by such Lender in the refinancing, the Agent shall return the
difference to such Lender out of amounts received pursuant to (i) above and
(iii) to the extent any Lender fails to pay to the Agent amounts due from it
pursuant to (i) above, any Loan or portion thereof being refinanced shall not be
deemed repaid in accordance with Section 2.07 and shall be payable by the
Borrower to which such Loan was made; provided, however, that
-------- -------
<PAGE>
29
such Borrower shall not have any liability under Section 2.15 in respect of any
of its payment obligations under this clause (iii).
SECTION 2.06. Fees. (a) The Borrowers agree, jointly and severally,
-----
to pay to the Agent for the account of the Lenders ratably in proportion to
their Commitments on each March 31, June 30, September 30 and December 31 and on
the date on which the Commitments of the Lenders shall be terminated as provided
herein, a facility fee (a "Facility Fee") at a rate per annum equal to the
Facility Fee Percentage on the Available Commitment, whether used or unused.
All Facility Fees shall be computed in arrears on the basis of the actual number
of days elapsed in a year of 360 days. The Facility Fee due to each Lender
shall commence to accrue on the Closing Date (or, if later, the date on which
such Lender became a Lender) and shall cease to accrue on the earlier of the
Maturity Date and the termination of the Commitment of such Lender as provided
herein.
(b) The Borrowers agree, jointly and severally, to pay to the Agent
from time to time, for its own account, agent and administrative fees (the
"Administrative Fees") at such times and in such amounts as have been previously
agreed upon in writing between the Borrowers and the Agent.
(c) All Fees shall be paid on the dates due in immediately available
funds. Once paid, none of the Fees shall be refundable, except in the event of
manifest error.
SECTION 2.07. Repayment of Loans; Evidence of the Borrowers'
----------------------------------------------
Obligations. Subject to Section 4.01, the outstanding principal balance of each
- ------------
Competitive Loan and Standby Loan made by any Lender shall be payable (i) except
in the case of ABR Loans, on the last day of the Interest Period applicable to
such Loan and (ii) on the Commitment Termination Date with respect to such
Lender. Each Competitive Loan and each Standby Loan shall bear interest from
the date thereof on the outstanding principal balance thereof as set forth in
Section 2.08. With respect to each Lender, the entries made in the accounts
maintained by the Agent and such Lender shall be prima facie evidence of the
existence and amounts of the monetary obligations payable by any Borrower to
such Lender in respect of the Loans made by such Lender to such Borrower;
provided that the failure to maintain any such accounts or any error therein
- --------
shall not affect the obligations of the Borrowers hereunder.
<PAGE>
30
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum on any date of determination equal to (i) in the case
of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect
for such Borrowing plus the Standby Margin for such date, and (ii) in the case
of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Loan plus the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Loan pursuant to Section
2.03. The LIBO Rate for each Interest Period shall be determined by the Agent
in consultation with the LIBO Reference Lenders, and such determination shall be
conclusive absent manifest error. The Agent shall promptly advise the Borrowers
and each Lender of such determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be) at a
rate per annum equal to the Alternate Base Rate. The Alternate Base Rate shall
be determined by the Agent, and such determination shall be conclusive absent
manifest error. The Agent shall promptly advise the Borrowers and each Lender
of such determination.
(c) Subject to the provisions of Section 2.09, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus, in
the case of each such Loan, the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Borrowing pursuant to
Section 2.03, provided, however, that any CD Loan made pursuant to Section 2.10
-------- -------
or 2.14 shall bear interest (computed as described in this paragraph) at a rate
per annum on any date of determination equal to the Adjusted CD Rate for the
Interest Period applicable to such CD Loan plus the Standby Margin for
Eurodollar Standby Loans for such date plus 1/8 of 1% per annum.
(d) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the
<PAGE>
31
Borrower requesting the applicable Fixed Rate Borrowing pursuant to Section
2.03.
(e) Interest on each Borrowing shall be payable on each applicable
Interest Payment Date.
SECTION 2.09. Default Interest. If any Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, such Borrower shall on demand from time to time from the Agent pay
interest, to the extent permitted by applicable law, on such defaulted amount
from the date on which the Agent first notifies such Borrower that it will be
required to pay interest pursuant to this Section on such defaulted amount up to
(but not including) the date of actual payment (after as well as before
judgment) at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be) equal to the
Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the LIBO Reference Lenders shall have
determined and communicated to the Agent that dollar deposits in the principal
amounts of the Eurodollar Loans comprising such Borrowing are not generally
available in the London interbank market, or that the rates at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
any Lender of making or maintaining its Eurodollar Loan during such Interest
Period, or that reasonable means do not exist for ascertaining the LIBO Rate,
the Agent shall, as soon as practicable thereafter, give written or telex notice
of such determination to the Borrowers and the Lenders. In the event of any
such determination, until the Agent shall have advised the Borrowers and the
Lenders that the circumstances giving rise to such notice no longer exist, (i)
any request by any Borrower for a Competitive Borrowing pursuant to Section 2.03
shall be of no force and effect and shall be denied by the Agent and (ii) any
request by any Borrower for a Eurodollar Borrowing pursuant to Section 2.04
shall be deemed to be a request for (A) an ABR Borrowing having an Interest
Period of five days' duration and (B) a refinancing of such ABR Borrowing with
an ABR Borrowing or a CD Borrowing, as such Borrower shall elect by notice to
the Agent not later than 11:00 a.m., New York City time, one Business Day before
such refinancing, comprised of Loans having an Interest Period
<PAGE>
32
that is, when added to the Interest Period for the ABR Borrowing being
refinanced, equal to (in the case of an ABR Borrowing) or as close as possible
to (in the case of a CD Borrowing) the Interest Period requested by such
Borrower in connection with such Eurodollar Borrowing. The parties hereto shall
have the same rights and obligations in respect of a deemed request for a CD
Borrowing or an ABR Borrowing pursuant to this Section and the CD Loans and ABR
Loans made pursuant thereto, and the Commitments shall be utilized by such CD
Loans and such ABR Loans, as if such Borrowing were a Standby Borrowing
requested, and such Loans were Standby Loans made, pursuant to Section 2.04.
Each determination by the LIBO Reference Lenders hereunder shall be conclusive
absent manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a) Any
-----------------------------------------
Commitment that has not been terminated prior to the Maturity Date shall be
automatically terminated on the Maturity Date.
(b) Except as provided in Section 2.20 hereof, upon at least 5
Business Days' prior irrevocable written or telex notice to the Agent, JCPenney
may at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Total Commitment; provided, however, that each partial
-------- -------
reduction of the Total Commitment shall be in an integral multiple of $5,000,000
and in a minimum principal amount of $25,000,000 or, if less, the Total
Commitment then in effect.
(c) Except as provided in Section 2.20, each reduction in the Total
Commitment hereunder shall be made ratably among the Lenders in accordance with
their respective Commitments. Subject to Section 9.09, the Borrowers shall pay
to the Agent for the account of the Lenders, on the date of each termination or
reduction, the Facility Fees accrued through the date of such termination or
reduction.
(d) The Commitment of each Lender shall automatically and permanently
terminate on December 2, 1997 (the "Commitment Termination Date"); provided,
--------
however, that the Commitment Termination Date with respect to any Lender shall
- -------
not be extended under any circumstances to a date later than the Maturity Date.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing or any
Competitive Borrowing of such Borrower, in whole or in part, subject to the
require-
<PAGE>
33
ments of Section 2.15 but otherwise without premium or penalty, upon giving
written or telex notice (or telephone notice promptly confirmed by written or
telex notice) to the Agent before 10:00 a.m., New York City time, one Business
Day prior to such prepayment; provided, however, that each partial prepayment
-------- -------
shall be in an amount which is an integral multiple of $5,000,000 and not less
than $25,000,000.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Standby Loans outstanding will not exceed the Total Commitment
after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower giving such notice to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments under this
Section 2.12 shall be accompanied by accrued interest on the principal amount
being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. Subject
------------------------------- --------------
to the procedures and limitations of Section 2.20:
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan
made by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on such Lender by the jurisdiction in which
such Lender is organized, has its principal office or maintains its Applicable
Lending Office for such Loan or by any political subdivision or taxing authority
in any such jurisdiction), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such Lender, or shall impose on such
Lender or the London interbank market any other
<PAGE>
34
condition affecting this Agreement or any Eurodollar Loan, CD Loan or Fixed Rate
Loan made by such Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan,
CD Loan or Fixed Rate Loan or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise) by an amount deemed by such Lender in its reasonable judgment to be
material, then such additional amount or amounts as will compensate such Lender
for such additional costs incurred or reduction suffered will be paid to such
Lender in accordance with Section 2.20 (i) if such additional costs or reduction
shall relate to a particular Loan, by the Borrower to which such Loan was made
and (ii) otherwise, by JCPenney. Notwithstanding the foregoing, no Lender shall
be entitled to request compensation under this paragraph with respect to any
Loan if it shall have been aware that the change giving rise to such request had
been adopted or enacted at the earlier of the time at which the Lender became a
party to this Agreement or, with respect to a Competitive Loan, the time of
submission of the Competitive Bid pursuant to which such Competitive Loan shall
have been made.
(b) If the adoption after the Closing Date of any law, rule,
regulation or guideline regarding capital adequacy, or any change after the
Closing Date in any of the foregoing or in the interpretation or administration
of any of the foregoing by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or any Applicable Lending Office of such Lender) with
any request or directive regarding capital adequacy (whether or not having the
force of law) made or issued after the Closing Date by any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's capital as a consequence of this Agreement or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount deemed by such Lender in its reasonable judgment to be material, then
subject to Section 2.20 hereof, from time to time such additional amount or
amounts as will compensate such Lender for any such reduction suffered will be
paid to such Lender in accordance with Section 2.20 (i) if such reduction shall
relate to a particular Loan, by the Borrower to which such Loan was made and
(ii) otherwise, by JCPenney.
<PAGE>
35
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change after the Closing Date in any law or regulation
or in the interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrowers and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon such Lender shall not submit a Competitive Bid
in response to a request for Competitive Loans and any request by any
Borrower for a Standby Borrowing comprised of Eurodollar Loans shall, as
to such Lender only, be deemed a request for an ABR Loan or a CD Loan, as
such Borrower shall elect by notice to the Agent not later than 11:00
a.m., New York City time, one Business Day before such Borrowing, having
an Interest Period equal to (in the case of an ABR Loan) or as close as
possible to (in the case of a CD Loan) the Interest Period applicable to
such Eurodollar Loans unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans or to CD Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans or, if JCPenney shall
so notify the Agent on the date of such conversion and the Agent shall
have determined that the Adjusted CD Rate can be determined for the
Interest Period in question, to CD Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans or CD Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans. The parties hereto shall have the same
rights and obligations in respect of a deemed request for a CD Loan pursuant to
clause (i) above and any CD Loan made pursuant to paragraph (a) above, and the
Commitments shall be
<PAGE>
36
utilized by any such CD Loan, as if such CD Loan were a Standby Loan requested
and made pursuant to Section 2.04.
(b) For purposes of this Section 2.14, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrowers (in which case the ABR Loan or CD Loan resulting from the conversion
of such Eurodollar Loan pursuant to clause (ii) of paragraph (a) above shall
have an Interest Period equal to (in the case of an ABR Loan) or as close as
possible to (in the case of a CD Loan) the Interest Period applicable to such
Eurodollar Loan).
SECTION 2.15. Indemnity. Each Borrower agrees to indemnify the Agent
----------
and each Lender against any reasonable out-of-pocket loss or expense which the
Agent and/or such Lender may sustain or incur as a consequence of (a) any
failure by such Borrower to fulfill on the date of any borrowing hereunder the
applicable conditions set forth in Article IV, (b) any failure by such Borrower
to borrow or to refinance or continue any Loan hereunder after irrevocable
notice of such borrowing, refinancing or continuation has been given pursuant to
Section 2.03 or 2.04, (c) any payment, prepayment or conversion of a Eurodollar
Loan, CD Loan or Fixed Rate Loan made to such Borrower that is required by any
other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period applicable thereto or (d) any
default in payment or prepayment of the principal amount of any Eurodollar Loan,
CD Loan or Fixed Rate Loan made to such Borrower or any part thereof or interest
accrued thereon, as and when due and payable (at the due date thereof, whether
by scheduled maturity, acceleration, irrevocable notice of prepayment or
otherwise), after the expiration of the applicable grace period, including, in
each such case, any reasonable out-of-pocket loss or expense sustained or
incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Loan or any part thereof as a Eurodollar Loan, CD Loan
or Fixed Rate Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by the Agent and/or such
Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid,
converted or not borrowed (based on the LIBO Rate or Adjusted CD Rate or, in the
case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for
the period from the date of such payment, prepayment or failure to borrow to the
last day of the Interest Period for such Loan
<PAGE>
37
(or, in the case of a failure to borrow, the Interest Period for such Loan which
would have commenced on the date of such failure) over (ii) the amount of
interest (as reasonably determined in good faith by the Agent and/or such
Lender) that would be realized by the Agent and/or such Lender in reemploying
the funds so paid, prepaid or not borrowed for such period or Interest Period,
as the case may be; provided, however, that with respect to any Eurodollar Loan
-------- -------
or CD Loan for which the corresponding LIBO Rate or Adjusted CD Rate, as the
case may be, is available for the period or Interest Period in question, the
amount of interest realized in reemploying such funds shall be computed at such
LIBO Rate or Adjusted CD Rate, as the case may be, at the time of the applicable
payment, prepayment or failure to borrow. In order to exercise its rights under
this Section, the Agent and/or a Lender shall deliver to the appropriate
Borrower a certificate setting forth any amount or amounts which the Agent
and/or such Lender is entitled to receive pursuant to this Section. Such
Borrower shall have a 30-Business Day period following the receipt of such
certificate (if such Borrower in good faith disagrees with the assertion that
any payment under such section is due or with the amount shown as due on such
certificate and so notifies the Agent and/or such Lender of such disagreement
within 10 Business Days following receipt of such certificate) to negotiate with
the Agent and/or such Lender, which negotiations shall be conducted by the
respective parties in good faith, and to agree upon another amount that will
adequately compensate the Agent and/or such Lender, it being expressly
understood that if such Borrower does not provide the required notice of its
disagreement as provided above, such Borrower shall pay the amount shown as due
on the certificate on the tenth Business Day following receipt thereof and
further if such Borrower does provide such required notice, and negotiations are
entered into but do not result in agreement by such Borrower and the Agent
and/or such Lender within the 30-Business Day period, then such Borrower shall
pay the amount shown as due on the certificate on the last day of such period.
SECTION 2.16. Pro Rata Treatment. Except as required under Sections
-------------------
2.14 and 2.20(b), each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal
<PAGE>
38
amounts of their outstanding Standby Loans). Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective principal
amounts of their outstanding Competitive Loans comprising such Borrowing. Each
payment of interest on any Competitive Borrowing shall be allocated pro rata
among the Lenders participating in such Borrowing in accordance with the
respective amounts of accrued and unpaid interest on their outstanding
Competitive Loans comprising such Borrowing. For purposes of determining the
available Commitments of the Lenders at any time, each outstanding Competitive
Borrowing shall be deemed to utilize the Commitments of each of the Lenders pro
rata in accordance with their respective Commitments. Each Lender agrees that
in computing such Lender's portion of any Borrowing to be made hereunder, the
Agent may, in its discretion, round each Lender's percentage of such Borrowing
to the next higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against any Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Standby Loan or
Loans as a result of which the unpaid principal portion of its Standby Loans
shall be proportionately less than the unpaid principal portion of the Standby
Loans of any other Lender, it shall be deemed simultaneously to have purchased
from such other Lender at face value, and shall promptly pay to such other
Lender the purchase price for, a participation in the Standby Loans of such
other Lender, so that the aggregate unpaid principal amount of the Standby Loans
and participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided, however, that, if any such
-------- -------
purchase or purchases or adjustments shall be made pursuant to this Section 2.17
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment
<PAGE>
39
restored without interest. The Borrowers expressly consent to the foregoing
arrangements and agree that, subject to Section 9.06, any Lender holding a
participation in a Standby Loan deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing by any Borrowers to such Lender by reason thereof as fully
as if such Lender had made a Standby Loan directly to the Borrower in the amount
of such participation.
SECTION 2.18. Payments. (a) Each Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) required to be made by it hereunder not later than 12:00 (noon), New
York City time (11:00 a.m., New York City time, in the case of any payment to be
made to the Agent), on the date when due in dollars to the Agent at its account
number 999-99-090 (attn: PT2000) (ref: JCPenney), in each case in immediately
available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise
would occur, on a day that is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) If any Borrower shall be required by reason
-----
of any change occurring after the date of this Agreement in applicable law or
regulation or tax treaty or in the interpretation or administration thereof by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having force of law) (a "Change of Law") to deduct any
Taxes from or in respect of any sum payable by it hereunder to any Lender or to
the Agent, then except as otherwise provided in this Section 2.19 and subject to
Section 2.20, (i) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19) such Lender or the Agent (as
the case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxing authority or other Governmental Authority in accordance with applicable
law.
<PAGE>
40
(b) In addition, the Borrowers agree, jointly and severally, to pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as "Other Taxes") other than any Other
Taxes imposed upon any assignment or participation of a Lender's rights,
interests and obligations hereunder; provided, however, that the amount the
-------- -------
Borrowers shall be required to pay to a particular Lender in respect of Other
Taxes shall not exceed 1% of the aggregate amount of the Loans or, if
applicable, the Commitment of such Lender on which such Other Taxes are imposed
and provided further, however, that if a Lender is actually aware of the
---------------- -------
application of any Other Tax to any such payment, execution, delivery or
registration, such Lender shall promptly notify the Borrowers of such Other Tax
and the Borrowers shall thereafter have the benefit of the provisions of Section
2.20(b).
(c) Within 30 days after the date of any payment of Taxes withheld by
any Borrower in respect of any payment to any Lender or the Agent, such Borrower
will furnish to the Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt evidencing payment thereof or, if such
a receipt is not available, a certificate of the treasurer or any assistant
treasurer of such Borrower setting forth the amount of such payment and the date
on which such payment was made.
(d) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(e) On the Closing Date (or, in the case of an entity that becomes a
Lender after the Closing Date, on the date such entity becomes a Lender) and
thereafter as required by applicable law, each Lender that is organized under
the laws of a jurisdiction outside the United States shall deliver to JCPenney
and the Agent such certificates, documents or other evidence, and any amendments
or supplements to such certificates, documents or other evidence, as required by
the Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1, 1.1441-2, 1.441-4(a)
or 1.1441-6(c) or any similar or
<PAGE>
41
successor provision, properly completed and duly executed by such Lender (or the
Agent) establishing that payments made under this Agreement to such Lender (or
to the Agent) are (i) not subject to withholding under the Code because such
payments are effectively connected with the conduct by such Lender (or the
Agent) of a trade or business in the United States or (ii) totally exempt from
United States tax under a provision of an applicable tax treaty. Unless
JCPenney and the Agent have received forms or other documents satisfactory to
them indicating that payments hereunder are not subject to Taxes or are subject
to such Taxes at a rate reduced by an applicable tax treaty, the appropriate
Borrower shall withhold Taxes from such payments at the applicable statutory
rate in the case of payments to or for any Lender (or to the Agent) organized
under the laws of a jurisdiction outside the United States.
(f) The Borrowers shall not be required to pay any additional amounts
to any Lender (or to the Agent) pursuant to paragraph (a) above if the
obligation to pay such additional amounts would not have arisen but for a
failure by such Lender (or the Agent) to comply with the provisions of paragraph
(e) above unless such failure results from a change occurring after the date of
this Agreement in applicable law or regulation or tax treaty or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having force
of law).
(g) The Borrowers shall not be liable under this Section 2.19 to any
Lender or to the Agent that has changed the location of its principal office or
any of its Applicable Lending Offices after the date (the "Relevant Date") on
which it first becomes a party to this Agreement (a "Change in Location") for
any Taxes that would have not been imposed but for a Change of Law enacted,
promulgated or effective before the Relevant Date, but only to the extent such
Taxes exceed the amount the Borrowers were required to pay such Lender or the
Agent pursuant to this Section 2.19 immediately prior to such Change in
Location.
(h) If any Lender or the Agent shall become aware that it is entitled
to receive a refund in respect of Taxes indemnified and paid by the Borrower,
such Lender or the Agent shall promptly notify the Borrowers of the availability
of such refund and shall, within 30 days after receipt of a request by JCPenney,
apply for such refund at JCPenney's expense. If any Lender or the Agent
receives a refund in respect of any Taxes for which such Lender or the Agent has
<PAGE>
42
received payment from any Borrower hereunder, it shall within 30 days after
receipt thereof repay the lesser of such refund and the amount paid by the
Borrowers with respect to such Taxes to the appropriate Borrower, in each case
net of all reasonable out-of-pocket expenses of such Lender or the Agent and
with interest received by such Lender or the Agent from the relevant taxing
authority attributable to such refund; provided, however, that such Borrower,
-------- -------
upon the request of such Lender or the Agent, agrees to return such refund (plus
interest, penalties or other charges) to such Lender or the Agent in the event
such Lender or the Agent is required to repay such refund to any Governmental
Authority.
(i) Each Lender and the Agent severally (but not jointly) represents
and warrants to the Borrowers that, as of the date such person becomes a party
to this Agreement, payments made by the Borrowers to such Lender or to the Agent
in connection with the Agreement are effectively connected with the conduct by
such Lender or the Agent of a trade or business in the United States.
SECTION 2.20. Mitigation; Duties of Lenders and Agent. (a) If, with
--------------------------------- ------
respect to any Lender or the Agent, an event or circumstance occurs that would
entitle such Lender or the Agent to exercise any of the rights or benefits
afforded by Section 2.13 or 2.19(a), such Lender or the Agent, promptly upon
becoming aware of the same, shall take all steps as may be reasonably available
(including, as may be applicable, designating a different Applicable Lending
Office, making the affected Type of Loan through an Affiliate, or furnishing the
proper certificates under any applicable tax laws, tax treaties, conventions,
and governmental regulations to the extent that such certificates are legally
available to such Lender or to the Agent) to eliminate or mitigate the effects
of any event resulting in the ability of such Lender or the Agent to exercise
rights under any of such Sections; provided, however, that, no Lender or the
-------- -------
Agent shall be under any obligation to take any step that, in its reasonable
judgment, would (i) result in its incurring Additional Costs or taxes in
performing its obligations hereunder unless the Borrowers have expressly agreed
to reimburse it therefor or (ii) be materially disadvantageous to such Lender or
to the Agent. Within 60 days after the occurrence of any event giving rise to
any rights or benefits provided by Sections 2.13 and 2.19(a) in favor of any
Lender or the Agent, such Lender or the Agent (i) will notify the Borrowers of
such event or circumstance and (ii) provide the Borrowers with a certificate
setting forth in reasonable detail (x) the event or circumstance
<PAGE>
43
giving rise to any benefit under Sections 2.13 and 2.19(a), (y) the effective
date of, and the time period during which, compensation for any Additional Costs
or Taxes are being claimed and (z) the determination of amount or amounts
claimed thereby and detailed calculations with respect thereto; provided,
--------
however, that if such Lender or the Agent does not give the Borrowers such
- -------
notice and certificate within the 60-day period set forth in this sentence, the
Borrowers shall be required to indemnify such Lender or the Agent only for such
Additional Costs and Taxes as are attributable to the period from and after the
first date as of which such notice and certificate have been received by the
Borrowers. Such Lender or the Agent shall notify the Borrowers of any change in
circumstances with respect to the event specified in the above-described notice
and certificate as promptly as practicable after such Lender or the Agent
obtains knowledge thereof. Such certificate shall be conclusive absent manifest
error. Notwithstanding the foregoing, no Lender or Agent shall deliver the
notice and certificate described in this paragraph (a) to the Borrowers in
respect of any Additional Costs or Taxes unless it is then the general policy of
such Lender or the Agent to pursue similar rights and remedies in similar
circumstances under comparable provisions of other credit agreements.
(b) With respect to Sections 2.13 and 2.19, the Borrowers shall have
the right, should any Lender request any compensation or indemnity thereunder,
to (i) unless an Event of Default shall have occurred and be continuing, (A)
promptly terminate such Lender's Commitment by irrevocable written or telex
notice of such termination to such Lender and the Agent without the necessity of
complying with Sections 2.11(b) and (c) hereof, (B) reduce the Total Commitments
by the amount of such Lender's Commitment, and (C) pay or prepay in immediately
available funds all Loans made by such Lender hereunder, together with accrued
and unpaid interest thereon and all other amounts owed to such Lender hereunder,
including under Section 2.15 in connection with any such prepayment or (ii)
require such Lender to assign its Commitment and Loans, without recourse to or
representation or warranty by such Lender, to another Lender or assignee
acceptable to the Borrowers and with the consent of the Agent, which consent
shall not be unreasonably withheld; provided, however, that (x) such assignment
-------- -------
shall not conflict with any statute, law, rule, regulation, order or decree of
any Governmental Authority and (y) the assigning Lender shall have received from
the Borrowers and/or such assignee full payment in immediately available funds
of the principal of and interest accrued to the date of such payment
<PAGE>
44
on the Loans made by it hereunder to the extent that such Loans are subject to
such assignment and all other amounts owed to it hereunder. The Borrowers shall
have the right, should the Agent request any compensation or indemnity under
such Sections, to require the Agent to assign its rights and obligations
hereunder to a successor Agent with the consent of the Required Lenders, which
consent shall not be unreasonably withheld.
(c) With respect to Sections 2.13 or 2.19 (i) other than with respect
to Section 2.19(b), no Lender or Agent shall be entitled to exercise any right
or benefit afforded thereby and no Borrower shall be obligated to reimburse any
Lender or the Agent pursuant to such Sections unless (x) such Lender or the
Agent has delivered to the Borrowers in accordance with Section 9.01 the notice
and the certificate described in Section 2.20(a) hereof and (y) the affected
Borrower has had a 30-Business Day period following the receipt of such notice
and certificate (if such Borrower in good faith disagrees with the assertion
that any payment under such Sections is due or with the amount shown as due on
such certificate and so notifies the Lender or the Agent of such disagreement
within 10 Business Days following receipt of the notice and certificate) to
negotiate with the requesting Lender or the Agent, which negotiations shall be
conducted by the respective parties in good faith, and to agree upon another
amount that will adequately compensate such Lender or the Agent, it being
expressly understood that if such Borrower does not provide the required notice
of its disagreement as provided above, such Borrower shall pay the amount shown
as due on the certificate on the tenth Business Day following receipt thereof
and further if such Borrower does provide such required notice, and negotiations
are entered into but do not result in agreement by such Borrower and such Lender
or the Agent within the 30-Business Day period, then such Borrower shall pay the
amount shown as due on the certificate on the last day of such period, but in
either event not earlier than the date as of which the relevant Additional Costs
or Taxes are incurred, (ii) other than with respect to Other Taxes, unless the
appropriate notice and certificate are delivered to the Borrowers within the 60-
day period described in Section 2.20(a), the Borrowers shall be liable only for
Additional Costs, Taxes or amounts required to be paid which are attributable to
the period from and after the date such notice and certificate have been
received by the Borrowers, (iii) the Borrowers' liability for any amounts
incurred as a result of any change in Applicable Lending Office shall be limited
as set forth in Section 2.02(e), (iv) in no event shall the Borrowers be
<PAGE>
45
liable for any taxes (other than Other Taxes) that would not have been imposed
but for a connection between such Lender or the Agent (other than by reason of
the activities contemplated by this Agreement) and the relevant taxing
jurisdiction, (v) each Lender or the Agent shall in good faith allocate all
Additional Costs, Taxes, and payments required to be made fairly among all its
commitments and credit extensions (whether or not it seeks compensation from all
affected borrowers), (vi) no Lender or Agent shall be entitled to exercise any
right or benefit afforded hereby or receive any payment otherwise due under
Sections 2.13 or 2.19 (including without limitation, any repayment by a Borrower
of any refund of Taxes pursuant to Section 2.19(h)) which arises from any gross
negligence, fraud or wilful misconduct of any Lender or the Agent, or the
failure of such Lender or the Agent to comply with the terms of this Agreement,
(vii) if a Lender or the Agent shall have recouped any amount or received any
offsetting tax benefit (other than a refund of Taxes as described in Section
2.19(h)) or reserve or capital benefits theretofore paid to it by such Borrower,
such Lender or the Agent shall promptly pay to such Borrower an amount equal to
the amount of the recoupment received by such Lender or the Agent reduced by any
reasonable out-of-pocket expenses of such Lender or the Agent attributable to
such recoupment, as determined in good faith by such Lender or the Agent, and
(viii) the liability of either Borrower to any Lender or the Agent with respect
to any taxes shall be reduced to the extent that such Lender or the Agent
receives an offsetting tax benefit (or could have received such a benefit by
taking reasonable measures to receive it); provided, however, that there shall
-------- -------
not be any reductions pursuant to this clause (viii) with respect to any tax
benefit (x) the existence of which such Lender or the Agent is unaware, (y) the
claiming of which would result in any cost or tax to such Lender or the Agent
(unless such Borrower shall have agreed to pay its reasonably allocable portion
of such cost or tax) and (z) unless such Borrower shall agree to indemnify the
Lender or the Agent to the extent any tax benefit taken into account under this
clause (viii) is thereafter lost or becomes unavailable.
(d) In addition to their obligations under Section 2.19 hereof, each
of the Lenders and the Agent hereby agrees to execute and deliver, and to make
any required filings of, all certificates, agreements, documents, reports,
statements and other instruments as are reasonably necessary to effectuate the
purposes of this Section 2.20 and Sections 2.13 and 2.19. The Borrowers agree,
jointly and severally, to pay all filing fees incurred by any Lender or
<PAGE>
46
the Agent in performing its obligations under this Section 2.20.
Section 2.21 Changes in the Available Commitment. During any Seasonal
-----------------------------------
Availability Period the Borrowers may increase or reduce the Available
Commitment in a minimum amount of $100,000,000 or a larger multiple of
$50,000,000 upon three Business Days' notice to the Agent in the case of an
increase and upon five Business Days' notice to the Agent in the case of a
reduction; provided that any such changes are consistent with the definition of
--------
Available Commitment in Section 1.01; and provided further that there will be no
-------- -------
more than three increases and three reductions during any Seasonal Availability
Period.
SECTION 2.22. Optional Increase in Commitments. At any time, if no
--------------------------------
Event of Default or Default shall have occurred and be continuing, the Borrowers
may, if they so elect in their sole discretion, increase the Total Commitment,
either by designating a person not theretofore a Lender to become a Lender or by
agreeing with an existing Lender that such Lender's Commitment shall be
increased. Upon execution and delivery by the Borrowers and such Lender or other
person of an instrument of assumption in form reasonably satisfactory to the
Agent, such existing Lender shall have a Commitment as therein set forth or such
other person shall become a Lender with a Commitment as therein set forth and
all the rights and obligations of a Lender with such a Commitment hereunder;
provided:
- --------
(a) that the Borrowers shall provide prompt notice of such increase to
the Agent, who shall promptly notify the other Lenders;
(b) that the Commitment of any Lender does not exceed 10% of the Total
Commitment after such increase; and
(c) that the amount of such increase, together with all other
increases in Commitments pursuant to this Section 2.22 since the date of this
Agreement, does not exceed $375,000,000.
<PAGE>
47
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrowers and the
---------------------
Restricted Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (d) in the case of each Borrower, has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and each other agreement or instrument contemplated hereby to which it
is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance
--------------
by each Borrower of this Agreement and the borrowings hereunder (collectively,
the "Transactions") (a) have been duly authorized by all requisite corporate
and, if required, stockholder action and (b) will not (i) violate (A) any
applicable provision of law, statute, material rule or material regulation, or
of the certificate or articles of incorporation or other constitutive documents
or by-laws of JCPenney, Funding or any Restricted Subsidiary, (B) any applicable
material order of any Governmental Authority or (C) any material provision of
any indenture, agreement or other instrument to which JCPenney, Funding or any
Restricted Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, in each case in any material
respect, or (iii) result in the creation or imposition of any Lien upon or with
respect to any property or assets now owned or hereafter acquired by JCPenney,
Funding or any Restricted Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly executed
---------------
and delivered by each Borrower and constitutes a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms, except as enforceability may be limited by (a) any applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws relating to
<PAGE>
48
or affecting creditors' rights generally and (b) general principles of equity.
SECTION 3.04. Governmental Approvals. No action, consent or approval
-----------------------
of, registration or filing with, or any other action by, any Governmental
Authority is or will be required in connection with the Transactions, except (a)
such as have been made or obtained and are in full force and effect or as to
which the failure to be made or obtained and in full force and effect would not
result in a Material Adverse Effect and (b) such periodic and current reports,
if any, as (i) are required to disclose the Transactions and (ii) will be filed
with the SEC on a timely basis.
SECTION 3.05. Financial Statements. Each of JCPenney and Funding has
---------------------
heretofore furnished to the Lenders its consolidated balance sheets and related
consolidated statements of income and cash flows (a) as of and for the fiscal
year ended January 27, 1996, audited by and accompanied by the opinion of KPMG
Peat Marwick L.L.P., independent public accountants, and (b) as of and for the
fiscal quarter and the portion of the fiscal year ended July 27, 1996, as filed
by JCPenney or Funding, as the case may be, with the SEC on Form 10-Q in respect
of such fiscal quarter. Such financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its Subsidiaries,
or of Funding and its Subsidiaries, as the case may be, in accordance with GAAP,
subject, in the case of the financial statements referred to in clause (b)
above, to normal year-end audit adjustments.
SECTION 3.06. No Material Adverse Change. Except as set forth in
---------------------------
Schedule 3.06, as of the Closing Date, there has been no material adverse change
in the business, assets, operations or financial condition of JCPenney, Funding
or JCPenney and the Restricted Subsidiaries taken as a whole since January 27,
1996.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
------------------------------- -------------
of the Borrowers and the Restricted Subsidiaries has good and marketable title
to all its Principal Properties, except for minor defects in title and other
restrictions that do not interfere with its ability to conduct its business as
currently conducted or to utilize such Principal Properties for their intended
purposes. All the Principal Properties are free and clear of Liens, other than
Liens expressly permitted by Section 6.01.
<PAGE>
49
(b) Each of the Borrowers and the Restricted Subsidiaries has valid
leasehold interests in all the material properties that it purports to hold
under lease, except for restrictions that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes. Each of the Borrowers and the Restricted Subsidiaries
has complied with all material obligations under all material leases to which it
is a party and all such leases are in full force and effect, except in each case
for provisions of such leases that are being contested in good faith in the
ordinary course of the Borrower's business. Each of the Borrowers and the
Restricted Subsidiaries enjoys peaceful and undisturbed possession under all
such material leases.
SECTION 3.08. Restricted Subsidiaries. Schedule 3.08 sets forth as of
------------------------
the Closing Date a list of all the Restricted Subsidiaries and the percentage
ownership interest of JCPenney therein. JCPenney owns, free and clear of all
Liens, all the issued and outstanding shares of the capital stock of Funding,
and all such outstanding shares are validly issued, fully paid and
nonassessable.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
---------------------------------
forth in Schedule 3.09 or as subsequently disclosed in writing to the Lenders,
there are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority now pending or, to the knowledge of any
Borrower, threatened against or affecting JCPenney or Funding or any Restricted
Subsidiary or any business, property or rights of any such person (i) which
involve this Agreement or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) None of the Borrowers or the
-----------
Restricted Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted or would result in a Material
Adverse Effect.
<PAGE>
50
(b) None of the Borrowers or the Restricted Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing indebtedness for money borrowed, or any other material
agreement or instrument to which it is a party or by which it or any of its
material properties or material assets are bound, where such default would
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of the Borrowers
----------------------------
or the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose (except that such proceeds may be used to finance or
refinance the repurchase by JCPenney of its own common stock), or (ii) for any
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Regulations of the Board, including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company
------------------------------ -----------------------
Act. None of the Borrowers is (a) an "investment company" as defined in, or
- ----
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds of
----------------
the Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the Restricted
------------
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the appropriate Borrower or Restricted Subsidiary
shall have set aside on its books adequate reserves.
<PAGE>
51
SECTION 3.15. No Material Misstatements. No information, report,
--------------------------
financial statement, exhibit or schedule furnished by or on behalf of any
Borrower to the Agent or any Lender in connection with the negotiation of this
Agreement or included herein or delivered pursuant hereto contained, contains or
will contain any material misstatement of fact or omitted, omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. During the immediately
----------------------
preceding six-year period with respect to the Plans, there were no: (a)
violations known to the Borrowers of ERISA, or (b) Reportable Events (other than
a Reportable Event for which the PBGC has waived the 30-day notice requirement
of Section 4043(a) of ERISA), that would, individually or in the aggregate,
result in a Material Adverse Effect. The present value of all benefit
liabilities under each Plan (based on the assumptions used to fund such Plan)
does not exceed the value of the assets of such Plan. None of the Borrowers or
the ERISA Affiliates has made contributions to any Multiemployer Plan within the
past five years, and such contributions are not now being made or expected to be
required.
SECTION 3.17. Support Agreements. The Support Agreements have been
-------------------
duly executed and delivered by JCPenney and, where applicable, Funding and, as
of the Closing Date, are in full force and effect in accordance with their
terms. A complete and correct copy of each Support Agreement as in effect on
the Closing Date has previously been furnished to each Lender and to the Agent.
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. Subject to the provisions of the last
---------------
sentence of this Section 4.01, on the date of each Borrowing:
(a) The Agent shall have received such notice of such Borrowing as is
required by Section 2.03 or Section 2.04, as applicable.
<PAGE>
52
(b) The representations and warranties set forth in Article III hereof
(except, in the case of all Borrowings hereunder, the representation set
forth in Section 3.06) shall be true and correct in all material respects
on and as of the date of such Borrowing with the same effect as though
made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing, no Event of
Default or Default shall have occurred and be continuing.
Each Borrowing (other than any new Borrowing described in the last sentence of
this Section 4.01) shall be deemed to constitute a representation and warranty
by the Borrowers on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01. Notwithstanding the other
provisions of this Section 4.01, the refinancing of any Borrowing with a new
Borrowing that does not increase the outstanding aggregate principal amount of
the Loans of any Lender shall not be subject to the satisfaction of any of the
foregoing conditions.
SECTION 4.02. First Borrowing. [INTENTIONALLY OMITTED].
----------------
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under this Agreement
shall be unpaid, unless the Required Lenders shall otherwise consent in writing,
each of the Borrowers will, and will cause each of the Restricted Subsidiaries
to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause
-------------------------------------
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as would not cause a Default under Section
6.04 or otherwise cause an Event of Default under this Agreement.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises,
<PAGE>
53
authorizations, patents, copyrights, trademarks and trade names material to the
conduct of its business; maintain and operate such business in substantially the
manner in which it is presently conducted and operated; comply in all material
respects with all applicable laws, rules, regulations and orders of any
Governmental Authority, whether now in effect or hereafter enacted; except in
each case where the failure to do so would not result in a Material Adverse
Effect; and at all times maintain and preserve all property material to the
conduct of its business and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this
-------- -------
paragraph (b) shall prevent any Borrower or Restricted Subsidiary from
discontinuing the operation and maintenance of any of its properties no longer
deemed useful in the conduct of its business.
SECTION 5.02. Insurance. Maintain insurance and/or self insurance
----------
programs in force that adequately protect the Principal Properties and the
public liability exposures of the Borrowers, as may be required by law, and as
is customary with companies in the same or similar businesses or of the same
general financial net worth.
SECTION 5.03. Obligations and Taxes. Pay and discharge promptly when
----------------------
due all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its properties, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any material part thereof; provided, however, that such
-------- -------
payment and discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as (a) the validity or amount thereof
shall be contested in good faith by appropriate proceedings and (b) the
applicable Borrower has made appropriate reserves therefor as required by GAAP.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
-----------------------------------
Borrowers, furnish to the Agent for distribution to the Lenders:
(a) as soon as available and in any event within 120 days after the end
of each fiscal year, a copy of the reports filed by each of JCPenney and
Funding
<PAGE>
54
with the SEC on Form 10-K in respect of such fiscal year, accompanied by
JCPenney's annual report in respect of such fiscal year or, if either of
JCPenney or Funding is not required to file such a report in respect of
such fiscal year, the consolidated balance sheets and related consolidated
statements of income and cash flows of JCPenney and its Subsidiaries, or
of Funding and its Subsidiaries, as the case may be, as of the close of
such fiscal year, all audited by KPMG Peat Marwick L.L.P. or other
independent public accountants of recognized national standing and
accompanied by an opinion of such accountants (which shall be in scope and
substance reasonably satisfactory to the Required Lenders) to the effect
that such consolidated financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its
Subsidiaries or of Funding and its Subsidiaries, as the case may be, in
accordance with GAAP;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarterly periods of each fiscal year, a copy
of the quarterly reports filed by each of JCPenney and Funding with the
SEC on Form 10-Q in respect of such quarterly period, or if either of
JCPenney or Funding is not required to file such a report in respect of
such quarterly period, the consolidated balance sheets and related
consolidated statements of income and cash flows of JCPenney and its
Subsidiaries, or of Funding and its Subsidiaries, as the case may be, as
of the close of such fiscal quarter, certified by its chief financial
officer, treasurer or controller as fairly presenting the financial
position, results of operations and cash flows of JCPenney and its
Subsidiaries or of Funding and its Subsidiaries, as the case may be, in
accordance with GAAP, subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements by JCPenney
or Funding under (a) above (whether contained in a report filed with the
SEC or otherwise), a certificate of its chief financial officer,
president, treasurer or controller (i) stating that no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (ii) with
<PAGE>
55
respect to JCPenney, setting forth computations in reasonable detail
demonstrating compliance with the covenant contained in Section 6.02;
(d) promptly after the same become publicly available, copies of all
documents and reports that any Borrower may be required to file with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, or with any Governmental Authority succeeding to any of
or all the functions of the SEC;
(e) promptly after the execution and delivery thereof by the parties
thereto, copies of all agreements and other instruments that have the
effect of amending, modifying or waiving any provision of a Support
Agreement; and
(f) promptly, from time to time, such other documents and information
regarding the operations, business affairs and financial condition of any
Borrower or Restricted Subsidiary, or compliance with the terms of this
Agreement, as the Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Agent
-----------------------------
prompt written notice of the following promptly after becoming aware thereof:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(b) the filing or commencement of, or any threat or notice of intention
of any person to file or commence, any action, suit or proceeding, whether
at law or in equity or by or before any Governmental Authority, against
any Borrower or Restricted Subsidiary which, if adversely determined,
would result in a Material Adverse Effect; and
(c) any development that has resulted in, or would result in, a
Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
------
applicable provisions of ERISA and (b) furnish to the Agent and each Lender (i)
as soon as possible, and in any event within 30 days after any Responsible
Officer of any Borrower or ERISA Affiliate either knows
<PAGE>
56
or has reason to know that any Reportable Event has occurred that alone or
together with any other Reportable Events could reasonably be expected to result
in liability of the Borrowers and/or the Restricted Subsidiaries to the PBGC in
an aggregate amount exceeding $200,000,000, a statement of a Responsible Officer
of JCPenney setting forth details as to such Reportable Event and the action
proposed to be taken with respect thereto, together with a copy of the notice,
if any, of such Reportable Event given to the PBGC, (ii) promptly after receipt
thereof, a copy of any notice that any Borrower or ERISA Affiliate receives from
the PBGC relating to the intention of the PBGC to terminate any Plan or Plans
(other than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or
to appoint a trustee to administer any Plan or Plans and (iii) within 10 days
after the due date for filing with the PBGC pursuant to Section 412(n) of the
Code of a notice of failure to make a required installment or other payment with
respect to a Plan, a statement of a Responsible Officer of JCPenney setting
forth details as to such failure and the action proposed to be taken with
respect thereto, together with a copy of such notice given to the PBGC. Any
failure to comply with applicable provisions of ERISA shall not be deemed to be
material, unless such failure or failures would result in a Material Adverse
Effect.
SECTION 5.07. Maintaining Records; Access to Properties and
------------------------------ --------------
Inspections. Maintain all financial records in accordance with GAAP and permit
- ------------
any representatives designated by any Lender to (a) visit and inspect the
financial records and the Principal Properties of any Borrower or Restricted
Subsidiary during business hours upon reasonable notice, (b) make extracts from
and copies of such financial records, (c) discuss the affairs, finances and
condition of any Borrower or Restricted Subsidiary with the chief financial
officer, treasurer or any assistant treasurer of any Borrower or Restricted
Subsidiary and (d) discuss the affairs, finances and condition of any Borrower
or Restricted Subsidiary with such person's independent accountants in the
presence of any of the chief financial officer, treasurer or any assistant
treasurer of such person. No such inspection, discussion or other right granted
under this Section 5.07 and exercised by any Lender shall disrupt the normal and
ordinary conduct of business of any Borrower or Restricted Subsidiary, and all
costs and expenses incurred in connection therewith, shall, prior to the
occurrence and continuance of an Event of Default, be borne by the Lender
exercising such right.
<PAGE>
57
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for
----------------
the purposes set forth in the preamble to this Agreement.
SECTION 5.09. Pari-Passu. Ensure that (a) the payment obligations of
-----------
any Borrower under this Agreement will at all times rank at least equally and
ratably in all respects with the claims of any other unsecured creditor of such
Borrower and (b) the proceeds of any Loan made to Funding will be used for the
purpose of making either (i) Investments of the type referred to in clause (v)
of Section 6.06(c) or (ii) loans to JCPenney constituting senior unsecured
indebtedness of JCPenney, and not for any other purpose.
SECTION 5.10. Support Agreements. Ensure that (a) each Support
-------------------
Agreement remains in full force and effect in accordance with its terms and (b)
no amendment or modification is made to any Support Agreement or any of the
terms thereof, and no waiver is given or agreed to be given by or on behalf of
Funding with respect to any of its rights under any Support Agreement, which
would have a Material Adverse Effect.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender and the Agent, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any Fees or any other expenses or amounts payable under this Agreement
shall be unpaid, unless the Required Lenders shall otherwise consent in writing,
as follows:
SECTION 6.01. Limitation on Liens--JCPenney. JCPenney will not, and
------------------------------
will not permit any Restricted Subsidiary to, issue, assume or guarantee any
notes, bonds, debentures or other similar evidences of indebtedness for money
borrowed (referred to in this Section 6.01 as "indebtedness") secured by any
Lien upon any Principal Property, or shares of capital stock or evidences of
indebtedness for money borrowed issued by any Restricted Subsidiary and owned by
JCPenney or any Restricted Subsidiary, whether owned on the Closing Date or
thereafter acquired, without making effective provision whereby the Loans made
to JCPenney are secured by such Lien equally and ratably with any and all other
indebtedness thereby secured, so long as such indebtedness shall be so secured;
provided,
- --------
<PAGE>
58
however, that the foregoing restriction shall not apply to indebtedness secured
- -------
by any of the following:
(i) Liens on any property existing at the time of acquisition thereof
by JCPenney or any Restricted Subsidiary;
(ii) Liens on property of a corporation existing at the time such
corporation is merged into or consolidated with JCPenney or any Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety or
substantially as an entirety to JCPenney or any Restricted Subsidiary,
provided that such Lien as a result of such merger, consolidation, sale,
--------
lease or other disposition is not extended to property owned by JCPenney
or such Restricted Subsidiary immediately prior thereto;
(iii) Liens on property of a corporation existing at the time such
corporation first becomes a Restricted Subsidiary;
(iv) Liens securing indebtedness of a Restricted Subsidiary to
JCPenney or to another Restricted Subsidiary;
(v) Liens on property to secure all or part of the cost of acquiring,
substantially repairing or altering, constructing, developing or
substantially improving such property, or to secure indebtedness incurred
to provide funds for any such purpose or for reimbursement of funds
previously expended for any such purpose, provided that the commitment of
the creditor to extend the credit secured by any such Lien shall have been
obtained not later than twelve months after the later of (a) the
completion of the acquisition, substantial repair or alteration,
construction, development or substantial improvement of such property or
(b) the placing in operation of such property or of such property as so
substantially repaired or altered, constructed, developed or substantially
improved;
(vi) Liens securing indebtedness payable on demand or not more than
one year after the date as of which the determination is made (excluding
any indebtedness renewable or extendable at the option of the debtor for a
period or periods ending more than one year
<PAGE>
59
after the date as of which such determination is made), which indebtedness
in accordance with GAAP would be included among current liabilities; or
(vii) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred to in
the foregoing clauses (i) through (vi), inclusive; provided, however, that
-------- -------
the principal amount of indebtedness secured thereby and not otherwise
authorized by said clauses (i) through (vi), inclusive, shall not exceed
the principal amount of indebtedness, plus any premium or fee payable in
connection with any such extension, renewal or replacement, so secured at
the time of such extension, renewal or replacement;
(viii) Liens arising under workmen's compensation laws, unemployment
insurance laws and old age pensions or other social security benefits or
other similar laws;
(ix) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of business;
(x) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(xi) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(xii) Liens incidental to the normal conduct of the business of
JCPenney and its Restricted Subsidiaries or the ownership of their
property and not securing Funded Indebtedness (including zoning
restrictions, easements, licenses, reservations, restrictions on the use
of real property or minor irregularities incident thereto and with respect
to leasehold interests, Liens that are incurred, created, assumed or
permitted to exist and arise by, through or under or are asserted by a
landlord or owner of the leased
<PAGE>
60
property, with or without consent of the lessee) which do not in the
aggregate materially impair the value or use of the property used in the
business of JCPenney and its Restricted Subsidiaries taken as a whole, or
the use of such property for the purpose for which such property is held;
(xiii) Liens arising from capitalized lease obligations, such Liens
not to extend to any other property of JCPenney;
(xiv) Liens in respect of litigation or other similar proceedings in
an amount not to exceed $500,000,000 on an aggregate basis (i) the
validity of which is being currently contested on a timely basis in good
faith by appropriate proceedings (provided that the enforcement of any
Liens arising out of such proceedings shall be stayed during such
proceedings) and (ii) for which adequate reserves shall have been
established;
(xv) Liens in respect of leases or subleases granted to other persons
in the ordinary course of business and not materially interfering with the
conduct of business of JCPenney and its Restricted Subsidiaries;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
JCPenney or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of JCPenney and its
Restricted Subsidiaries; or
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law securing payment of customs duties in connection with the
importation of goods.
Notwithstanding the provisions of the immediately preceding sentence,
JCPenney or any Restricted Subsidiary may issue, assume or guarantee
indebtedness secured by Liens which would otherwise be subject to the
restrictions of this Section in an aggregate amount which, together with all
attributable debt (as defined in Section 5.09(b) of the Indenture) outstanding
pursuant to Section 5.09(b) of the Indenture, all Senior Funded Indebtedness
outstanding pursuant to the second sentence of Section 6.03(a), the capitalized
amount of all capitalized leases referred to in
<PAGE>
61
Section 6.05(j), and all indebtedness outstanding pursuant to this sentence,
does not exceed 5% of Stockholders' Equity.
SECTION 6.02. Limitations on Senior Funded Indebtedness. JCPenney
------------------------------------------
will not, and will not permit any Restricted Subsidiary to, issue, assume or
guarantee any Senior Funded Indebtedness (otherwise than in connection with any
renewal, extension or refunding of Senior Funded Indebtedness which does not,
except for any premium or fee payable in connection with such renewal, extension
or refunding, increase the unpaid principal amount of Senior Funded Indebtedness
outstanding), or sell, transfer or otherwise dispose of any Senior Funded
Indebtedness of a Restricted Subsidiary, unless, after giving effect thereto and
to the retirement of any Senior Funded Indebtedness to be retired substantially
concurrently therewith, Net Tangible Assets shall be at least 200% of Senior
Funded Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.03. Limitations with Respect to Restricted Subsidiaries.
----------------------------------------------------
(a) JCPenney will not permit any Restricted Subsidiary to issue, assume or
guarantee any Senior Funded Indebtedness; provided, however, that the foregoing
-------- -------
restriction shall not apply to any of the following:
(i) Senior Funded Indebtedness secured by a Lien permitted under the
first sentence of Section 6.01;
(ii) Senior Funded Indebtedness of a corporation existing at the time
such corporation is merged into or consolidated with a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety or
substantially as an entirety to a Restricted Subsidiary;
(iii) Senior Funded Indebtedness of a corporation existing at the time
such corporation first becomes a Restricted Subsidiary:
(iv) Senior Funded Indebtedness of a Restricted Subsidiary to or held
by JCPenney or another Restricted Subsidiary; or
(v) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Senior Funded
Indebtedness
<PAGE>
62
referred to in the foregoing clauses (i) through (iv), inclusive;
provided, however, that the principal amount or the aggregate preference
-------- -------
on involuntary liquidation, as the case may be, of Senior Funded
Indebtedness issued pursuant to such extension, renewal or replacement and
not otherwise authorized by said clauses (i) through (iv), inclusive,
shall not exceed the principal amount or the aggregate preference on
involuntary liquidation, as the case may be, of the Senior Funded
Indebtedness so extended, renewed or replaced, plus any premium or fee
payable in connection with any such extension, renewal or replacement.
Notwithstanding the provisions of the immediately preceding sentence,
any Restricted Subsidiary may issue, assume or guarantee Senior Funded
Indebtedness which would otherwise be subject to the restrictions of this
Section 6.03(a) in an aggregate amount which, together with all indebtedness
outstanding pursuant to the second sentence of Section 6.01, all attributable
debt (as defined in Section 5.09(b) of the Indenture) outstanding pursuant to
Section 5.09(b) of the Indenture and all Senior Funded Indebtedness of the
Restricted Subsidiaries outstanding pursuant to this sentence, does not exceed
5% of Stockholders' Equity.
(b) JCPenney will not, and will not permit any Restricted Subsidiary
to, (i) sell or transfer (except to JCPenney or a Restricted Subsidiary) any
Senior Funded Indebtedness of a Restricted Subsidiary, except Senior Funded
Indebtedness secured by a Lien permitted under the provisions of the first
sentence of Section 6.01 and except to carry out a transaction permitted by
Section 6.03(c) or (ii) sell or transfer (except, in each case, to the extent,
if any, required to qualify directors of a Restricted Subsidiary under
applicable law or to permit any person to maintain his proportionate interest in
a Restricted Subsidiary or except to effect dissolution of any such Restricted
Subsidiary or to carry out a transaction permitted by Section 6.03(c) or except
to JCPenney or a Restricted Subsidiary) any shares of common stock of a
Restricted Subsidiary, unless all the common stock of such Restricted Subsidiary
at the time owned by JCPenney and the Restricted Subsidiaries shall be sold or
transferred at the same time and unless thereafter Net Tangible Assets shall be
at least 200% of Senior Funded Indebtedness of JCPenney and the Restricted
Subsidiaries (eliminating intercompany items).
<PAGE>
63
(c) JCPenney will not permit any Restricted Subsidiary to sell or
otherwise dispose of its assets substantially as an entirety or consolidate with
or merge into any other corporation, unless the corporation to which such assets
shall be sold or otherwise disposed of or which shall be formed by or result
from such consolidation or merger shall be JCPenney or any Restricted Subsidiary
or unless thereafter Net Tangible Assets shall be at least 200% of Senior Funded
Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
--------------------------------------------
Acquisitions. (a) JCPenney shall not consoli-
- -------------
date with or merge into any other corporation or convey or transfer its
properties and assets substantially as an entirety to any person, unless:
(i) the corporation formed by such consolidation or into which
JCPenney is merged or the person which acquires by conveyance or transfer
the properties and assets of JCPenney substantially as an entirety shall
be a corporation organized and existing under the laws of the United
States of America or any State or the District of Columbia, and shall
expressly assume, by an instrument in writing (delivered to the Lenders)
the due and punctual payment of the principal and interest, if any, on all
the Loans and all other amounts payable by JCPenney under this Agreement
and all the rights, interests and other obligations of JCPenney under this
Agreement;
(ii) immediately after giving effect to such transaction, (x) the
representations and warranties set forth in Article III shall be true and
correct in all material respects on the date of such transaction with the
same effect as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date and (y)
no Event of Default or Default shall have occurred and be continuing; and
(iii) JCPenney shall have delivered an Officer's Certificate stating
that such consolidation, merger, conveyance or transfer and such written
instrument comply with this Section 6.04(a).
(b) Funding shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any
<PAGE>
64
person, except that Funding may merge into JCPenney or a direct or indirect
wholly-owned Subsidiary of JCPenney subject to the satisfaction of the following
conditions:
(i) the corporation formed by such consolidation or into which
Funding is merged or the person which acquires by conveyance or transfer
the properties and assets of Funding substantially as an entirety shall
expressly assume, by an instrument in writing (delivered to the Lenders)
the due and punctual payment of the principal and interest, if any, on all
the Loans and all other amounts payable by Funding under this Agreement
and all the rights, interests and other obligations of Funding under this
Agreement;
(ii) immediately after giving effect to such transaction, (x) the
representations and warranties set forth in Article III shall be true and
correct in all material respects on the date of such transaction with the
same effect as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date and (y)
no Event of Default or Default shall have occurred and be continuing; and
(iii) Funding shall have delivered an Officer's Certificate stating
that such consolidation, merger, conveyance or transfer and such written
instrument comply with this Section 6.04(b).
SECTION 6.05. Limitations on Liens--Funding. Funding will not, and
------------------------------
will not permit any of its Subsidiaries to, create or assume any Lien upon any
of the property of Funding or any such Subsidiary, whether now owned or
hereafter acquired, in connection with the borrowing of money or the acquisition
or construction of property; provided, however, that nothing in this Section
-------- -------
6.05 shall prevent or be deemed to prohibit:
(a) Funding or any of its Subsidiaries from acquiring property subject
to a Lien existing thereon at the time of acquisition, and assuming the
same, or from creating a Lien on property being constructed or acquired to
secure a portion of the cost or purchase price thereof, provided, however,
-------- -------
that (i) any such Lien shall cover solely fixed assets or other physical
properties and (ii) such property is not or shall not thereby become
encumbered in an amount in
<PAGE>
65
excess of two-thirds of the lesser of the cost and fair value thereof (as
determined in good faith by the board of directors of Funding);
(b) any Subsidiary of Funding from creating a Lien upon all or any part
of its property in favor of Funding or a wholly-owned Subsidiary of
Funding to secure indebtedness owed by such Subsidiary to Funding or a
wholly-owned Subsidiary;
(c) Liens existing on all or any part of the assets of a Subsidiary of
Funding at the time it shall become such a Subsidiary;
(d) Funding or any of its Subsidiaries from extending, renewing or
refunding any Lien permitted by the foregoing provisions of this Section
6.05 upon the same property theretofore subject thereto in connection with
the extension, renewal or refunding of the indebtedness secured thereby;
(e) Liens arising under workmen's compensation laws, unemployment
insurance laws and old age pensions or other social security benefits or
other similar laws;
(f) Liens securing the performance of bids, tenders, leases, contracts,
statutory obligations, surety and appeal bonds, and other obligations of
like nature, incurred in the ordinary course of business;
(g) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(h) Liens for taxes to the extent nonpayment thereof shall be permitted
by Section 5.03 hereof;
(i) Liens incidental to the normal conduct of the business of Funding
and its Subsidiaries or the ownership of their property and not securing
Funded Indebtedness (including zoning restrictions, easements, licenses,
reservations, restrictions on the use of real property or minor
irregularities
<PAGE>
66
incident thereto and with respect to leasehold interests, Liens that are
incurred, created, assumed or permitted to exist and arise by, through or
under or are asserted by a landlord or owner of the leased property, with
or without consent of the lessee) which do not in the aggregate materially
impair the value or use of the property used in the business of Funding
and its Subsidiaries taken as a whole, or the use of such property for the
purpose for which such property is held;
(j) Liens arising from capitalized lease obligations, such Liens not to
extend to any other property of Funding;
(k) Liens in respect of litigation or other similar proceedings in an
amount not to exceed $500,000,000 on an aggregate basis (i) the validity
of which is being currently contested on a timely basis in good faith by
appropriate proceedings (provided that the enforcement of any Liens
arising out of such proceedings shall be stayed during such proceedings)
and (ii) for which adequate reserves shall have been established;
(l) Liens in respect of leases or subleases granted to other persons in
the ordinary course of business and not materially interfering with the
conduct of business of Funding and its Subsidiaries;
(m) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by Funding or
any of its Subsidiaries in the ordinary course of business in accordance
with the past practices of Funding and its Subsidiaries; or
(n) Liens in favor of customs and revenue authorities arising as a
matter of law securing payment of customs duties in connection with the
importation of goods.
SECTION 6.06. Conduct of Funding's Business. (a) Funding will not,
------------------------------
and will not permit any Subsidiary of Funding to, engage in any business other
than dealing in Receivables and Penney Supplier Receivables, making Investments
as permitted by paragraph (c) below, financing the acquisition of Receivables
and Penney Supplier Receivables and making of such Investments, and any
activities incidental
<PAGE>
67
or related to the foregoing. Receivables at any time acquired by Funding and
its Subsidiaries from JCPenney and its Subsidiaries, together with Receivables
previously acquired from JCPenney and its Subsidiaries and then owned by Funding
and its Subsidiaries, shall be reasonably representative of the then outstanding
Receivables which have arisen in the business of JCPenney and those Subsidiaries
of JCPenney from which such Receivables have been or are being acquired;
provided, however, that Receivables at any time acquired and owned by Funding
- -------- -------
and its Subsidiaries may exclude any type or types of Receivables which are sold
or assigned by JCPenney and its Subsidiaries to one or more third parties if in
the opinion of Funding's board of directors such type or types of Receivables
may be serviced more efficiently or economically by any such third party than by
JCPenney, Funding or any such Subsidiary.
(b) Funding will not, and will not permit any of its subsidiaries to,
make any loan or advance to JCPenney or any Subsidiary of JCPenney (other than
Funding or a Subsidiary of Funding) except on a basis which in the opinion of
Funding's board of directors reasonably reflects sound credit practices at the
time of such loan or advance.
(c) Funding will not, and will not permit any of its subsidiaries to,
make any Investments, directly or indirectly, other than
(i) Investments in Receivables;
(ii) loans and advances to JCPenney and its Subsidiaries;
(iii) Investments in wholly-owned Subsidiaries of Funding or
Investments by any Subsidiary of Funding in Funding;
(iv) Investments in Penney Supplier Receivables; and,
(v) Investments in any direct and indirect obligations of the United
States of America or any agency thereof having a maturity not in excess of
ten years from the date of purchase; obligations having a maturity not in
excess of ten years from the date of purchase of any county, municipality
or state of the United States of America and having any of the three
highest ratings assigned by any nationally recognized organization
regularly engaged in rating the
<PAGE>
68
investment quality of such obligations; open market commercial paper;
bankers' acceptances; certificates of deposit; and other obligations
which, in the opinion of Funding's board of directors, are similar in
risk, quality and maturity to any of the foregoing.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) (i) any representation or warranty made or deemed made pursuant to
this Agreement shall prove to have been false or misleading in any
respect, or (ii) any material representation, warranty, statement or
information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to this
Agreement shall prove to have been false or misleading in any respect; and
---
only if, in both subsection (i) and subsection (ii), such falsehood or
misleading matter would result in a Material Adverse Effect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise, and such default shall continue unremedied for one
Business Day;
(c) default shall be made in the payment of any interest on any Loan or
any Fee or any other amount (other than an amount referred to in (b)
above) due under this Agreement, when and as the same shall become due and
payable, and such default shall continue unremedied for a period of five
Business Days;
(d) default shall be made in the due observance or performance by the
Borrowers of any covenant, condition or agreement contained in Section
5.01(a), 5.05 or 5.10 or in Article VI and such default shall continue
unremedied for a period of five Business Days;
<PAGE>
69
(e) default shall be made in the due observance or performance by any
Borrower or Restricted Subsidiary of any covenant, condition or agreement
contained in this Agreement (other than those specified in (b), (c) or (d)
above) and such default shall continue unremedied for a period of 30 days
after notice thereof from the Agent or any Lender to such Borrower or, if
such default is able to be cured and such Borrower is using its best
efforts to cure such default, such longer period as is reasonably required
to cure such default;
(f) any Borrower or Restricted Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
indebtedness for borrowed money in a principal amount in excess of
$50,000,000, when and as the same shall become due and payable (after the
expiration of any applicable grace period), and (unless such indebtedness
is already due and payable at the time of such default) such default
results in an acceleration of such indebtedness and in either case is not
cured within five Business Days thereafter or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in any
agreement or instrument evidencing or governing any such indebtedness if
any failure referred to in this clause (ii) results in an acceleration of
such indebtedness that is not annulled or rescinded within 15 days after
the date of such acceleration;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of any Borrower or Material Subsidiary, or of a
substantial part of the property or assets of any Borrower or Material
Subsidiary, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for any Borrower or Material Subsidiary or for a substantial part
of the property or assets of any Borrower or Material Subsidiary or (iii)
the winding-up or liquidation of any Borrower or Material Subsidiary; and
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
<PAGE>
70
(h) any Borrower or Material Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Borrower or Material Subsidiary or for a substantial part of the property
or assets of any Borrower or Material Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) admit in writing its inability or fail generally to pay
its debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $100,000,000 shall be rendered against any Borrower,
any Restricted Subsidiary or any combination of Borrowers and Restricted
Subsidiaries and the same shall remain undischarged for a period of 30
consecutive Business Days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to
levy upon assets or properties of any Borrower or Restricted Subsidiary to
enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to make a
required installment or other payment (within the meaning of Section
412(n)(l) of the Code), shall have occurred with respect to any Plan or
Plans that reasonably could be expected to result in liability of the
Borrowers to the PBGC or to any Plan or Plans in an aggregate amount
exceeding $200,000,000 and, within 30 days after the reporting of any such
Reportable Event to the Agent or after the receipt by the Agent of the
statement required pursuant to Section 5.06, the Agent shall have notified
the Borrowers in writing that (i) the
<PAGE>
71
Required Lenders have made a determination that, on the basis of such
Reportable Event or Reportable Events or the failure to make a required
payment, there are reasonable grounds (A) for the termination of such Plan
or Plans by the PBGC, (B) for the appointment by the appropriate United
States District Court of a trustee to administer such Plan or Plans or (C)
for the imposition of a lien in favor of a Plan and (ii) as a result
thereof an Event of Default exists hereunder; or a trustee shall be
appointed by a United States District Court to administer any such Plan or
Plans; or the PBGC shall institute proceedings to terminate any Plan or
Plans;
(k) Funding (or any permitted successor thereto under Section 6.04(b))
shall cease to be a direct or indirect wholly-owned subsidiary of JCPenney
(unless Funding or such permitted successor shall be merged into
JCPenney); or
(l) an Event of Default shall occur under the Tranche A Credit
Agreement.
then, and in every such event (other than an event described in paragraph (g)
or (h) above), and at any time thereafter during the continuance of such event,
the Agent, at the request of the Required Lenders, shall, by notice to the
Borrowers, take either or both of the following actions, at the same or
different times: (x) terminate forthwith the Commitments and (y) declare the
Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrowers accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers, anything contained
herein to the contrary notwithstanding; and in any event described in paragraph
(g) or (h) above, the Commitments shall automatically and immediately terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrowers
accrued hereunder, shall automatically and immediately become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrowers, anything contained herein to
the contrary notwithstanding.
<PAGE>
72
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this Agreement,
each Lender hereby appoints the Agent to act as its agent hereunder. Each of
the Lenders hereby irrevocably authorizes the Agent to take such actions on
behalf of such Lender and to exercise such powers as are specifically delegated
to the Agent by the terms and provisions hereof, together with such actions and
powers as are reasonably incidental thereto. The Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a) to
receive on behalf of the Lenders all payments of principal of and interest on
the Loans and all other amounts due to the Lenders hereunder, and promptly to
distribute to each Lender its proper share of each payment so received; (b) to
give notice on behalf of each of the Lenders to the Borrowers of any Event of
Default specified in this Agreement of which the Agent has actual knowledge
acquired in connection with its agency hereunder; and (c) to distribute to each
Lender copies of all notices, financial statements and other materials delivered
by the Borrowers pursuant to this Agreement as received by the Agent.
The Agent and its directors, officers, employees and agents shall not
be liable as such for any action taken or omitted by any of them, or be
responsible for any statement, warranty or representation herein or the contents
of any document delivered in connection herewith, except in each case to the
extent of its or his own gross negligence or wilful misconduct in connection
therewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrowers of any of the terms, conditions,
covenants or agreements contained in this Agreement. The Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other instruments or
agreements; provided, however, that the Agent shall be responsible for its own
-------- -------
due execution of this Agreement and any other instrument or agreement relating
to this Agreement. The Agent shall in all cases be fully protected in acting,
or refraining from acting, in accordance with written instructions signed by the
Required Lenders (or, when expressly required hereby, all the Lenders) and,
except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the
<PAGE>
73
proper person or persons. The Agent and its directors, officers, employees and
agents shall not have any responsibility to any Borrower on account of the
failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or any Borrower of any of its
respective obligations hereunder or in connection herewith. The Agent may
execute any and all of its duties hereunder by or through agents of recognized
standing or employees and shall be entitled to rely upon the advice of legal
counsel of recognized standing selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or suffered in
good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrowers. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor; provided, however, that any such appointment shall
-------- -------
be subject to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). If no successor shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent; provided, however, that any such appointment shall be subject
-------- -------
to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). Upon the acceptance of any
appointment as Agent hereunder by a permitted successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations as Agent hereunder. After an Agent's resignation hereunder, the
provisions of this Article and
<PAGE>
74
Section 9.05 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent.
The Borrowers shall have the right to replace any Agent requesting
compensation under Section 2.19, but only in accordance with the provisions of
Section 2.20(b).
With respect to the Loans made by it hereunder, the Agent (and any
Lender appointed as a successor Agent) in its individual capacity and not as
Agent shall have the same rights and powers as any other Lender and may exercise
the same as though it were not the Agent (or such successor Agent) and the Agent
and its Affiliates (and any such successor Agent and its Affiliates) may accept
deposits from, lend money to and generally engage in any kind of business with
any Borrower or Subsidiary or any Affiliate of any Borrower as if the Agent (or
such successor Agent) were not an Agent.
Each Lender agrees (i) to reimburse the Agent, on demand, in the amount
of its pro rata share (based on its Commitment hereunder) of any expenses (other
than expenses in connection with the negotiation, preparation and closing of
this Agreement) incurred for the benefit of the Lenders by the Agent, including
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, which shall not have been reimbursed by the Borrowers
and (ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees or agents, on demand, in the amount of such pro rata share,
from and against any and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against it in its capacity as an Agent or any of them in any way relating to or
arising out of this Agreement or any action taken or omitted by it or any of
them under this Agreement, to the extent the same shall not have been reimbursed
by the Borrowers; provided that no Lender shall be liable to the Agent for any
--------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or wilful misconduct of the Agent or any of its directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it has deemed
<PAGE>
75
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any related agreement or any document furnished hereunder or
thereunder.
No Co-Agent shall have any duties or responsibilities hereunder in its
capacity as such.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telex, graphic scanning or other telegraphic
communications equipment, as follows:
(a) if to J.C. Penney, to it at J.C. Penney Company, Inc., 6501 Legacy
Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of Treasurer
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the same
address;
(b) if to Funding, to it at J.C. Penney Funding Corporation, 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of President
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the same
address.
(c) if to the Agent, to it at Morgan Guaranty Trust Company of New
York, 60 Wall Street, 22nd Floor, New York, NY 10260, Attention of Ms.
Laura Reim
Telephone: (212) 648-6793
Telecopy: (212) 648-5336
(d) if to a Lender, to it at its address (or telecopy number) set forth
in Schedule 2.01.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if
<PAGE>
76
delivered by hand or overnight courier service or sent by telex, telecopy or
other telegraphic communications equipment, or on the date five Business Days
after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in this
Section 9.01 or in accordance with the latest unrevoked direction from such
party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans, regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by each of the Borrowers and the Agent and when
the Agent shall have received copies hereof which, when taken together, bear the
signatures of each Lender, and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Lender and their respective
successors and permitted assigns in accordance with its terms, except that no
Borrower shall have any right to assign or delegate any of its respective rights
or duties hereunder or any interest herein without the prior consent of all the
Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of any Borrower, the Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and permitted assigns.
(b) Each Lender may assign to an Eligible Assignee, at the expense of
the assignor and/or the assignee, all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it); provided, however, that (i) except in
-------- -------
the case of an assignment by a
<PAGE>
77
Lender to an Affiliate of such Lender which is a bank or bank holding company,
the Borrowers and the Agent must give their prior written consent to such
assignment (which consent in each case shall not be unreasonably withheld), (ii)
the amount of the Commitment of the assigning Lender subject to such assignment
(determined as of the date of such assignment) shall not be less than
$20,000,000 (or the remaining amount of the Commitment of such Lender), (iii)
other than the case of an assignment by a Lender of the remaining amount of the
Commitment of such Lender, no Lender shall make more than two assignments under
this Section 9.04(b) after the Closing Date and prior to the Maturity Date, (iv)
the parties to each such assignment shall execute and deliver to the Agent an
instrument evidencing such assignment (the "Assignment Instrument") and a
processing and recordation fee of $2,500 (which fee shall not in any event be an
obligation of the Borrowers) and (v) as of the date of such assignment, except
with the prior written consent of JCPenney, (x) the assignee shall not have any
right, and shall have no knowledge that such assignment would result in its
having the right, to request compensation pursuant to Section 2.13 or 2.19 after
giving effect to such assignment in excess of any compensation to which the
assigning Lender would have been entitled under such Sections and (y) the
parties to such assignment shall have no knowledge that such assignment (A)
would cause it to be unlawful for any party thereto to make or maintain any
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan or (B) would cause any Borrower to incur any
liability under Section 2.15. Upon acceptance and recording pursuant to
paragraph (e) of this Section 9.04, from and after the effective date specified
in each Assignment Instrument, which effective date shall be at least five days
after the execution thereof, (A) the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment Instrument, shall
have the rights and obligations of, and shall for all purposes be, a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment Instrument, be released from
its obligations under this Agreement (and, in the case of an Assignment
Instrument covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto (but, subject to Section 2.20, shall continue to be entitled to the
benefits of Sections 2.13, 2.15, 2.19 and 9.05, as well as to any Fees accrued
for its account hereunder and not yet paid)). Notwithstanding the foregoing,
any Lender assigning any
<PAGE>
78
portion of its rights and obligations under this Agreement may retain any
Competitive Loans made by it outstanding at such time, and in such case shall
retain its rights hereunder in respect of any Loans so retained until such Loans
have been repaid in full in accordance with this Agreement. No assignment may
be made by any Lender except in accordance with the provisions of this Section
9.04(b).
(c) By executing and delivering an Assignment Instrument, the assignee
thereunder shall be deemed to confirm to and agree with the other parties hereto
as follows: (i) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment Instrument; (ii) such assignee will independently and
without reliance upon the Agent, the assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (iii) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (iv) such assignee agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Agent shall retain a copy of each Assignment Instrument
delivered to it and a register for the recordation of the name and address of,
and the Commitment of, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive in the absence of manifest error and
the Borrowers, the Agent and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by any Borrower or any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Each Lender may without the consent of the Borrowers or the Agent
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided,
--------
<PAGE>
79
however, that (i) such Lender's obligations under this Agreement shall remain
- -------
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participating banks or
other entities shall not be entitled to the benefit of the provisions contained
in Sections 2.13, 2.15, 2.19 and 9.05 and (iv) the Borrowers, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Borrowers relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than any amendments,
modifications or waivers decreasing any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loans, or extending
any scheduled principal payment date or date fixed for the payment of interest
on the Loans, that would affect the Lender in question and its participants).
(f) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to any Borrower furnished to such Lender by
or on behalf of such Borrower; provided that, prior to any such disclosure of
--------
information designated by such Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree to preserve the confidentiality
of such confidential information in accordance with Section 9.15.
(g) Any Lender may at any time, without the consent of any other party
hereto, assign all or any portion of its rights under this Agreement and any
notes issued to it to a Federal Reserve Bank provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at
the request of the assigning Lender, promptly execute and deliver to the
assigning Lender a note with terms in accordance with this Agreement, in a form
reasonably acceptable to the Agent and the Borrower, evidencing the Loans made
to the Borrower by the assigning Lender hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree, jointly
--------------------
and severally, to pay all reasonable out-of-pocket expenses incurred by the
Agent in connection
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80
with the negotiation, preparation and closing of this Agreement, including the
reasonable fees and disbursements of Davis Polk & Wardwell, special counsel for
the Agent, and, only with the written consent of the Borrowers prior to any
incurrence, all reasonable out-of-pocket expenses incurred by the Agent in
connection with any amendment, modification or waiver of this Agreement. The
Borrowers agree, jointly and severally, to pay all reasonable out-of-pocket
costs and expenses of the Agent and Lenders, as well as the allocated costs of
in-house counsel, in connection with the collection or enforcement of this
Agreement.
(b) The Borrowers agree, jointly and severally, to indemnify the
Agent, J.P. Morgan Securities Inc., each Lender and each of their respective
directors, officers and employees (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees and expenses, incurred by or asserted against any Indemnitee
arising as a result of (i) any breach by any Borrower of any of its obligations
under this Agreement or any agreement or instrument contemplated hereby, (ii)
the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, if any Indemnitee
is at any time a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (x) arise in connection with any judgment
rendered by a court of competent jurisdiction in favor of any Borrower and
against such Indemnitee, (y) result from the gross negligence or wilful
misconduct of such Indemnitee (or, if such Indemnitee is a Lender or the Agent,
any of its directors, officers or employees) or (z) result from any disputes
among the Lenders and the Agent, or any of them, other than disputes resulting
from the fault of a Borrower.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement, or any investigation made by or on behalf of the
Agent or the Lender. All amounts due under this Section 9.05 shall be payable
on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing and any three
<PAGE>
81
Lenders representing at least $50,000,000 in aggregate amount of the Commitments
have requested the Agent, in writing, in accordance with the provisions of
Article VII, to declare the Loan to be forthwith due and payable, each Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Lender to or for the credit or the account of any
Borrower against any of and all the obligations of such Borrower now or
hereafter existing under this Agreement held by such Lender (other than
obligations purchased after such Event of Default shall have become known to
such Lender), irrespective of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have. Any
Lender exercising its rights under this Section shall give notice thereof to
JCPenney concurrently with or prior to the exercise of such rights.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
---------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Agent or Lender in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent, the Lenders and the
Borrowers hereunder are cumulative and are not exclusive of any rights or
remedies which they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on any Borrower in any
case shall entitle such Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
-------- -------
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82
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender affected thereby, (ii) change the Commitment or decrease
the Facility Fees of any Lender without the prior written consent of such
Lender, or (iii) amend or modify the provisions of Section 2.16 or Section 9.03,
the provisions of this Section or the definition of the "Required Lenders",
without the prior written consent of each Lender; provided further that no such
-------- -------
agreement shall amend, modify or otherwise affect the rights or duties of the
Agent hereunder without the prior written consent of the Agent. Each Lender
shall be bound by any waiver, amendment or modification authorized by this
Section, and any consent by any Lender pursuant to this Section shall bind any
subsequent assignee of such Lender.
SECTION 9.09. Interest and Charges. Notwithstanding any other
---------------------
provision in this Agreement, no Lender shall ever be entitled to receive,
collect or apply, as interest on any amount owing to such Lender under this
Agreement or in connection herewith, any amount in excess of the Maximum Amount.
If any Lender ever receives, collects or applies, as interest, any such excess,
such excess shall be deemed a partial repayment of principal and treated
hereunder as such; and if principal is paid in full, any remaining excess shall
be paid to the appropriate Borrower. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount, the
Borrowers and the Lenders shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of this
Agreement so that the interest rate is uniform throughout the entire period that
any amount is outstanding under or in connection with this Agreement; provided,
--------
however, that if any obligation owing to a Lender hereunder or in connection
- -------
herewith is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received by such Lender on such obligation for
its actual term exceeds the Maximum Amount with respect thereto, such Lender
shall refund to the appropriate Borrower the amount of such excess or credit the
amount of such excess against the total principal amount of all amounts owing to
such Lender
<PAGE>
83
hereunder or in connection herewith, and, in such event, such Lender shall not
be subject to any penalties provided by any laws for contracting for, charging
or receiving interest in excess of the Maximum Amount.
SECTION 9.10. Entire Agreement. This written Agreement together with
-----------------
the letter agreement with respect to payment of fees dated November 7, 1996
represent the final agreement among the parties with respect to the subject
matter hereof and may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties. There are no unwritten oral
agreements among the parties with respect to the subject matter hereof.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) Each
----------------------------------- --------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
<PAGE>
84
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to the foregoing and to paragraph (b) below, nothing in this Agreement
shall affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party hereto
in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.15. Confidentiality. Notwithstanding anything contained in
----------------
this Agreement to the contrary, the Lenders and the Agent shall hold in
confidence all agreements, statements, reports and information that are not in
the public domain concerning the Borrowers and their Subsidiaries that the Agent
or any Lender receives pursuant to or in connection with this Agreement. The
Agent and each of the Lenders shall not distribute any such confidential
information to other persons except (a) to its counsel, its Affiliates, its
examiners, regulatory authorities and prospective assignees of, or participants
in, its interest herein and their respective counsel (each of which shall be
instructed to hold the same in confidence, and in the case of any prospective
assignee or prospective participant, shall execute an agreement to such effect
pursuant to Section 9.04(f) as a condition to receiving a copy of this Agreement
and becoming an assignee or participant hereunder), (b) pursuant to legal
process, (c) in connection with litigation against or by the Lenders and/or the
Agent arising in connection with this Agreement or (d) with the prior written
consent of the Borrowers. The Agent and each of the Lenders shall give prior or
contemporaneous notice to the Borrowers of any disclosure by it of confidential
information pursuant to clause (b) or (c) above.
<PAGE>
85
SECTION 9.16. Liability of Borrowers. Except as expressly provided in
-----------------------
this Agreement, the obligations of each Borrower hereunder shall be several
obligations with respect to Loans made to it.
SECTION 9.17. No Collateral. Each of the Lenders represents to the
-------------
Agent and each of the other Lenders that it in good faith is not relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
IN WITNESS WHEREOF, the Borrowers, the Agent, the Co-Agents and the
Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
J.C. PENNEY COMPANY, INC.
By /s/ Robert B. Cavanaugh
------------------------
Title: Vice President & Treasurer
J.C. PENNEY FUNDING CORPORATION
By /s/ Frank N. Napoli
------------------------
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Lender and as Agent
By /s/ Laura E. Reim
------------------------
Title: Vice President
<PAGE>
86
CREDIT SUISSE
By /s/ James P. Moran
------------------------
Title: Member & Senior Management
By /s/ Thomas G. Muoio
------------------------
Title: Associate
BANK OF AMERICA ILLINOIS
By /s/ Claire Liu
------------------------
Title: Vice President
BANKERS TRUST COMPANY
By /s/ Anthony LoGrippo
------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Neil R. Boylan
------------------------
Title: Vice President
CITIBANK, N.A.
By /s/ Jolie Eisner
------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Bianca Hemmen
------------------------
Title: Senior Vice President
<PAGE>
87
THE BANK OF NEW YORK
By /s/ Charlotte Sohn
------------------------
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ J. Mearns
------------------------
Title: Vice President & Manager
THE CANADIAN IMPERIAL BANK OF
COMMERCE
By /s/ Robin W. Elliott
------------------------
Title: Authorized Signatory
By /s/ Aleksandra K. Dymanus
------------------------
Title: Authorized Signatory
CORESTATES BANK, N.A.
By /s/ Rodger Levenson
------------------------
Title: Vice President
FLEET BANK
By /s/ Thomas J. Bullard
------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ David J. Egan
------------------------
Title: Senior Vice President
<PAGE>
88
ROYAL BANK OF CANADA
By /s/ Karen T. Hull
------------------------
Title: Manager, Corporate Banking
UNION BANK OF SWITZERLAND
By /s/ Michael J. Ahearn
------------------------
Title: Managing Director
By /s/ Daniel R. Strickford
------------------------
Title: Assistant Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By /s/ David K. Alexander
------------------------
Title: Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Bethann R. Halligan
------------------------
Title: Division Executive
BANQUE NATIONALE DE PARIS
By /s/ David P. Camp
------------------------
Title: Banking Officer
DAI-ICHI KANGYO BANK, LTD.
By /s/ Masayoshi Komaki
------------------------
Title: Assistant Vice President
<PAGE>
89
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Catherine A. Muszynski
---------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ Jane W. Workman
------------------------
Title: Senior Vice President
THE FUJI BANK, LTD.
By /s/ David Kelley
------------------------
Title: Senior Vice President
MELLON BANK, N.A.
By /s/ Marc T. Kennedy
------------------------
Title: Assistant Vice President
NATIONAL AUSTRALIA BANK, LIMITED
A.C.N. 004044937
By /s/ Harvey R. Horowitz
------------------------
Title: Vice President
THE SAKURA BANK, LIMITED
NEW YORK BRANCH
By /s/ Yasumasa Kikuchi
------------------------
Title: Senior Vice President
<PAGE>
90
SUNTRUST BANK
By /s/ Harold Bitler
------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Ken Taylor
------------------------
Title: Assistant Vice-President
BANK OF HAWAII
By /s/ Joseph T. Donalson
------------------------
Title: Vice President
BANK ONE TEXAS, N.A.
By /s/ Scott Rhea
------------------------
Title: Assistant Vice President
BARCLAYS BANK PLC
By /s/ Gary Albanese
------------------------
Title: Associate Director
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Martha Skidmore
------------------------
Title: Vice President
By /s/ Eric Longuet
------------------------
Title: Vice President
<PAGE>
91
CREDIT AGRICOLE
By /s/ W. Leroy Startz
------------------------
Title: First Vice President
THE HONGKONG SHANGHAI BANKING
CORPORATION LIMITED
By /s/ Chris Lewis
------------------------
Title: Vice President
By /s/ J.L. Peanick
------------------------
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By /s/ Akijiro Yoshino
------------------------
Title: Executive Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, HOUSTON OFFICE
(Authorized Representative)
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., NEW YORK BRANCH
By /s/ Satoru Otsubo
------------------------
Title: Joint General Manager
THE NORTHERN TRUST COMPANY
By /s/ James F.T. Monhart
------------------------
Title: Vice President
<PAGE>
92
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Scott D. Bjelde
------------------------
Title: Vice President
INSTITUTO BANCARIO SAN PAOLO
DI TORINO SPA-NEW YORK
By /s/ Robert Wurster
------------------------
Title: First Vice President
By /s/ William J. DeAngelo
------------------------
Title: First Vice President
THE SANWA BANK LTD.
By /s/ Robert S. Smith
------------------------
Title: Vice President
THE SUMITOMO BANK, LTD.
By /s/ Harumitsu Seki
------------------------
Title: General Manager
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Chris J. Karlin
------------------------
Title: Vice President
YASUDA TRUST AND BANKING CO., LTD.
By /s/ Makoto Tagawa
------------------------
Title: Deputy General Manager
<PAGE>
93
UNITED MISSOURI BANK, N.A.
By /s/ James A. Sangster
------------------------
Title: Divisional Executive Vice
President
FIRSTAR BANK MILWAUKEE, N.A.
By /s/ James Spredemann
------------------------
Title: Vice President
FIRST SECURITY BANK
OF UTAH, N.A.
By /s/ Judy C. Callister
------------------------
Title: Vice President
HIBERNIA NATIONAL BANK
By /s/ Edward K. Santos
------------------------
Title: Vice President
<PAGE>
94
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Attention: [ ] [Date]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the Revolving Credit
Agreement dated as of December 16, 1993 as amended and restated as of December
7, 1994, as amended as of December 6, 1995, as amended and restated as of
December 3, 1996 and as further amended, modified, extended or restated from
time to time (the "Credit Agreement"), among J.C. Penney Company, Inc.
("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders and
Morgan Guaranty Trust Company of New York, as Agent and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A.,
Credit Suisse and NationsBank of Texas, N.A., as Co-Agents. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower hereby gives you notice pursuant to Section
2.03(a) of the Credit Agreement that it requests a Competitive Borrowing under
the Credit Agreement, and in that connection set forth below the terms on which
such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
-------------------
(B) Principal Amount of Competitive
Borrowing/1/
-------------------
(C) Interest rate basis/2/
-------------------
- --------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or,
if less, an aggregate principal amount equal to the Total Commitment on the date
of such Borrowing minus the outstanding aggregate principal amount on such date
of all Competitive Loans.
/2/ Eurodollar Loan, Fixed Rate Loan or CD Loan.
<PAGE>
95
(D) Interest Period and the last
day thereof/3/
-------------------
Upon acceptance of any or all of the Loans offered by the Lenders in response
to this request, the Borrower shall be deemed to have represented and warranted,
except as otherwise provided in Section 4.01, that the conditions to lending
specified in Section 4.01(b) and (c) of the Credit Agreement have been
satisfied.
Very truly yours,
By
------------------------------------
Title:[Responsible Officer]/4/
- --------------------
/3/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date.
/4/ Chairman, vice chairman, president, chief financial officer, treasurer
or controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
1
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
[Date]
Attention: [ ]
Dear Sirs:
Reference is made to the Revolving Credit Agreement dated as of December
16, 1993, as amended and restated as of December 7, 1994, as amended as of
December 6, 1995, as amended and restated as of December 3, 1996 and as further
amended, modified, extended or restated from time to time (the "Credit
Agreement"), among J.C. Penney Company, Inc. ("JCPenney"), J.C. Penney Funding
Corporation ("Funding"), the Lenders and Morgan Guaranty Trust Company of New
York, as Agent and Bank of America Illinois, Bankers Trust Company, The Chase
Manhattan Bank, Citibank, N.A., Credit Suisse and NationsBank of Texas, N.A., as
Co-Agents. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Credit Agreement. [ ]/1/ made a
Competitive Bid Request on [ ], 19[ ], pursuant to Section 2.03(a) of the
Credit Agreement, and in that connection you are invited to submit a Competitive
Bid by [time], on [date]./2/ Your Competitive Bid must comply with Section
2.03(b) of the Credit Agreement and the terms set forth below on which the
Competitive Bid Request was made:
(A) Date of Competitive Borrowing
-------------------
(B) Principal Amount of Competitive
Borrowing
-------------------
- --------------------
/1/ JCPenney or Funding.
/2/ The Competitive Bid must be received by the Agent: (i) in the case of
Eurodollar Loans or CD Loans, not later than 9:00 a.m., New York City time,
three Business Days before the proposed Competitive Borrowing, and (ii) in the
case of Fixed Rate Loans, not later than 9:00 a.m., New York City time, on the
day of a proposed Competitive Borrowing.
<PAGE>
2
(C) Interest rate basis
-------------------
(D) Interest Period and the last
day thereof
-------------------
Very truly yours,
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
By
------------------------------------
Title:
<PAGE>
1
EXHIBIT A-3
FORM OF COMPETITIVE BID
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [name of Lender], refers to the Revolving Credit Agreement
dated as of December 16, 1993, as amended and restated as of December 7, 1994,
as amended as of December 6, 1995, as amended and restated as of December 3,
1996 and as further amended, modified, extended or restated from time to time
(the "Credit Agreement"), among J.C. Penney Company, Inc. ("JCPenney"), J.C.
Penney Funding Corporation ("Funding"), the Lenders and Morgan Guaranty Trust
Company of New York, as Agent and Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A., Credit Suisse and NationsBank
of Texas, N.A., as Co-Agents. Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Credit Agreement. The
undersigned hereby makes a Competitive Bid pursuant to Section 2.03(b) of the
Credit Agreement, in response to the Competitive Bid Request made by [ ]/1/
on [ ], 19[ ], and in that connection sets forth below the terms on which
such Competitive Bid is made:
(A) Principal Amount/2/
-------------------
(B) Competitive Bid Rate[s]/3/
-------------------
- --------------------
/1/ JCPenney or Funding.
/2/ An integral multiple of $5,000,000 (unless equal to the requested
Competitive Borrowing) and not greater than the requested Competitive Borrowing.
Multiple bids will be accepted by the Agent.
/3/ One or more rates; i.e., LIBO Rate + or - ___%, in the case of
----
Eurodollar Loans, Adjusted CD Rate + or - ___%, in the case of CD Loans, or
___% in the case of Fixed Rate Loans.
<PAGE>
2
(C) Interest Rate Period and last
day thereof
-------------------
The undersigned hereby confirms that it will, subject only to the
conditions set forth in the Credit Agreement, extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of the
Credit Agreement.
Very truly yours,
[NAME OF LENDER]
By
------------------------------------
Title:
<PAGE>
1
EXHIBIT A-4
FORM OF STANDBY BORROWING REQUEST
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the Revolving Credit
Agreement dated as of December 16, 1993, as amended and restated as of December
7, 1994, as amended as of December 6, 1995, as amended and restated as of
December 3, 1996 and as further amended, modified, extended, or restated from
time to time (the "Credit Agreement"), among J.C. Penney Company, Inc.
("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders and
Morgan Guaranty Trust Company of New York, as Agent and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A.,
Credit Suisse and NationsBank of Texas, N.A., as Co-Agents. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower hereby gives you notice pursuant to Section
2.04 of the Credit Agreement that it requests a Standby Borrowing under the
Credit Agreement, and in that connection sets forth below the terms on which
such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
-------------------
(B) Principal Amount of Standby
Borrowing/1/
-------------------
- --------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or,
if less, an aggregate principal amount equal to the remaining available balance
of the Total Commitment.
<PAGE>
2
(C) Interest rate basis/2/
-------------------
(D) Interest Period and the Last
day thereof/3/
-------------------
Upon acceptance of any or all of the Loans made by the Lenders in response
to this request, the Borrower shall be deemed to have represented and warranted,
except as otherwise provided in Section 4.01, that the conditions to lending
specified in Section 4.01(b) and (c) of the Credit Agreement have been
satisfied; provided, however, that in the case of a refinancing of a Standby
-------- -------
Borrowing with a new Standby Borrowing that does not increase the outstanding
aggregate principal amount of the Loans of any Lender, the Borrower shall not be
subject to the satisfaction of any of the Section 4.01 conditions.
Very truly yours,
By ------------------------------------
Title: [Responsible Officer]/4/
- --------------------
/2/ Eurodollar Loan or ABR Loan. Notice under Section 2.04 is necessary to
refinance a Standby Borrowing with a Eurodollar Borrowing. In the absence of
such a notice, unless the Borrowing is repaid at the end of the applicable
Interest Period, the Borrower shall be deemed to have given notice of an
election to refinance such Borrowing with an ABR Borrowing of 5 days' duration.
/3/ Which shall be subject to the definition of "Interest Period" and end
not later than the Maturity Date.
/4/ Chairman, vice chairman, president, chief financial officer, treasurer,
or controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
1
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE>
1
EXHIBIT C
GUARANTY
--------
This Guaranty Agreement is executed as
of this 3rd day of December, 1996, by J.C.
Penney Company, Inc., a Delaware corporation
("Guarantor"), in favor of J.C. Penney
Funding Corporation, a Delaware corporation
("Funding"), and the lenders ("") (as defined
below).
RECITALS:
--------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day and
Five-Year Revolving Credit Agreements (collectively, the "Agreements") dated as
of December 16, 1993, as amended and restated with new Lenders as of December 7,
1994, as amended as of December 6, 1995, as amended and restated as of December
3, 1996 and as further amended, modified, extended or restated from time to time
with the written consent of the Guarantor (the "Restated Agreements"), among
Guarantor, Funding, Morgan Guaranty Trust Company of New York, as agent for the
Lenders, Bank of America Illinois, Bankers Trust Company, The Chase Manhattan
Bank, Citibank, N.A., Credit Suisse and NationsBank of Texas, N.A. as co-agents
for the Lenders, and certain other financial institutions named in the Restated
Agreements (collectively, the "Lenders") in amounts not to exceed One Billion
Five Hundred Million Dollars ($1,500,000,000) and One Billion Five Hundred
Million Dollars ($1,500,000,000), respectively; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding under
the Restated Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises, Guarantor hereby agrees
as follows:
1. Subject to the terms and conditions of subordination set forth in this
Guaranty, Guarantor hereby unconditionally
<PAGE>
2
guarantees in favor of the Lenders, the prompt payment when due of all interest,
principal, and other amounts owing under the Restated Agreements (collectively,
the "Guaranteed Debt"). This is an unconditional guaranty of payment, and in
the event of default by Funding in the payment of interest, principal, or any
other amounts payable under the Guaranteed Debt, the Lenders may proceed
directly against Guarantor to enforce this Guaranty (including by the
institution of legal proceedings) without first proceeding against Funding.
2. Guarantor acknowledges that it has received and will receive a direct
or indirect benefit from the making of this Guaranty and the creation of the
Guaranteed Debt.
3. a. The Guaranteed Debt shall be subordinated and subject in right of
payment to the prior payment in full of any and all other indebtedness for
borrowed money incurred, created, assumed, or otherwise guaranteed by Guarantor
(collectively referred to as the Guarantor's "Senior Debt").
b. In the event of (1) any dissolution or winding-up or total or partial
liquidation or reorganization of Guarantor, whether voluntary or involuntary, or
any bankruptcy, insolvency, receivership, or similar proceeding relative to
Guarantor, or (2) any default in the payment of principal (including any
acceleration or required prepayments or amortization) of or interest on any
Senior Debt of Guarantor, then, subject to the provisions of subsection d.
below, the Lenders shall not be entitled to receive any payment under this
Guaranty on account of the Guaranteed Debt unless and until all Senior Debt
shall have been paid in full or otherwise discharged.
c. For purposes of determining the priority of payments between the Senior
Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or any part
thereof, is declared due and payable prior to its stated maturity, all principal
of and interest and any other amounts due on all Senior Debt outstanding at the
time of such declaration as to the Guaranteed Debt shall first have been paid in
full, before any payment is made by Guarantor upon the Guaranteed Debt.
d. In no event shall any Lender be required by this subordination to refund
any amounts paid to it pursuant to this Guaranty on account of the Guaranteed
Debt prior to the events specified in subsections b. and c. above, and prior to
such events the Lenders shall be entitled to be paid hereunder as agreed and to
collect any sums due such Lenders hereunder by any lawful means.
<PAGE>
3
e. The provisions of this Section are for the purpose of defining the
relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation of Guarantor, which is
unconditional and absolute, to guarantee the prompt payment when due of the
Guaranteed Debt in accordance with the terms and provisions thereof; nor shall
anything herein prevent the Lenders from exercising all remedies otherwise
permitted by applicable law upon default hereunder, subject to the rights, if
any, under this Section of any Senior Debt holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
J.C. PENNEY COMPANY, INC.,
a Delaware corporation, as
Guarantor,
By /s/
---------------------------------------------
Name: Robert B. Cavanaugh
Title: Vice President & Treasurer
<PAGE>
4
EXHIBIT D
---------
PRICING SCHEDULE
The "Facility Fee Percentage" and "Euro-Dollar Margin" for any day are
the respective percentages set forth below in the applicable row under the
column corresponding to the Category that exists on such day:
<TABLE>
<CAPTION>
================================================================================
Category I II III IV V VI
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Facility 0.0450% 0.050% 0.0550% 0.0650% 0.150% 0.250%
Fee
Percentage
- --------------------------------------------------------------------------------
Euro- 0.155% 0.1750% 0.1950% 0.2350% 0.400% 0.500%
Dollar
Margin
================================================================================
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the further provisions of this Schedule:
"Category I" exists at any date if, at such date, the Index Debt is rated
at least A+ by S&P or A1 by Moody's.
"Category II" exists at any date if, at such date, (i) the Index Debt is
rated at least A by S&P or A2 by Moody's and (ii) Category I does not exist.
"Category III" exists at any date if, at such date, (i) the Index Debt is
rated at least A- by S&P or A3 by Moody's and (ii) neither Category I nor
Category II exists.
"Category IV" exists at any date if, at such date, (i) the Index Debt is
rated at least BBB+ by S&P or Baa1 by Moody's and (ii) none of Category I,
Category II and Category III exists.
"Category V" exists at any date if, at such date, (i) the Index Debt is
rated at least BBB- by S&P or Baa3 by Moody's and (ii) none of Category I,
Category II, Category III and Category IV exists.
<PAGE>
2
"Category VI" exists at any date if, at such date, (i) the Index Debt is
rated below BBB- by S&P or below Baa3 by Moody's and (ii) no other Category
exists.
"Category" refers to the determination of which of Category I, Category
II, Category III, Category IV, Category V or Category VI exists at any date.
"Moody's" means Moody's Investors Services, Inc.
"S&P" means Standard & Poor's Ratings Services.
For purposes of the foregoing, (i) if no rating for the Index Debt shall
be available from either rating agency, (other than because (a) such rating
agency shall no longer be in the business of rating corporate debt obligations
or (b) of any other reason outside the control of JCPenney and Funding), such
rating agency shall be deemed to have established a rating in Category VI and
(ii) if any rating established or deemed to have been established by Moody's or
S&P shall be changed (other than as a result of a change in the rating system of
either Moody's or S&P), such change shall be effective as of the date on which
such change is first publicly announced by the rating agency making such change.
If the rating system of either Moody's or S&P shall change prior to the Maturity
Date, or if either such rating agency shall cease to be in the business of
rating corporate debt obligations or shall no longer have in effect a rating for
any reason outside the control of JCPenney and Funding, the Borrowers and the
Lenders shall negotiate in good faith to amend the references to specific
ratings in this definition to reflect such changed rating system or the absence
of such a rating. Pending agreement on any such amendment, (i) if the rating
system of one such rating agency shall remain unchanged, or if a rating shall be
available from one such rating agency, the Facility Fee Percentage and the Euro-
Dollar Margin shall be determined by reference to the rating established by such
rating agency, (ii) if no rating for the Index Debt shall be available from
either rating agency then (A) for 60 days, the Facility Fee Percentage and the
Euro-Dollar Margin shall be determined by reference to the rating or ratings
most recently available, (B) after 60 days, the Facility Fee Percentage and the
Euro-Dollar Margin shall be determined by reference to Category V (or Category
VI if such Percentage or Margin shall have been determined by reference to
Category V or VI under clause (A) above) and (C) after 180 days, the Facility
Fee Percentage and the Euro-Dollar Margin shall be determined by reference to
Category VI.
<PAGE>
3
In the case of split ratings from S&P and Moody's, the rating to be used
to determine Categories is the higher of the two (e.g., A+/A2 results in
---
Category I); provided that in the event the split is more than one full ratings
--------
"notch", the average rating (or the higher of the two intermediate ratings)
shall be used (e.g. A+/A3 results in Category II, as does A+/Baa1); and provided
--- --------
further that if at any date the Index Debt is rated BB+ or lower by S&P or Ba1
- -------
or lower by Moody's, the Facility Fee Percentage and the Euro-Dollar Margin
shall be determined by reference to Category VI; and provided further that the
----------------
Facility Fee Percentage and the Euro-Dollar Margin shall be determined by
reference to Category III from December 3, 1996 until such time thereafter as
the ratings by S&P and Moody's of the Index Debt are either affirmed or changed.
<PAGE>
4
SCHEDULE 2.01
LENDERS
-------
Name of Lender and Address for Notices /1/ Commitment
- ------------------ ------------------- -- ----------
Applicable Lending
- ------------------
Office /1/
- ------ ---
Morgan Guaranty Trust $87,500,000
Company of New York
Credit Suisse $75,000,000
Bank of America Illinois $62,500,000
Bankers Trust Company $62,500,000
The Chase Manhattan Bank $62,500,000
Citibank, N.A. $62,500,000
NationsBank of Texas, N.A. $62,500,000
The Bank of New York $50,000,000
Bank of Tokyo-Mitsubishi, LTD. $50,000,000
The Canadian Imperial $50,000,000
Bank of Commerce
Corestates Bank, N.A. $50,000,000
Fleet Bank $50,000,000
PNC Bank, National $50,000,000
Association
Royal Bank of Canada $50,000,000
Union Bank of Switzerland $50,000,000
Wachovia Bank of Georgia, N.A. $50,000,000
The First National Bank $28,750,000
of Boston
- --------------------
/1/ As per Agent's Administrative Questionnaires.
<PAGE>
5
Banque Nationale de Paris $28,750,000
Dai-Ichi Kangyo Bank, LTD. $28,750,000
TheFirst National Bank of Chicago $28,750,000
First Union National Bank $28,750,000
of North Carolina
The Fuji Bank, LTD. $28,750,000
Mellon Bank, N.A. $28,750,000
National Australia Bank, $28,750,000
Limited
The Sakura Bank, Limited $28,750,000
New York Branch
SunTrust Bank $28,750,000
Wells Fargo Bank, N.A. $28,750,000
Bank of Hawaii $15,000,000
Bank One Texas, N.A. $15,000,000
Barclays Bank PLC $15,000,000
Compagnie Financiere de CIC $15,000,000
et de L'Union Europeenne
Credit Agricole $15,000,000
The HongKong Shanghai Banking $15,000,000
Corporation, Limited
The Industrial Bank of Japan $15,000,000
Trust Company
The Long Term Credit Bank of $15,000,000
Japan, LTD., New York Branch
The Northern Trust Company $15,000,000
Norwest Bank Minnesota, $15,000,000
National Association
Instituto Bancario San Paolo $15,000,000
<PAGE>
6
Di Torino Spa-New York
The Sanwa Bank, LTD. $15,000,000
The Sumitomo Bank, LTD. $15,000,000
United States National $15,000,000
Bank of Oregon
Yasuda Trust and Banking $15,000,000
Company, LTD.
UMB Bank, n.a. $10,000,000
Firstar Bank Milwaukee, N.A. $8,750,000
First Security Bank of Utah, N.A. $7,500,000
Hibernia National Bank $7,500,000
<PAGE>
7
SCHEDULE 3.06
Material Adverse Change
-----------------------
None
<PAGE>
8
SCHEDULE 3.08
Restricted Subsidiaries
-----------------------
J. C. Penney Life Insurance Company
J. C. Penney Properties, Inc.
Thrift Drug, Inc.
<PAGE>
9
SCHEDULE 3.09
Material Litigation
-------------------
None
<PAGE>
EXHIBIT 4(e)
COMPOSITE CONFORMED COPY
================================================================================
J. C. PENNEY COMPANY, INC.
J. C. PENNEY FUNDING CORPORATION
____________________
$1,500,000,000
FIVE-YEAR REVOLVING CREDIT AGREEMENT
Dated as of December 16, 1993,
As Amended and Restated as of December 7, 1994,
As Amended as of December 6, 1995
And as Amended and Restated as of December 3, 1996
____________________
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent,
BANK OF AMERICA ILLINOIS, BANKERS TRUST COMPANY, THE CHASE MANHATTAN
BANK, CITIBANK, N.A., CREDIT SUISSE and
NATIONSBANK OF TEXAS, N.A.,
as Co-Agents
================================================================================
<PAGE>
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01 Defined Terms................................. 1
1.02 Terms Generally............................... 20
II. THE CREDITS
2.01 Commitments................................... 20
2.02 Loans......................................... 21
2.03 Competitive Bid Procedure..................... 23
2.04 Standby Borrowing Procedure................... 26
2.05 Refinancings.................................. 27
2.06 Fees.......................................... 28
2.07 Repayment of Loans; Evidence of the
Borrowers' Obligations....................... 28
2.08 Interest on Loans............................. 29
2.09 Default Interest.............................. 30
2.10 Alternate Rate of Interest.................... 30
2.11 Termination and Reduction
of Commitments............................... 31
2.12 Prepayment.................................... 32
2.13 Reserve Requirements;
Change in Circumstances....................... 32
2.14 Change in Legality............................ 34
2.15 Indemnity..................................... 35
2.16 Pro Rata Treatment............................ 36
2.17 Sharing of Setoffs............................ 37
2.18 Payments...................................... 38
2.19 Taxes......................................... 38
2.20 Mitigation; Duties of Lenders
and Agent.................................... 41
2.21 Optional Increase in Commitments.............. 44
III. REPRESENTATIONS AND WARRANTIES
3.01 Organization; Powers.......................... 45
3.02 Authorization................................. 45
3.03 Enforceability................................ 46
3.04 Governmental Approvals........................ 46
3.05 Financial Statements.......................... 46
3.06 No Material Adverse Change.................... 47
3.07 Title to Properties; Possession
Under Leases................................. 47
3.08 Restricted Subsidiaries....................... 47
<PAGE>
Contents, p. 3
Article Section Page
- ------- ------- ----
3.09 Litigation; Compliance with
Laws......................................... 47
3.10 Agreements.................................... 48
3.11 Federal Reserve Regulations................... 48
3.12 Investment Company Act;
Public Utility Holding Company
Act.......................................... 48
3.13 Use of Proceeds............................... 49
3.14 Tax Returns................................... 49
3.15 No Material Misstatements..................... 49
3.16 Employee Benefit Plans........................ 49
3.17 Support Agreements............................ 49
IV. CONDITIONS OF LENDING
4.01 All Borrowings................................ 50
4.02 First Borrowing [INTENTIONALLY
OMITTED]..................................... 50
V. AFFIRMATIVE COVENANTS
5.01 Existence; Businesses and
Properties.................................... 51
5.02 Insurance..................................... 51
5.03 Obligations and Taxes......................... 51
5.04 Financial Statements, Reports, etc............ 52
5.05 Litigation and Other Notices.................. 53
5.06 ERISA......................................... 54
5.07 Maintaining Records; Access to
Properties and Inspections................... 54
5.08 Use of Proceeds............................... 55
5.09 Pari-Passu.................................... 55
5.10 Support Agreements............................ 55
VI. NEGATIVE COVENANTS
6.01 Limitation on Liens--JCPenney................. 55
6.02 Limitations on Senior Funded
Indebtedness................................. 59
6.03 Limitations with Respect to
Restricted Subsidiaries...................... 59
6.04 Mergers, Consolidations, Sales of
Assets and Acquisitions...................... 61
6.05 Limitations on Liens--Funding................. 62
6.06 Conduct of Funding's Business................. 64
VII. EVENTS OF DEFAULT......................................... 66
VIII. THE AGENT................................................. 69
IX. MISCELLANEOUS............................................. 73
<PAGE>
Contents, p. 4
Article Section Page
- ------- ------- ----
9.01 Notices....................................... 73
9.02 Survival of Agreement......................... 73
9.03 Binding Effect................................ 74
9.04 Successors and Assigns........................ 74
9.05 Expenses; Indemnity........................... 77
9.06 Right of Setoff............................... 78
9.07 Applicable Law................................ 79
9.08 Waivers; Amendment............................ 79
9.09 Interest and Charges.......................... 80
9.10 Entire Agreement.............................. 80
9.11 Severability.................................. 80
9.12 Counterparts.................................. 81
9.13 Headings...................................... 81
9.14 Jurisdiction; Consent to Service
of Process................................... 81
9.15 Confidentiality............................... 82
9.16 Liability of Borrowers........................ 82
9.17 No Collateral................................. 82
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Standby Borrowing Request
Exhibit B Form of Opinion [INTENTIONALLY OMITTED]
Exhibit C Form of Guaranty
Exhibit D Pricing Schedule
Schedule 2.01 Commitments
Schedule 3.06 Material Adverse Change
Schedule 3.08 Restricted Subsidiaries
Schedule 3.09 Material Litigation
<PAGE>
FIVE-YEAR REVOLVING CREDIT AGREEMENT dated as of December 16,
1993, as amended and restated as of December 7, 1994, as amended
as of December 6, 1995 and as amended and restated as of December
3, 1996 (as so amended and restated and as the same may be further
amended, modified, extended or restated from time to time, the
"Agreement"), among J. C. PENNEY COMPANY, INC. a Delaware
corporation ("JCPenney"), J. C. PENNEY FUNDING CORPORATION, a
Delaware corporation ("Funding"), the lenders listed in Schedule
2.01 (as of any date, together with any permitted assigns
hereunder on such date, the "Lenders"), MORGAN GUARANTY TRUST
COMPANY OF NEW YORK ("Morgan"), as agent for the Lenders (in such
capacity, the "Agent") and BANK OF AMERICA ILLINOIS, BANKERS TRUST
COMPANY, THE CHASE MANHATTAN BANK, CITIBANK, N.A., CREDIT SUISSE
and NATIONSBANK OF TEXAS, N.A., as co-agents for the Lenders (in
such capacity, the "Co-Agents").
The Borrowers (as herein defined) have requested the Lenders to extend
credit to the Borrowers in order to enable them to borrow on a standby revolving
credit basis on and after the Closing Date (as herein defined) and at any time
and from time to time prior to the Maturity Date (as herein defined) an
aggregate principal amount not in excess of $1,500,000,000 at any time
outstanding. The Borrowers have also requested the Lenders to provide a
procedure pursuant to which the Borrowers may invite the Lenders to bid on an
uncommitted basis on borrowings by the Borrowers scheduled to mature on or prior
to the Maturity Date. The proceeds of such borrowings are to be used for
general corporate purposes, including, without limitation, working capital
requirements, liquidity and the repayment of maturing commercial paper and other
indebtedness of the Borrowers. The Lenders will extend such credit to the
Borrowers on the terms and subject to the conditions herein set forth.
Accordingly, the Borrowers, the Lenders, the Agent and the Co-Agents
agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
--------------
terms shall have the meanings specified below:
<PAGE>
6
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing
----------------
requested by any Borrower pursuant to Section 2.03(a) for any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of
1%) equal to the sum of (a) a rate per annum equal to the product of (i) the
Fixed CD Rate in effect for such Interest Period and (ii) Statutory Reserves,
plus (b) the Assessment Rate. For purposes hereof, the term "Fixed CD Rate"
shall mean the arithmetic average (rounded upwards, if necessary, to the next
1/100 of 1%) of the prevailing rates per annum bid at or about 10:00 a.m., New
York City time, to the Agent on the first Business Day of the Interest Period
applicable to such CD Borrowing by three New York City negotiable certificate of
deposit dealers of recognized standing selected by the Agent for the purchase at
face value of negotiable certificates of deposit of major United States money
center banks in a principal amount approximately equal to the product of (x) the
aggregate principal amount of such CD Borrowing as specified in the related
Competitive Bid Request and (y) the percentage which the Agent's Commitment
represents of the Total Commitment and with a maturity comparable to such
Interest Period.
"Additional Costs" shall mean, with respect to any Lender, any
----------------
increased costs or reduction in amounts received or receivable or reduction in
return on capital incurred or suffered by such Lender and in respect of which
such Lender is entitled to request compensation in accordance with Section 2.13.
"Administrative Fees" shall have the meaning assigned to such term in
-------------------
Section 2.06(b).
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 0.50%. For purposes hereof, "Federal Funds
<PAGE>
7
Effective Rate" shall mean, for any day, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the rates quoted
to the Agent on such day for such transactions by three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Alternate Base Rate shall be determined
without regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate shall be effective on the
date such change is announced publicly.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the office or branch of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan opposite such Lender's name on Schedule
2.01 or such other office or branch of such Lender (or of an Affiliate of such
Lender) as such Lender may from time to time, in accordance with the terms of
this Agreement, specify to the Agent and the Borrowers as the office or branch
by which its Loans of such Type are to be made and maintained.
"Assessment Rate" shall mean for any date the then current net annual
---------------
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
actually employed by the Agent in determining amounts payable by the Agent to
the Federal Deposit Insurance Corporation (or any successor) for insurance by
such Corporation (or such successor) of time deposits made in dollars at the
Agent's domestic offices.
"Board" shall mean the Board of Governors of the Federal Reserve System
-----
of the United States.
"Borrowers" shall mean JCPenney and Funding.
---------
"Borrowing" shall mean a Loan or a group of Loans of a single Type made
---------
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03)
<PAGE>
8
to the same Borrower on a single date and as to which a single Interest Period
is in effect.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
-------- -------
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CD Borrowing" shall mean a Competitive Borrowing comprised of CD
------------
Loans.
"CD Loan" shall mean any Competitive Loan bearing interest at a rate
-------
determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"Closing Date" shall mean December 3, 1996.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
----------
such Lender hereunder as set forth as of the Closing Date in Schedule 2.01
hereto and, thereafter, in the Register (or as otherwise determined by the
parties hereto in the event of manifest error in the Register), as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.11 or increased from time to time pursuant to Section 2.21. The
Commitment of each Lender shall automatically and permanently terminate on the
Maturity Date if not terminated earlier pursuant to the terms hereof.
"Commitment Termination Date" shall have the meaning assigned to such
---------------------------
term in Section 2.11(d).
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
---------------
Loan pursuant to Section 2.03.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
--------------------
Lender pursuant to Section 2.03(b), (a) in the case of a Eurodollar Competitive
Loan or a CD Loan, the Competitive Margin, and (b) in the case of a Fixed Rate
Loan, the fixed rate of interest offered by the Lender making such Competitive
Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section
-----------------------
2.03 in the form of Exhibit A-1.
<PAGE>
9
"Competitive Borrowing" shall mean a Borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03 by the Borrower requesting such Borrowing.
"Competitive Loan" shall mean a Loan from a Lender to a Borrower
----------------
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan, a CD Loan or a Fixed Rate Loan.
"Competitive Margin" shall mean, as to any Eurodollar Competitive Loan
------------------
or CD Loan, the margin (expressed as a percentage rate per annum in the form of
a decimal to no more than four decimal places) to be added to or subtracted from
the LIBO Rate or the Adjusted CD Rate, as applicable, in order to determine the
interest rate applicable to such Eurodollar Competitive Loan or CD Loan, as
specified in the Competitive Bid relating to such Eurodollar Competitive Loan or
CD Loan.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
--------------
America.
"Eligible Assignee" shall mean (a) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having total assets in
excess of $1,000,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is described in this clause; and (c) the central bank of any
country which is a member of the Organization for Economic Cooperation and
Development.
<PAGE>
10
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time, and the rules and regulations
promulgated thereunder, as from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) that is a member of a group of which any Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing interest
-----------------------
at a rate determined by reference to the LIBO Rate in accordance with the
provisions of Article II.
"Events of Default" shall have the meaning assigned to such term in
-----------------
Article VII.
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.06(a).
"Facility Fee Percentage" shall mean the facility fee percentage
-----------------------
determined daily in accordance with the Pricing Schedule.
"Fees" shall mean the Facility Fees and the Administrative Fees.
----
"Fixed Rate Borrowing" shall mean a Competitive Borrowing comprised of
--------------------
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
---------------
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
related Competitive Bid.
"Funded Indebtedness" of any corporation shall mean, at any date for
-------------------
the determination thereof, without
<PAGE>
11
duplication, the outstanding aggregate principal amount of (a) all indebtedness
created, incurred or assumed by such corporation (including, in the case of any
Borrower, the Loans made to such Borrower) which by its terms is not payable on
demand and which matures by its terms, or which by its terms such corporation
has the right at its option to renew or extend to a date, more than one year
after the date of determination, whether outstanding on the Closing Date or
thereafter created, incurred or assumed (including the current portion of any
indebtedness which shall constitute Funded Indebtedness at the time of its
incurrence), and which is (i) for money borrowed or (ii) evidenced by a note or
similar instrument given in connection with the acquisition of any business,
properties or assets, including securities, (b) any indebtedness of others of
the kinds described in the preceding clause (a) for the payment of which such
corporation is responsible or liable as guarantor or otherwise and (c)
amendments, renewals and refundings of any such indebtedness; provided, however,
-------- -------
that such term shall not include any obligations under leases or any guarantees
of obligations of others under leases. It is understood that for the purposes
of this definition the term "principal" when used at any date with respect to
any indebtedness issued at a discount shall mean the amount of principal of such
indebtedness that could be declared due and payable on that date upon the
occurrence of one or more events permitting the acceleration of such
indebtedness pursuant to the terms of such indebtedness.
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a consistent basis.
"Governmental Authority" shall mean any court or governmental agency,
----------------------
authority, instrumentality or regulatory body, in each case whether Federal,
state, local or foreign.
"Indenture" shall mean the Indenture dated as of April 1, 1994, between
---------
JCPenney and Bank of America National Trust and Savings Association, as trustee.
"Index Debt" shall mean JCPenney's senior unsecured, non credit-
----------
enhanced, publicly held long-term indebtedness.
"Interest Payment Date" shall mean, with respect to any Loan, the last
---------------------
day of the Interest Period applicable thereto and, in the case of a Eurodollar
Loan with an Interest Period of more than three months' duration or a CD Loan or
Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day
that would have been an Interest
<PAGE>
12
Payment Date for such Loan had successive Interest Periods of three months'
duration or 90 days' duration, as the case may be, been applicable to such Loan
and, in addition, the date of any refinancing or conversion of such Loan with or
to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing that is
---------------
a Standby Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3, 6 or, subject to availability from each Lender,
12 months thereafter, as the Borrower requesting such Borrowing may elect, (b)
as to any ABR Borrowing, the period commencing on the date of such Borrowing and
ending on the date specified in the related Standby Borrowing Request (which
date shall in no event be later than 5 Business Days after the date of such
Borrowing), (c) as to any Eurodollar Borrowing that is a Competitive Borrowing,
the period commencing on the date of such Borrowing and ending on the date
specified in the Competitive Bids in which the offers to make the Eurodollar
Competitive Loans comprising such Borrowing were extended (which date shall be
(A) the numerically corresponding day (or, if there is no numerically
corresponding day, the last day) in the calendar month that is 1, 2, 3, 6, 9 or
12 months after the date of such Borrowing or (B) such other date as shall be
specified in such Competitive Bids) and (d) as to any CD Borrowing or Fixed Rate
Borrowing, the period specified in the Competitive Bids in which the offers to
make the CD Loans or Fixed Rate Loans comprising such Borrowing were extended,
commencing on the date of such Borrowing (which period shall be a period of 30,
60, 90, 180 or 360 days' duration or such other duration as shall be specified
in such Competitive Bids); provided, however, that (x) if any Interest Period
-------- -------
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of Eurodollar
Loans only, such next succeeding Business Day would fall in the next calendar
month, in which case such Interest Period shall end on the next preceding
Business Day, (y) no Interest Period may be selected that ends later than the
Maturity Date then in effect and (z) the Interest Period for any ABR Loan or CD
Loan made in lieu of, or resulting from the conversion of, a Eurodollar Loan
pursuant to Section 2.10 or 2.14 shall be determined in accordance with the
provisions of such Section. Interest shall accrue from and including the first
day of an Interest Period to but excluding the last day of such Interest Period.
<PAGE>
13
"Investment" shall mean, with respect to each of Funding and its
----------
Subsidiaries only, any acquisition of any of the capital stock of any
corporation, or any acquisition of indebtedness of, or any capital contribution,
loan or advance to, or any guarantee of an obligation of, any person, except (i)
any loan or advance made in connection with the lease, purchase or construction
of office space for Funding or any of its Subsidiaries or the purchase of
materials, supplies, services or equipment for the offices of Funding or any of
its Subsidiaries and (ii) any guarantee or endorsement made in the ordinary
course of business in connection with the deposit of items for collection or any
guarantee of an obligation of an agent or an employee of Funding or any of its
Subsidiaries that is required to meet applicable legal requirements.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the average of the rates at which dollar
deposits approximately equal in principal amount to (i) in the case of a Standby
Borrowing, each LIBO Reference Lender's portion of such Eurodollar Borrowing and
(ii) in the case of a Competitive Borrowing, the principal amounts that would
have been each LIBO Reference Lender's portion of such Competitive Borrowing had
such Competitive Borrowing been a Standby Borrowing, and for a maturity
comparable to such Interest Period are offered to the principal London office of
the applicable LIBO Reference Lender in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"LIBO Reference Lenders" shall mean Morgan Guaranty Trust Company of
----------------------
New York, Credit Suisse and The First National Bank of Chicago, or such other or
additional Lenders as the Borrowers, the Agent and the Required Lenders shall
designate in writing as "LIBO Reference Lenders".
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge or security interest in or on such asset.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made as
----
a Eurodollar Loan, a CD Loan, a Fixed Rate Loan or an ABR Loan, as permitted
hereby.
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
<PAGE>
14
"Material Adverse Effect" shall mean (a) a materially adverse effect on
-----------------------
the business, assets or financial condition of (i) JCPenney and the Restricted
Subsidiaries, taken as a whole, or (ii) Funding and its Subsidiaries, taken as a
whole, (b) a material impairment of the ability of any Borrower to perform any
of its obligations under this Agreement or (c) a material impairment of the
rights of or benefits available to the Lenders under this Agreement (other than
any such impairment of rights or benefits that is primarily attributable to (x)
action taken by or against one or more Lenders (excluding any action against one
or more Lenders taken by any Borrower or Restricted Subsidiary) or (y)
circumstances that are unrelated to any Borrower).
"Material Subsidiary" shall mean, at any date of determination, any
-------------------
Restricted Subsidiary then having consolidated assets in an amount greater than
1% of the consolidated assets of JCPenney and its Subsidiaries, as reflected in
the then most recently published annual audited financial statements of
JCPenney.
"Maturity Date" shall mean December 3, 2001.
-------------
"Maximum Amount" shall mean, with respect to any amount owing to any
--------------
Lender under this Agreement or in connection herewith, the maximum amount of
interest that such Lender is permitted to charge under applicable law on such
amount.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
-------
thereto that is a nationally recognized rating agency.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Net Tangible Assets" shall mean the aggregate amount at which the
-------------------
assets of JCPenney and all Restricted Subsidiaries are reflected, in accordance
with GAAP as in effect on the Closing Date, on the asset side of the
consolidated balance sheet, as at the close of a monthly accounting period
(selected by JCPenney) ending within the 65 days next preceding the date of
determination, of JCPenney and the Restricted Subsidiaries (after deducting all
<PAGE>
15
valuation and qualifying reserves relating to said assets), except any of the
following described items that may be included among said assets:
(a) trademarks, patents, goodwill and similar intangibles;
(b) investments in and advances to Non-Restricted Subsidiaries; and
(c) capital lease property rights,
after deducting from such amount current liabilities (other than deferred tax
effects) as reflected, in accordance with GAAP as in effect on the Closing Date,
on such balance sheet.
"Non-Restricted Subsidiary" shall mean any Subsidiary other than the
-------------------------
Restricted Subsidiaries.
"Officer's Certificate" of any corporation shall mean a certificate
---------------------
signed by a Responsible Officer of such corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"Penney Supplier" shall mean any person that supplies goods or services
---------------
to JCPenney or any Subsidiary.
"Penney Supplier Receivables" shall mean the obligations of Penney
---------------------------
Suppliers for the payment of money for goods or services sold by JCPenney or any
Subsidiary to Penney Suppliers for use in goods or services to be supplied to
JCPenney or any Subsidiary.
"person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
Governmental Authority.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code that
is maintained for employees of any Borrower or ERISA Affiliate.
"Pricing Schedule" shall mean the Pricing Schedule attached as Exhibit
----------------
D hereto.
<PAGE>
16
"Prime Rate" shall mean the rate of interest publicly announced by
----------
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Principal Property" shall mean all real property and tangible personal
------------------
property owned by JCPenney or a Restricted Subsidiary constituting a part of any
store, warehouse or distribution center located within one of the 50 states of
the United States or the District of Columbia, exclusive of motor vehicles,
mobile materials-handling equipment and other rolling stock, cash registers and
other point of sale recording devices and related equipment, and data processing
and other office equipment; provided, however, that such term shall not include
-------- -------
any such property constituting a part of any such store, warehouse or
distribution center unless the net book value of all real property (including
leasehold improvements) and store fixtures constituting a part of such store,
warehouse or distribution center exceeds .25% of Stockholders' Equity.
"Receivables" shall mean the obligations of customers for the payment
-----------
of money arising under agreements between such customers and JCPenney or any
Subsidiary.
"Register" shall have the meaning assigned to such term in
--------
Section 9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Lenders" shall mean, at any time, (a) for the purposes of
----------------
terminating the Commitments pursuant to clause (x) of Article VII, Lenders
having Commitments representing at least 66-2/3% of the Total Commitment,
<PAGE>
17
(b) for purposes of acceleration pursuant to clause (y) of Article VII, Lenders
holding Loans representing at least 66-2/3% of the aggregate principal amount of
the Loans outstanding and (c) for all other purposes, Lenders having Commitments
representing greater than 50% of the Total Commitment or, if the Commitments
shall have been terminated, Lenders holding Loans representing greater than 50%
of the aggregate principal amount of the Loans outstanding.
"Responsible Officer" of any corporation shall mean the chairman, vice
-------------------
chairman, president, chief financial officer, treasurer or controller of such
corporation or any executive or senior vice president of such corporation.
"Restricted Subsidiary" shall mean any Subsidiary of JCPenney (other
---------------------
than Funding) which JCPenney shall, by an Officer's Certificate of JCPenney,
have designated as a Restricted Subsidiary and the designation of which as a
Restricted Subsidiary shall not have been cancelled by an Officer's Certificate
of JCPenney; provided, however, that neither the designation of a Subsidiary as
-------- -------
a Restricted Subsidiary nor the cancellation of such designation shall be
operative if the immediate effect of such designation or cancellation shall be
to make Net Tangible Assets less than 200% of the Senior Funded Indebtedness of
JCPenney and the Restricted Subsidiaries on a pro forma basis (eliminating
intercompany items); and provided, further, that any Officer's Certificate
-------- -------
designating a Subsidiary as a Restricted Subsidiary or cancelling such
designation shall set forth the Net Tangible Assets and Senior Funded
Indebtedness of JCPenney and its Restricted Subsidiaries on a pro forma basis
(eliminating intercompany items) and show compliance with the first proviso of
this paragraph. Any such designation or cancellation of such designation may be
made more than once with respect to any Subsidiary.
"S&P" shall mean Standard & Poor's Ratings Services and any successor
---
thereto that is a nationally recognized rating agency.
"SEC" shall mean the Securities and Exchange Commission.
---
"Senior Funded Indebtedness" of JCPenney shall mean any Funded
--------------------------
Indebtedness of JCPenney unless in any instrument or instruments evidencing or
securing such Funded Indebtedness or pursuant to which the same is outstanding,
or in any amendment, renewal, extension or refunding of such Funded
Indebtedness, it is provided that such Funded Indebtedness is subordinate in
right of payment to the Loans (a) in
<PAGE>
18
the event of any dissolution or winding-up or total or partial liquidation or
reorganization of JCPenney, whether voluntary or involuntary, or any bankruptcy,
insolvency, receivership or similar proceedings relative to JCPenney and (b) in
the event of any default in the payment of principal (including any required
prepayments or amortization) of or interest on any Loans of JCPenney. "Senior
Funded Indebtedness" of any Restricted Subsidiary means any Funded Indebtedness
of such Restricted Subsidiary and the aggregate preference on involuntary
liquidation of any class of stock of such Restricted Subsidiary ranking, either
as to payment of dividends or distribution of assets, prior to any other class
of stock of such Restricted Subsidiary.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-4.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrowers pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan or an ABR Loan.
"Standby Margin" shall mean with respect to each Standby Loan made as
--------------
part of any ABR Borrowing, 0, and with respect to each Standby Loan made as part
of any Eurodollar Standby Borrowing, the Euro-Dollar Margin determined daily in
accordance with the Pricing Schedule.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the actual reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the Agent is
subject for new negotiable nonpersonal time deposits in dollars of over $100,000
with maturities approximately equal to the applicable Interest Period.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
"Stockholders' Equity" shall mean the sum, as at the close of a monthly
--------------------
accounting period (selected by JCPenney) ending within the 65 days next
preceding the date of determination, of (a) the aggregate of capital, capital
stock, capital surplus, capital in excess of par value of
<PAGE>
19
stock, reinvested earnings, earned surplus and net income retained for use in
the business (however the foregoing may be designated), after deducting the cost
of shares of capital stock of JCPenney held in its treasury, of JCPenney and its
consolidated Subsidiaries, determined in accordance with GAAP, plus (b) the
amount reflected in such determination as deferred tax effects.
"Subsidiary" shall mean (a) any corporation of which JCPenney, directly
----------
or indirectly, owns more than 50% of the outstanding stock which at the time
shall have by the terms thereof ordinary voting power to elect directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency, or (b) any such corporation of which such
percentage of shares of outstanding stock of the character described in the
foregoing clause (a) shall at the time be owned, directly or indirectly, (i) by
JCPenney and one or more Subsidiaries as defined in the foregoing clause (a) or
(ii) by one or more such Subsidiaries.
"Support Agreements" shall mean (a) the Amended and Restated
------------------
Receivables Agreement dated as of January 29, 1980, between JCPenney and Funding
(formerly J. C. Penney Financial Corporation), as amended by Amendment No. 1
thereto dated as of January 25, 1983, (b) the Loan Agreement dated as of January
28, 1986, between JCPenney and Funding, as amended by Amendment No. 1 thereto
dated as of December 26, 1986 and by Amendment No. 2 dated as of November 22,
1996, in each case as amended or modified from time to time in compliance with
Section 5.10 and (c) the subordinated Guaranty of the obligations of Funding
dated as of December 3, 1996, executed by JCPenney in favor of the Lenders and
attached hereto as Exhibit C.
"Taxes" shall mean, with respect to any Lender or Agent, any and all
-----
U.S. Federal income taxes after application of any relevant treaty or convention
and all interest and penalties with respect thereto, attributable to any payment
made by any Borrower hereunder to such Lender or Agent.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Tranche B Credit Agreement" shall mean the $1,500,000,000 364-Day
--------------------------
Revolving Credit Agreement amended and restated as of the Closing Date among the
Borrowers, the
<PAGE>
20
financial institutions named therein as lenders (which include certain of the
Lenders), Morgan Guaranty Trust Company of New York as Agent for the Lenders,
and Bank of America Illinois, Bankers Trust Company, The Chase Manhattan Bank,
Citibank, N.A., Credit Suisse and NationsBank of Texas, N.A. as Co-Agents for
the Lenders, as such agreement may be amended from time to time.
"Transactions" shall have the meaning assigned to such term in Section
------------
3.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the
LIBO Rate, the Adjusted CD Rate, and the Alternate Base Rate and, in the case of
any Fixed Rate Loan, the fixed percentage rate per annum specified by the Lender
making such Loan in its related Competitive Bid.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided,
--------
however, that, for purposes of determining compliance with any covenant set
- -------
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
application used in preparing JCPenney's audited consolidated financial
statements referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrowers at any
time and from time to time on and after the Closing Date and until the earlier
of the Maturity Date and the
<PAGE>
21
termination of the Commitment of such Lender, in an aggregate principal amount
at any time outstanding not to exceed such Lender's Commitment, subject,
however, to the conditions that (a) at no time shall the outstanding aggregate
principal amount of all Loans made by all Lenders exceed the Total Commitment
and (b) at all times the outstanding aggregate principal amount of all Standby
Loans made by each Lender to a Borrower shall equal the product of (i) the
percentage which its Commitment represents of the Total Commitment times (ii)
the outstanding aggregate principal amount of all Standby Loans made to such
Borrower pursuant to Section 2.04. Subject to Section 2.03(h), any Lender may
at its discretion make Competitive Loans in an aggregate principal amount up to
the amount of the Total Commitment of the Lenders hereunder. Each Lender's
Commitment as of the Closing Date is set forth opposite its respective name in
Schedule 2.01 and, after the Closing Date, each Lender's Commitment shall be set
forth opposite its respective name in the Register. Such Commitments may be
terminated, reduced or extended from time to time pursuant to Section 2.11 and
increased from time to time pursuant to Section 2.21.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and reborrow hereunder, on and after the Closing Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of
------
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
-------- -------
Standby Loan shall not by itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.03. The Standby Loans or Competitive
Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in
an aggregate principal amount which is an integral multiple of $5,000,000 and
not less than $25,000,000 (or, if less, an aggregate principal amount equal to
the Total Commitment on the date of such Borrowing minus the outstanding
aggregate principal amount on such date of all Competitive Loans) and (ii) in
the case of Standby Loans, in an aggregate principal amount which is an integral
multiple of $5,000,000 and not less than $25,000,000 (or an aggregate principal
amount equal to the remaining available balance of the Total Commitment).
<PAGE>
22
(b) Subject to Sections 2.10 and 2.14, each Competitive Borrowing
shall be comprised entirely of Eurodollar Competitive Loans, CD Loans or Fixed
Rate Loans, and each Standby Borrowing shall be comprised entirely of Eurodollar
Standby Loans or ABR Loans, as the Borrower requesting such Competitive
Borrowing or Standby Borrowing may specify pursuant to Section 2.03 or 2.04, as
the case may be.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Agent in New York, New York, not later than
12:00 noon, New York City time (11:00 a.m., New York City time, in the case of a
Eurodollar Loan), and the Agent shall by 2:00 p.m., New York City time, credit
the amounts so received as instructed by the Borrower of such Loan or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders. Competitive Loans shall be made by the Lender or Lenders
whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the
amounts so accepted and Standby Loans shall be made by the Lenders pro rata in
accordance with Section 2.16. Unless the Agent shall have received notice from
a Lender prior to the date of any Borrowing that such Lender will not make
available to the Agent such Lender's portion of such Borrowing, the Agent may
assume that such Lender has made such portion available to it on the date of
such Borrowing in accordance with this paragraph (c) and may, in reliance upon
such assumption, make a corresponding amount available on such date to the
Borrower requesting such Borrowing. If and to the extent that such Lender shall
not have made such portion available to the Agent, such Lender and such Borrower
severally agree to pay or repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to such Borrower until the date such amount is
repaid to the Agent at (i) in the case of such Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Effective Rate; provided, however, that
-------- -------
such Borrower shall not in any event have any liability in respect of such
repayment under Section 2.15. If such Lender shall pay to the Agent such
corresponding amount, such amount shall constitute such Lender's Loan as part of
such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request any
<PAGE>
23
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
(e) The Loans of each Type made by each Lender shall be made through
and maintained at such Lender's Applicable Lending Office for Loans of such
Type. Any Lender may change its Applicable Lending Office for any Type of Loans
without the prior written consent of JCPenney so long as (i) such Lender shall
have no knowledge that such change would cause it to be unlawful for such Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan and (ii) such Lender
shall not be entitled to recoupment, reimbursement or indemnification in
accordance with the terms and conditions of Sections 2.13 and 2.15 to the extent
that such Lender shall have had knowledge at the time of such change in
Applicable Lending Office that such entitlement would arise as a result of such
change.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, a Borrower shall hand deliver, telex or telecopy to the Agent
a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to
be received by the Agent (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or
made pursuant to, a Competitive Bid Request. A Competitive Bid Request that
does not conform substantially to the format of Exhibit A-1 shall be rejected
and the Agent shall promptly notify the appropriate Borrower of such rejection
by telex or telecopier. Such request shall in each case refer to this Agreement
and specify (x) that the Borrowing then being requested is to be a Eurodollar
Borrowing, a CD Borrowing or a Fixed Rate Borrowing, (y) the date of such
Borrowing (which shall be a Business Day) and the aggregate principal amount
thereof (which shall be, subject to the third sentence of Section 2.02(a), in a
minimum principal amount of $25,000,000 and in an integral multiple of
$5,000,000 and (z) the Interest Period with respect thereto (which may not end
after the Maturity Date). Promptly after its receipt of a Competitive Bid
Request that is not rejected as aforesaid, the Agent shall invite by telex or
telecopier (in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on
the terms and conditions of this Agreement, to make Competitive Loans pursuant
to the Competitive Bid Request.
<PAGE>
24
(b) The Agent may, in its sole discretion, make one or more
Competitive Bids to the appropriate Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by the Agent must be submitted to
the Borrower via telex or telecopier, in the form of Exhibit A-3 hereto, (i) in
the case of a Eurodollar Borrowing or CD Borrowing, not later than 8:30 a.m.,
New York City time, three Business Days before a proposed Competitive Borrowing
and (ii) in the case of a Fixed Rate Borrowing, not later than 8:30 a.m., New
York City time, on the day of a proposed Competitive Borrowing. Each Lender
may, in its sole discretion, make one or more Competitive Bids to the
appropriate Borrower responsive to such Borrower's Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Agent via telex or
telecopier, in the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar
Borrowing or CD Borrowing, not later than 9:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in the case of a
Fixed Rate Borrowing, not later than 9:00 a.m., New York City time, on the day
of a proposed Competitive Borrowing. Multiple bids will be accepted by the
Agent. Competitive Bids that do not conform substantially to the format of
Exhibit A-3 may be rejected by the Agent after conferring with, and upon the
instruction of, the Borrower requesting such Competitive Bids, and the Agent
shall notify the Lender making such nonconforming bid of such rejection as soon
as practicable. Each Competitive Bid shall refer to this Agreement and specify
(x) the principal amount (which shall be in an integral multiple of $5,000,000
(unless such principal amount shall equal the entire principal amount of the
Competitive Borrowing requested by such Borrower) and which may equal such
entire principal amount) of the Competitive Loan or Loans that the Lender is
willing to make to the Borrower requesting such Competitive Bid, (y) the
Competitive Bid Rate or Rates at which the Lender is prepared to make the
Competitive Loan or Loans and (z) the Interest Period and the last day thereof.
If any Lender shall elect not to make a Competitive Bid, such Lender shall so
notify the Agent via telex or telecopier (A) in the case of a Eurodollar
Borrowing or a CD Borrowing, not later than 9:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (B) in the case of a
Fixed Rate Borrowing, not later than 9:00 a.m., New York City time, on the day
of a proposed Competitive Borrowing; provided, however, that failure by any
-------- -------
Lender to give such notice shall not cause such Lender to be obligated to make
any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid
submitted by a Lender pursuant to this paragraph (b) shall be irrevocable.
<PAGE>
25
(c) The Agent shall notify the appropriate Borrower by telex or
telecopier not later than (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, 10:00 a.m., New York City time, three Business Days before the
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
10:00 a.m., New York City time, on the day of the proposed Competitive Borrowing
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Agent shall send a copy
of all Competitive Bids to such Borrower for its records as soon as practicable
after completion of the bidding process set forth in this Section 2.03.
(d) The appropriate Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d) and paragraph (h) below,
accept or reject any Competitive Bid referred to in paragraph (c) above. Such
Borrower shall notify the Agent by telex or telecopier not later than (i) in the
case of a Eurodollar Borrowing or a CD Borrowing, 11:30 a.m., New York City
time, three Business Days before the proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 11:30 a.m., New York City
time, on the day of the proposed Competitive Borrowing whether and to what
extent it has decided to accept or reject any of or all the bids referred to in
paragraph (c) above; provided, however, that (v) the failure by such Borrower to
-------- -------
give such notice shall be deemed to be a rejection of all the bids referred to
in paragraph (c) above, (w) such Borrower shall not accept a bid made at a
particular Competitive Bid Rate if it has decided to reject a bid made at a
lower Competitive Bid Rate, (x) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
related Competitive Bid Request, (y) if such Borrower shall accept a bid or bids
made at a particular Competitive Bid Rate but the amount of such bid or bids
shall cause the total amount of bids to be accepted by such Borrower to exceed
the amount specified in the related Competitive Bid Request, then such Borrower
shall accept a portion of such bid or bids in an amount equal to the amount
specified in the related Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (z) except pursuant to clause (y) above, no bid shall be accepted
for a Competitive Loan unless the principal amount of such Competitive Loan is
in an
<PAGE>
26
integral multiple of $5,000,000 or is equal to the entire principal amount of
the Competitive Borrowing being requested by such Borrower; provided further,
-------- -------
however, that if a Competitive Loan must be in an amount less than $5,000,000
- -------
because of the provisions of clause (y) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (y) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
such Borrower. A notice given pursuant to this paragraph (d) by the appropriate
Borrower shall be irrevocable.
(e) The Agent shall promptly notify each bidding Lender whether or not
its Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Rate) by telex or telecopier sent by the Agent, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) The Borrowers shall not make more than 10 Competitive Bid Requests
during any 30-day period.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
(h) At no time shall the outstanding aggregate principal amount of all
Competitive Loans made by all Lenders exceed the Total Commitment in effect at
such time.
(i) The Agent shall hold in confidence each Competitive Bid received
by the Agent until such Competitive Bid has been disclosed to the appropriate
Borrower pursuant to paragraph (d) above.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
---------------------------
Standby Borrowing, a Borrower shall hand deliver, telex or telecopy a Standby
Borrowing Request in
the form of Exhibit A-4 to the Agent (a) in the case of a Standby Borrowing
that is a Eurodollar Borrowing, not later than 11:00 a.m., New York City time,
three Business Days before a proposed borrowing and (b) in the case of an ABR
Borrowing, not later than 10:00 a.m., New York City time, on the day of a
proposed borrowing. A Borrower shall be deemed to have given a Standby
Borrowing Request if it (i) notifies an officer of the Agent identified in
Section 9.01 by telephone of the content of such Standby Borrowing Request not
later than the relevant time set forth above for delivery
<PAGE>
27
thereof and (ii) delivers such Standby Borrowing Request to the Agent as soon as
practicable; provided, however, that a Borrower shall not have any right to
-------- -------
receive the proceeds of a Standby Borrowing unless the Agent has received the
related written Standby Borrowing Request. Such notice shall be irrevocable and
shall in each case specify (i) whether the Borrowing then being requested is to
be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Standby
Borrowing (which shall be a Business Day) and the amount thereof; and (iii) the
Interest Period with respect thereto. If no election as to the Type of Standby
Borrowing is specified in any such notice, then the requested Standby Borrowing
shall be an ABR Borrowing. If no Interest Period with respect to any Standby
Borrowing is specified in any such notice, then the Borrower requesting such
Borrowing shall be deemed to have selected an Interest Period of one month's
duration, in the case of a Eurodollar Borrowing, or five days' duration, in the
case of an ABR Borrowing. If a Borrower shall not have given notice in
accordance with this Section 2.04 of its election to refinance a Standby
Borrowing of such Borrower prior to the end of the Interest Period in effect for
such Borrowing, then such Borrower shall (unless such Borrowing is repaid at the
end of such Interest Period) be deemed to have given notice of an election to
refinance such Borrowing with an ABR Borrowing. The Agent shall promptly advise
the Lenders of any notice given pursuant to this Section 2.04 and of each
Lender's portion of the requested Borrowing.
SECTION 2.05. Refinancings. Any Borrower may refinance all or any
-------------
part of any Borrowing of such Borrower with a Borrowing of the same or a
different Type made pursuant to Section 2.03 or Section 2.04, subject to the
conditions and limitations set forth herein and elsewhere in this Agreement,
including refinancings of Competitive Borrowings with Standby Borrowings and
Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid in accordance with Section 2.07 with
the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Agent or by the Agent to the
appropriate Borrower pursuant to Section 2.02(c); provided, however, that (i) if
-------- -------
the principal amount extended by a Lender in a refinancing is greater than the
principal amount extended by such Lender in the Borrowing being refinanced, then
such Lender shall pay such difference to the Agent for distribution to the
Lenders described in (ii) below, (ii) if the principal amount extended by a
Lender in the Borrowing being refinanced is greater than the
<PAGE>
28
principal amount being extended by such Lender in the refinancing, the Agent
shall return the difference to such Lender out of amounts received pursuant to
(i) above and (iii) to the extent any Lender fails to pay to the Agent amounts
due from it pursuant to (i) above, any Loan or portion thereof being refinanced
shall not be deemed repaid in accordance with Section 2.07 and shall be payable
by the Borrower to which such Loan was made; provided, however, that such
-------- -------
Borrower shall not have any liability under Section 2.15 in respect of any of
its payment obligations under this clause (iii).
SECTION 2.06. Fees. (a) The Borrowers agree, jointly and severally,
-----
to pay to each Lender, through the Agent, on each March 31, June 30, September
30 and December 31 and on the date on which the Commitment of such Lender shall
be terminated as provided herein, a facility fee (a "Facility Fee") at a rate
per annum equal to the Facility Fee Percentage from time to time in effect on
the amount of the Commitment of such Lender, whether used or unused, from time
to time in effect during the preceding quarter (or shorter period commencing on
the Closing Date and/or ending with the Maturity Date or the Commitment
Termination Date with respect to each Lender or any earlier date on which the
Commitment of such Lender shall be terminated). All Facility Fees shall be
computed in arrears on the basis of the actual number of days elapsed in a year
of 360 days. The Facility Fee due to each Lender shall commence to accrue on
the Closing Date (or, if later, the date on which such Lender became a Lender)
and shall cease to accrue on the earlier of the Maturity Date and the
termination of the Commitment of such Lender as provided herein.
(b) The Borrowers agree, jointly and severally, to pay to the Agent
from time to time, for its own account, agent and administrative fees (the
"Administrative Fees") at such times and in such amounts as have been previously
agreed upon in writing between the Borrowers and the Agent.
(c) All Fees shall be paid on the dates due in immediately available
funds. Once paid, none of the Fees shall be refundable, except in the event of
manifest error.
SECTION 2.07. Repayment of Loans; Evidence of the Borrowers'
----------------------------------------------
Obligations. Subject to Section 4.01, the outstanding principal balance of each
- ------------
Competitive Loan and Standby Loan made by any Lender shall be payable (i) except
in the case of ABR Loans, on the last day of the Interest Period applicable to
such Loan and (ii) on the Commitment Termination Date with respect to such
Lender. Each
<PAGE>
29
Competitive Loan and each Standby Loan shall bear interest from the date thereof
on the outstanding principal balance thereof as set forth in Section 2.08. With
respect to each Lender, the entries made in the accounts maintained by the Agent
and such Lender shall be prima facie evidence of the existence and amounts of
the monetary obligations payable by any Borrower to such Lender in respect of
the Loans made by such Lender to such Borrower; provided that the failure to
--------
maintain any such accounts or any error therein shall not affect the obligations
of the Borrowers hereunder.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum on any date of determination equal to (i) in the case
of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect
for such Borrowing plus the Standby Margin for such date, and (ii) in the case
of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Loan plus the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Loan pursuant to Section
2.03. The LIBO Rate for each Interest Period shall be determined by the Agent
in consultation with the LIBO Reference Lenders, and such determination shall be
conclusive absent manifest error. The Agent shall promptly advise the Borrowers
and each Lender of such determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be) at a
rate per annum equal to the Alternate Base Rate. The Alternate Base Rate shall
be determined by the Agent, and such determination shall be conclusive absent
manifest error. The Agent shall promptly advise the Borrowers and each Lender
of such determination.
(c) Subject to the provisions of Section 2.09, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum equal to the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus, in
the case of each such Loan, the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Borrowing pursuant to
Section 2.03, provided, however, that any CD Loan made pursuant to Section 2.10
-------- -------
or 2.14 shall bear interest (computed as described in this paragraph) at a rate
per annum
<PAGE>
30
on any date of determination equal to the Adjusted CD Rate for the Interest
Period applicable to such CD Loan plus the Standby Margin for Eurodollar Standby
Loans for such date plus 1/8 of 1% per annum.
(d) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
requesting the applicable Fixed Rate Borrowing pursuant to Section 2.03.
(e) Interest on each Borrowing shall be payable on each applicable
Interest Payment Date.
SECTION 2.09. Default Interest. If any Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, such Borrower shall on demand from time to time from the Agent pay
interest, to the extent permitted by applicable law, on such defaulted amount
from the date on which the Agent first notifies such Borrower that it will be
required to pay interest pursuant to this Section on such defaulted amount up to
(but not including) the date of actual payment (after as well as before
judgment) at a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be) equal to the
Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the LIBO Reference Lenders shall have
determined and communicated to the Agent that dollar deposits in the principal
amounts of the Eurodollar Loans comprising such Borrowing are not generally
available in the London interbank market, or that the rates at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
any Lender of making or maintaining its Eurodollar Loan during such Interest
Period, or that reasonable means do not exist for ascertaining the LIBO Rate,
the Agent shall, as soon as practicable thereafter, give written or telex notice
of such determination to the Borrowers and the Lenders. In the event of any
such determination, until the Agent shall have advised the Borrowers and the
Lenders that the circumstances giving rise to such notice no longer exist, (i)
any request by any Borrower for a Competitive Borrowing pursuant to Section 2.03
<PAGE>
31
shall be of no force and effect and shall be denied by the Agent and (ii) any
request by any Borrower for a Eurodollar Borrowing pursuant to Section 2.04
shall be deemed to be a request for (A) an ABR Borrowing having an Interest
Period of five days' duration and (B) a refinancing of such ABR Borrowing with
an ABR Borrowing or a CD Borrowing, as such Borrower shall elect by notice to
the Agent not later than 11:00 a.m., New York City time, one Business Day before
such refinancing, comprised of Loans having an Interest Period that is, when
added to the Interest Period for the ABR Borrowing being refinanced, equal to
(in the case of an ABR Borrowing) or as close as possible to (in the case of a
CD Borrowing) the Interest Period requested by such Borrower in connection with
such Eurodollar Borrowing. The parties hereto shall have the same rights and
obligations in respect of a deemed request for a CD Borrowing or an ABR
Borrowing pursuant to this Section and the CD Loans and ABR Loans made pursuant
thereto, and the Commitments shall be utilized by such CD Loans and such ABR
Loans, as if such Borrowing were a Standby Borrowing requested, and such Loans
were Standby Loans made, pursuant to Section 2.04. Each determination by the
LIBO Reference Lenders hereunder shall be conclusive absent manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a) Any
-----------------------------------------
Commitment that has not been terminated prior to the Maturity Date shall be
automatically terminated on the Maturity Date.
(b) Except as provided in Section 2.20 hereof, upon at least 5
Business Days' prior irrevocable written or telex notice to the Agent, JCPenney
may at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Total Commitment; provided, however, that each partial
-------- -------
reduction of the Total Commitment shall be in an integral multiple of $5,000,000
and in a minimum principal amount of $25,000,000 or, if less, the Total
Commitment then in effect.
(c) Except as provided in Section 2.20, each reduction in the Total
Commitment hereunder shall be made ratably among the Lenders in accordance with
their respective Commitments. Subject to Section 9.09, the Borrowers shall pay
to the Agent for the account of the Lenders, on the date of each termination or
reduction, the Facility Fees accrued through the date of such termination or
reduction.
(d) The Commitment of each Lender shall automatically and permanently
terminate on December 3, 2001 (the "Commitment Termination Date"); provided,
--------
however, that the
- -------
<PAGE>
32
Commitment Termination Date with respect to any Lender shall not be extended
under any circumstances to a date later than the Maturity Date.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing or any
Competitive Borrowing of such Borrower, in whole or in part, subject to the
requirements of Section 2.15 but otherwise without premium or penalty, upon
giving written or telex notice (or telephone notice promptly confirmed by
written or telex notice) to the Agent before 10:00 a.m., New York City time, one
Business Day prior to such prepayment; provided, however, that each partial
-------- -------
prepayment shall be in an amount which is an integral multiple of $5,000,000 and
not less than $25,000,000.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Standby Loans outstanding will not exceed the Total Commitment
after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower giving such notice to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments under this
Section 2.12 shall be accompanied by accrued interest on the principal amount
being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. Subject
------------------------------- --------------
to the procedures and limitations of Section 2.20:
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan
made by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on such Lender by the jurisdiction in which
such Lender is organized, has its
<PAGE>
33
principal office or maintains its Applicable Lending Office for such Loan or by
any political subdivision or taxing authority in any such jurisdiction), or
shall impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by such Lender, or shall impose on such Lender or the London interbank
market any other condition affecting this Agreement or any Eurodollar Loan, CD
Loan or Fixed Rate Loan made by such Lender, and the result of any of the
foregoing shall be to increase the cost to such Lender of making or maintaining
any Eurodollar Loan, CD Loan or Fixed Rate Loan or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise) by an amount deemed by such Lender in its reasonable
judgment to be material, then such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered
will be paid to such Lender in accordance with Section 2.20 (i) if such
additional costs or reduction shall relate to a particular Loan, by the Borrower
to which such Loan was made and (ii) otherwise, by JCPenney. Notwithstanding
the foregoing, no Lender shall be entitled to request compensation under this
paragraph with respect to any Loan if it shall have been aware that the change
giving rise to such request had been adopted or enacted at the earlier of the
time at which the Lender became a party to this Agreement or, with respect to a
Competitive Loan, the time of submission of the Competitive Bid pursuant to
which such Competitive Loan shall have been made.
(b) If the adoption after the Closing Date of any law, rule,
regulation or guideline regarding capital adequacy, or any change after the
Closing Date in any of the foregoing or in the interpretation or administration
of any of the foregoing by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or any Applicable Lending Office of such Lender) with
any request or directive regarding capital adequacy (whether or not having the
force of law) made or issued after the Closing Date by any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's capital as a consequence of this Agreement or
the Loans made by such Lender pursuant hereto to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount deemed by such Lender in its reasonable judgment to be material, then
subject to Section 2.20 hereof, from time to time such additional amount or
amounts as will compensate
<PAGE>
34
such Lender for any such reduction suffered will be paid to such Lender in
accordance with Section 2.20 (i) if such reduction shall relate to a particular
Loan, by the Borrower to which such Loan was made and (ii) otherwise, by
JCPenney.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change after the Closing Date in any law or regulation
or in the interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrowers and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon such Lender shall not submit a Competitive Bid
in response to a request for Competitive Loans and any request by any
Borrower for a Standby Borrowing comprised of Eurodollar Loans shall, as
to such Lender only, be deemed a request for an ABR Loan or a CD Loan, as
such Borrower shall elect by notice to the Agent not later than 11:00
a.m., New York City time, one Business Day before such Borrowing, having
an Interest Period equal to (in the case of an ABR Loan) or as close as
possible to (in the case of a CD Loan) the Interest Period applicable to
such Eurodollar Loans unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans or to CD Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Loans or, if JCPenney shall
so notify the Agent on the date of such conversion and the Agent shall
have determined that the Adjusted CD Rate can be determined for the
Interest Period in question, to CD Loans as of the effective date of such
notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans or CD Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans. The parties hereto shall have the same
<PAGE>
35
rights and obligations in respect of a deemed request for a CD Loan pursuant to
clause (i) above and any CD Loan made pursuant to paragraph (a) above, and the
Commitments shall be utilized by any such CD Loan, as if such CD Loan were a
Standby Loan requested and made pursuant to Section 2.04.
(b) For purposes of this Section 2.14, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrowers (in which case the ABR Loan or CD Loan resulting from the conversion
of such Eurodollar Loan pursuant to clause (ii) of paragraph (a) above shall
have an Interest Period equal to (in the case of an ABR Loan) or as close as
possible to (in the case of a CD Loan) the Interest Period applicable to such
Eurodollar Loan).
SECTION 2.15. Indemnity. Each Borrower agrees to indemnify the Agent
----------
and each Lender against any reasonable out-of-pocket loss or expense which the
Agent and/or such Lender may sustain or incur as a consequence of (a) any
failure by such Borrower to fulfill on the date of any borrowing hereunder the
applicable conditions set forth in Article IV, (b) any failure by such Borrower
to borrow or to refinance or continue any Loan hereunder after irrevocable
notice of such borrowing, refinancing or continuation has been given pursuant to
Section 2.03 or 2.04, (c) any payment, prepayment or conversion of a Eurodollar
Loan, CD Loan or Fixed Rate Loan made to such Borrower that is required by any
other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period applicable thereto or (d) any
default in payment or prepayment of the principal amount of any Eurodollar Loan,
CD Loan or Fixed Rate Loan made to such Borrower or any part thereof or interest
accrued thereon, as and when due and payable (at the due date thereof, whether
by scheduled maturity, acceleration, irrevocable notice of prepayment or
otherwise), after the expiration of the applicable grace period, including, in
each such case, any reasonable out-of-pocket loss or expense sustained or
incurred in liquidating or employing deposits from third parties acquired to
effect or maintain such Loan or any part thereof as a Eurodollar Loan, CD Loan
or Fixed Rate Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by the Agent and/or such
Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid,
converted or not borrowed (based on the LIBO Rate or Adjusted CD Rate or, in the
case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for
the period
<PAGE>
36
from the date of such payment, prepayment or failure to borrow to the last day
of the Interest Period for such Loan (or, in the case of a failure to borrow,
the Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined in good
faith by the Agent and/or such Lender) that would be realized by the Agent
and/or such Lender in reemploying the funds so paid, prepaid or not borrowed for
such period or Interest Period, as the case may be; provided, however, that with
-------- -------
respect to any Eurodollar Loan or CD Loan for which the corresponding LIBO Rate
or Adjusted CD Rate, as the case may be, is available for the period or Interest
Period in question, the amount of interest realized in reemploying such funds
shall be computed at such LIBO Rate or Adjusted CD Rate, as the case may be, at
the time of the applicable payment, prepayment or failure to borrow. In order
to exercise its rights under this Section, the Agent and/or a Lender shall
deliver to the appropriate Borrower a certificate setting forth any amount or
amounts which the Agent and/or such Lender is entitled to receive pursuant to
this Section. Such Borrower shall have a 30-Business Day period following the
receipt of such certificate (if such Borrower in good faith disagrees with the
assertion that any payment under such section is due or with the amount shown as
due on such certificate and so notifies the Agent and/or such Lender of such
disagreement within 10 Business Days following receipt of such certificate) to
negotiate with the Agent and/or such Lender, which negotiations shall be
conducted by the respective parties in good faith, and to agree upon another
amount that will adequately compensate the Agent and/or such Lender, it being
expressly understood that if such Borrower does not provide the required notice
of its disagreement as provided above, such Borrower shall pay the amount shown
as due on the certificate on the tenth Business Day following receipt thereof
and further if such Borrower does provide such required notice, and negotiations
are entered into but do not result in agreement by such Borrower and the Agent
and/or such Lender within the 30-Business Day period, then such Borrower shall
pay the amount shown as due on the certificate on the last day of such period.
SECTION 2.16. Pro Rata Treatment. Except as required under Sections
-------------------
2.14 and 2.20(b), each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or
<PAGE>
37
been terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available
Commitments of the Lenders at any time, each outstanding Competitive Borrowing
shall be deemed to utilize the Commitments of each of the Lenders pro rata in
accordance with their respective Commitments. Each Lender agrees that in
computing such Lender's portion of any Borrowing to be made hereunder, the Agent
may, in its discretion, round each Lender's percentage of such Borrowing to the
next higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against any Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Standby Loan or
Loans as a result of which the unpaid principal portion of its Standby Loans
shall be proportionately less than the unpaid principal portion of the Standby
Loans of any other Lender, it shall be deemed simultaneously to have purchased
from such other Lender at face value, and shall promptly pay to such other
Lender the purchase price for, a participation in the Standby Loans of such
other Lender, so that the aggregate unpaid principal amount of the Standby Loans
and participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's lien,
setoff or counterclaim or other event; provided, however, that, if any such
-------- -------
purchase or purchases or adjustments shall be made pursuant to this Section 2.17
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or adjustments shall be rescinded to the extent of such recovery
and the purchase price or prices or adjustment
<PAGE>
38
restored without interest. The Borrowers expressly consent to the foregoing
arrangements and agree that, subject to Section 9.06, any Lender holding a
participation in a Standby Loan deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing by any Borrowers to such Lender by reason thereof as fully
as if such Lender had made a Standby Loan directly to the Borrower in the amount
of such participation.
SECTION 2.18. Payments. (a) Each Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) required to be made by it hereunder not later than 12:00 (noon), New
York City time (11:00 a.m., New York City time, in the case of any payment to be
made to the Agent), on the date when due in dollars to the Agent at its account
number 999-99-090 (attn. PT2000)(ref: JCPenney), in each case in immediately
available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) If any Borrower shall be required by reason
------
of any change occurring after the date of this Agreement in applicable law or
regulation or tax treaty or in the interpretation or administration thereof by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having force of law) (a "Change of Law") to deduct any
Taxes from or in respect of any sum payable by it hereunder to any Lender or to
the Agent, then except as otherwise provided in this Section 2.19 and subject to
Section 2.20, (i) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.19) such Lender or the Agent (as
the case may be) shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) such Borrower shall make such deductions
and (iii) such Borrower shall pay the full amount deducted to the relevant
taxing authority or other Governmental Authority in accordance with applicable
law.
(b) In addition, the Borrowers agree, jointly and severally, to pay
any present or future stamp or documentary
<PAGE>
39
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement (hereinafter
referred to as "Other Taxes") other than any Other Taxes imposed upon any
assignment or participation of a Lender's rights, interests and obligations
hereunder; provided, however, that the amount the Borrowers shall be required to
-------- -------
pay to a particular Lender in respect of Other Taxes shall not exceed 1% of the
aggregate amount of the Loans or, if applicable, the Commitment of such Lender
on which such Other Taxes are imposed and provided further, however, that if a
---------------- -------
Lender is actually aware of the application of any Other Tax to any such
payment, execution, delivery or registration, such Lender shall promptly notify
the Borrowers of such Other Tax and the Borrowers shall thereafter have the
benefit of the provisions of Section 2.20(b).
(c) Within 30 days after the date of any payment of Taxes withheld by
any Borrower in respect of any payment to any Lender or the Agent, such Borrower
will furnish to the Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt evidencing payment thereof or, if such
a receipt is not available, a certificate of the treasurer or any assistant
treasurer of such Borrower setting forth the amount of such payment and the date
on which such payment was made.
(d) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(e) On the Closing Date (or, in the case of an entity that becomes a
Lender after the Closing Date, on the date such entity becomes a Lender) and
thereafter as required by applicable law, each Lender that is organized under
the laws of a jurisdiction outside the United States shall deliver to JCPenney
and the Agent such certificates, documents or other evidence, and any amendments
or supplements to such certificates, documents or other evidence, as required by
the Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1, 1.1441-2, 1.441-4(a)
or 1.1441-6(c) or any similar or successor provision, properly completed and
duly executed by such Lender (or the Agent) establishing that payments made
under this Agreement to such Lender (or to the Agent) are
<PAGE>
40
(i) not subject to withholding under the Code because such payments are
effectively connected with the conduct by such Lender (or the Agent) of a trade
or business in the United States or (ii) totally exempt from United States tax
under a provision of an applicable tax treaty. Unless JCPenney and the Agent
have received forms or other documents satisfactory to them indicating that
payments hereunder are not subject to Taxes or are subject to such Taxes at a
rate reduced by an applicable tax treaty, the appropriate Borrower shall
withhold Taxes from such payments at the applicable statutory rate in the case
of payments to or for any Lender (or to the Agent) organized under the laws of a
jurisdiction outside the United States.
(f) The Borrowers shall not be required to pay any additional amounts
to any Lender (or to the Agent) pursuant to paragraph (a) above if the
obligation to pay such additional amounts would not have arisen but for a
failure by such Lender (or the Agent) to comply with the provisions of paragraph
(e) above unless such failure results from a change occurring after the date of
this Agreement in applicable law or regulation or tax treaty or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having force
of law).
(g) The Borrowers shall not be liable under this Section 2.19 to any
Lender or to the Agent that has changed the location of its principal office or
any of its Applicable Lending Offices after the date (the "Relevant Date") on
which it first becomes a party to this Agreement (a "Change in Location") for
any Taxes that would have not been imposed but for a Change of Law enacted,
promulgated or effective before the Relevant Date, but only to the extent such
Taxes exceed the amount the Borrowers were required to pay such Lender or the
Agent pursuant to this Section 2.19 immediately prior to such Change in
Location.
(h) If any Lender or the Agent shall become aware that it is entitled
to receive a refund in respect of Taxes indemnified and paid by the Borrower,
such Lender or the Agent shall promptly notify the Borrowers of the availability
of such refund and shall, within 30 days after receipt of a request by JCPenney,
apply for such refund at JCPenney's expense. If any Lender or the Agent
receives a refund in respect of any Taxes for which such Lender or the Agent has
received payment from any Borrower hereunder, it shall within 30 days after
receipt thereof repay the lesser of such refund and the amount paid by the
Borrowers with respect to such Taxes to the appropriate Borrower, in each case
net of all
<PAGE>
41
reasonable out-of-pocket expenses of such Lender or the Agent and with interest
received by such Lender or the Agent from the relevant taxing authority
attributable to such refund; provided, however, that such Borrower, upon the
-------- -------
request of such Lender or the Agent, agrees to return such refund (plus
interest, penalties or other charges) to such Lender or the Agent in the event
such Lender or the Agent is required to repay such refund to any Governmental
Authority.
(i) Each Lender and the Agent severally (but not jointly) represents
and warrants to the Borrowers that, as of the date such person becomes a party
to this Agreement, payments made by the Borrowers to such Lender or to the Agent
in connection with the Agreement are effectively connected with the conduct by
such Lender or the Agent of a trade or business in the United States.
SECTION 2.20. Mitigation; Duties of Lenders and Agent. (a) If, with
----------------------------------------
respect to any Lender or the Agent, an event or circumstance occurs that would
entitle such Lender or the Agent to exercise any of the rights or benefits
afforded by Section 2.13 or 2.19(a), such Lender or the Agent, promptly upon
becoming aware of the same, shall take all steps as may be reasonably available
(including, as may be applicable, designating a different Applicable Lending
Office, making the affected Type of Loan through an Affiliate, or furnishing the
proper certificates under any applicable tax laws, tax treaties, conventions,
and governmental regulations to the extent that such certificates are legally
available to such Lender or to the Agent) to eliminate or mitigate the effects
of any event resulting in the ability of such Lender or the Agent to exercise
rights under any of such Sections; provided, however, that, no Lender or the
-------- -------
Agent shall be under any obligation to take any step that, in its reasonable
judgment, would (i) result in its incurring Additional Costs or taxes in
performing its obligations hereunder unless the Borrowers have expressly agreed
to reimburse it therefor or (ii) be materially disadvantageous to such Lender or
to the Agent. Within 60 days after the occurrence of any event giving rise to
any rights or benefits provided by Sections 2.13 and 2.19(a) in favor of any
Lender or the Agent, such Lender or the Agent (i) will notify the Borrowers of
such event or circumstance and (ii) provide the Borrowers with a certificate
setting forth in reasonable detail (x) the event or circumstance giving rise to
any benefit under Sections 2.13 and 2.19(a), (y) the effective date of, and the
time period during which, compensation for any Additional Costs or Taxes are
being claimed and (z) the determination of amount or amounts claimed thereby and
detailed calculations with respect
<PAGE>
42
thereto; provided, however, that if such Lender or the Agent does not give the
-------- -------
Borrowers such notice and certificate within the 60-day period set forth in this
sentence, the Borrowers shall be required to indemnify such Lender or the Agent
only for such Additional Costs and Taxes as are attributable to the period from
and after the first date as of which such notice and certificate have been
received by the Borrowers. Such Lender or the Agent shall notify the Borrowers
of any change in circumstances with respect to the event specified in the above-
described notice and certificate as promptly as practicable after such Lender or
the Agent obtains knowledge thereof. Such certificate shall be conclusive
absent manifest error. Notwithstanding the foregoing, no Lender or Agent shall
deliver the notice and certificate described in this paragraph (a) to the
Borrowers in respect of any Additional Costs or Taxes unless it is then the
general policy of such Lender or the Agent to pursue similar rights and remedies
in similar circumstances under comparable provisions of other credit agreements.
(b) With respect to Sections 2.13 and 2.19, the Borrowers shall have
the right, should any Lender request any compensation or indemnity thereunder,
to (i) unless an Event of Default shall have occurred and be continuing, (A)
promptly terminate such Lender's Commitment by irrevocable written or telex
notice of such termination to such Lender and the Agent without the necessity of
complying with Sections 2.11(b) and (c) hereof, (B) reduce the Total Commitments
by the amount of such Lender's Commitment, and (C) pay or prepay in immediately
available funds all Loans made by such Lender hereunder, together with accrued
and unpaid interest thereon and all other amounts owed to such Lender hereunder,
including under Section 2.15 in connection with any such prepayment or (ii)
require such Lender to assign its Commitment and Loans, without recourse to or
representation or warranty by such Lender, to another Lender or assignee
acceptable to the Borrowers and with the consent of the Agent, which consent
shall not be unreasonably withheld; provided, however, that (x) such assignment
-------- -------
shall not conflict with any statute, law, rule, regulation, order or decree of
any Governmental Authority and (y) the assigning Lender shall have received from
the Borrowers and/or such assignee full payment in immediately available funds
of the principal of and interest accrued to the date of such payment on the
Loans made by it hereunder to the extent that such Loans are subject to such
assignment and all other amounts owed to it hereunder. The Borrowers shall have
the right, should the Agent request any compensation or indemnity under such
Sections, to require the Agent to assign its rights and obligations hereunder to
a successor Agent with the consent
<PAGE>
43
of the Required Lenders, which consent shall not be unreasonably withheld.
(c) With respect to Sections 2.13 or 2.19
(i) other than with respect to Section 2.19(b), no Lender or Agent shall be
entitled to exercise any right or benefit afforded thereby and no Borrower shall
be obligated to reimburse any Lender or the Agent pursuant to such Sections
unless (x) such Lender or the Agent has delivered to the Borrowers in accordance
with Section 9.01 the notice and the certificate described in Section 2.20(a)
hereof and (y) the affected Borrower has had a 30-Business Day period following
the receipt of such notice and certificate (if such Borrower in good faith
disagrees with the assertion that any payment under such Sections is due or with
the amount shown as due on such certificate and so notifies the Lender or the
Agent of such disagreement within 10 Business Days following receipt of the
notice and certificate) to negotiate with the requesting Lender or the Agent,
which negotiations shall be conducted by the respective parties in good faith,
and to agree upon another amount that will adequately compensate such Lender or
the Agent, it being expressly understood that if such Borrower does not provide
the required notice of its disagreement as provided above, such Borrower shall
pay the amount shown as due on the certificate on the tenth Business Day
following receipt thereof and further if such Borrower does provide such
required notice, and negotiations are entered into but do not result in
agreement by such Borrower and such Lender or the Agent within the 30-Business
Day period, then such Borrower shall pay the amount shown as due on the
certificate on the last day of such period, but in either event not earlier than
the date as of which the relevant Additional Costs or Taxes are incurred, (ii)
other than with respect to Other Taxes, unless the appropriate notice and
certificate are delivered to the Borrowers within the 60-day period described in
Section 2.20(a), the Borrowers shall be liable only for Additional Costs, Taxes
or amounts required to be paid which are attributable to the period from and
after the date such notice and certificate have been received by the Borrowers,
(iii) the Borrowers' liability for any amounts incurred as a result of any
change in Applicable Lending Office shall be limited as set forth in Section
2.02(e), (iv) in no event shall the Borrowers be liable for any taxes (other
than Other Taxes) that would not have been imposed but for a connection between
such Lender or the Agent (other than by reason of the activities contemplated by
this Agreement) and the relevant taxing jurisdiction, (v) each Lender or the
Agent shall in good faith allocate all Additional Costs, Taxes, and payments
required to be made fairly among all its commitments and
<PAGE>
44
credit extensions (whether or not it seeks compensation from all affected
borrowers), (vi) no Lender or Agent shall be entitled to exercise any right or
benefit afforded hereby or receive any payment otherwise due under Sections 2.13
or 2.19 (including without limitation, any repayment by a Borrower of any refund
of Taxes pursuant to Section 2.19(h)) which arises from any gross negligence,
fraud or wilful misconduct of any Lender or the Agent, or the failure of such
Lender or the Agent to comply with the terms of this Agreement, (vii) if a
Lender or the Agent shall have recouped any amount or received any offsetting
tax benefit (other than a refund of Taxes as described in Section 2.19(h)) or
reserve or capital benefits theretofore paid to it by such Borrower, such Lender
or the Agent shall promptly pay to such Borrower an amount equal to the amount
of the recoupment received by such Lender or the Agent reduced by any reasonable
out-of-pocket expenses of such Lender or the Agent attributable to such
recoupment, as determined in good faith by such Lender or the Agent, and (viii)
the liability of either Borrower to any Lender or the Agent with respect to any
taxes shall be reduced to the extent that such Lender or the Agent receives an
offsetting tax benefit (or could have received such a benefit by taking
reasonable measures to receive it); provided, however, that there shall not be
-------- -------
any reductions pursuant to this clause (viii) with respect to any tax benefit
(x) the existence of which such Lender or the Agent is unaware, (y) the claiming
of which would result in any cost or tax to such Lender or the Agent (unless
such Borrower shall have agreed to pay its reasonably allocable portion of such
cost or tax) and (z) unless such Borrower shall agree to indemnify the Lender or
the Agent to the extent any tax benefit taken into account under this clause
(viii) is thereafter lost or becomes unavailable.
(d) In addition to their obligations under Section 2.19 hereof, each
of the Lenders and the Agent hereby agrees to execute and deliver, and to make
any required filings of, all certificates, agreements, documents, reports,
statements and other instruments as are reasonably necessary to effectuate the
purposes of this Section 2.20 and Sections 2.13 and 2.19. The Borrowers agree,
jointly and severally, to pay all filing fees incurred by any Lender or the
Agent in performing its obligations under this Section 2.20.
SECTION 2.21. Optional Increase in Commitments. At any time, if no
--------------------------------
Event of Default or Default shall have occurred and be continuing, the Borrowers
may, if they so elect in their sole discretion, increase the Total Commitment,
either by designating a person not theretofore a
<PAGE>
45
Lender to become a Lender or by agreeing with an existing Lender that such
Lender's Commitment shall be increased. Upon execution and delivery by the
Borrowers and such Lender or other person of an instrument of assumption in form
reasonably satisfactory to the Agent, such existing Lender shall have a
Commitment as therein set forth or such other person shall become a Lender with
a Commitment as therein set forth and all the rights and obligations of a Lender
with such a Commitment hereunder; provided:
--------
(i) that the Borrowers shall provide prompt notice of such
increase to the Agent, who shall promptly notify the other Lenders;
(ii) that the Commitment of any Lender does not exceed 10% of the
Total Commitment after such increase; and
(iii) that the amount of such increase, together with all other
increases in Commitments pursuant to this Section 2.21 since the date
of this Agreement, does not exceed $375,000,000.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrowers and the
---------------------
Restricted Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result in a Material
Adverse Effect, and (d) in the case of each Borrower, has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and each other agreement or instrument contemplated hereby to which it
is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance
--------------
by each Borrower of this Agreement and the borrowings hereunder (collectively,
the "Transactions") (a) have been duly authorized by all requisite corporate
and, if required, stockholder action and (b) will not (i) violate (A) any
applicable provision of law, statute, material rule or material regulation, or
of the certificate
<PAGE>
46
or articles of incorporation or other constitutive documents or by-laws of
JCPenney, Funding or any Restricted Subsidiary, (B) any applicable material
order of any Governmental Authority or (C) any material provision of any
indenture, agreement or other instrument to which JCPenney, Funding or any
Restricted Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, in each case in any material
respect, or (iii) result in the creation or imposition of any Lien upon or with
respect to any property or assets now owned or hereafter acquired by JCPenney,
Funding or any Restricted Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly executed
---------------
and delivered by each Borrower and constitutes a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms, except as enforceability may be limited by (a) any applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws relating to or affecting creditors' rights generally and (b)
general principles of equity.
SECTION 3.04. Governmental Approvals. No action, consent or approval
-----------------------
of, registration or filing with, or any other action by, any Governmental
Authority is or will be required in connection with the Transactions, except (a)
such as have been made or obtained and are in full force and effect or as to
which the failure to be made or obtained and in full force and effect would not
result in a Material Adverse Effect and (b) such periodic and current reports,
if any, as (i) are required to disclose the Transactions and (ii) will be filed
with the SEC on a timely basis.
SECTION 3.05. Financial Statements. Each of JCPenney and Funding has
---------------------
heretofore furnished to the Lenders its consolidated balance sheets and related
consolidated statements of income and cash flows (a) as of and for the fiscal
year ended January 27, 1996, audited by and accompanied by the opinion of KPMG
Peat Marwick L.L.P., independent public accountants, and (b) as of and for the
fiscal quarter and the portion of the fiscal year ended July 27, 1996, as filed
by JCPenney or Funding, as the case may be, with the SEC on Form 10-Q in respect
of such fiscal quarter. Such financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its Subsidiaries,
or of Funding and its Subsidiaries, as the case may be, in accordance with GAAP,
<PAGE>
47
subject, in the case of the financial statements referred to in clause (b)
above, to normal year-end audit adjustments.
SECTION 3.06. No Material Adverse Change. Except as set forth in
---------------------------
Schedule 3.06, as of the Closing Date, there has been no material adverse change
in the business, assets, operations or financial condition of JCPenney, Funding
or JCPenney and the Restricted Subsidiaries taken as a whole since January 27,
1996.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
------------------------------- -------------
of the Borrowers and the Restricted Subsidiaries has good and marketable title
to all its Principal Properties, except for minor defects in title and other
restrictions that do not interfere with its ability to conduct its business as
currently conducted or to utilize such Principal Properties for their intended
purposes. All the Principal Properties are free and clear of Liens, other than
Liens expressly permitted by Section 6.01.
(b) Each of the Borrowers and the Restricted Subsidiaries has valid
leasehold interests in all the material properties that it purports to hold
under lease, except for restrictions that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes. Each of the Borrowers and the Restricted Subsidiaries
has complied with all material obligations under all material leases to which it
is a party and all such leases are in full force and effect, except in each case
for provisions of such leases that are being contested in good faith in the
ordinary course of the Borrower's business. Each of the Borrowers and the
Restricted Subsidiaries enjoys peaceful and undisturbed possession under all
such material leases.
SECTION 3.08. Restricted Subsidiaries. Schedule 3.08 sets forth as of
------------------------
the Closing Date a list of all the Restricted Subsidiaries and the percentage
ownership interest of JCPenney therein. JCPenney owns, free and clear of all
Liens, all the issued and outstanding shares of the capital stock of Funding,
and all such outstanding shares are validly issued, fully paid and
nonassessable.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
---------------------------------
forth in Schedule 3.09 or as subsequently disclosed in writing to the Lenders,
there are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority now pending or, to the knowledge of any
Borrower, threatened against or affecting JCPenney or Funding or any Restricted
Subsidiary or any
<PAGE>
48
business, property or rights of any such person (i) which involve this Agreement
or the Transactions or (ii) as to which there is a reasonable possibility of an
adverse determination and which, if adversely determined, would, individually or
in the aggregate, result in a Material Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) None of the Borrowers or the
-----------
Restricted Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted or would result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing indebtedness for money borrowed, or any other material
agreement or instrument to which it is a party or by which it or any of its
material properties or material assets are bound, where such default would
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of the Borrowers
----------------------------
or the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose (except that such proceeds may be used to finance or
refinance the repurchase by JCPenney of its own common stock), or (ii) for any
purpose which entails a violation of, or which is inconsistent with, the
provisions of the Regulations of the Board, including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company
------------------------------ -----------------------
Act. None of the Borrowers is (a) an "investment company" as defined in, or
- ----
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding
<PAGE>
49
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds of
----------------
the Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the Restricted
------------
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the appropriate Borrower or Restricted Subsidiary
shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. No information, report,
--------------------------
financial statement, exhibit or schedule furnished by or on behalf of any
Borrower to the Agent or any Lender in connection with the negotiation of this
Agreement or included herein or delivered pursuant hereto contained, contains or
will contain any material misstatement of fact or omitted, omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. During the immediately
----------------------
preceding six-year period with respect to the Plans, there were no: (a)
violations known to the Borrowers of ERISA, or (b) Reportable Events (other than
a Reportable Event for which the PBGC has waived the 30-day notice requirement
of Section 4043(a) of ERISA), that would, individually or in the aggregate,
result in a Material Adverse Effect. The present value of all benefit
liabilities under each Plan (based on the assumptions used to fund such Plan)
does not exceed the value of the assets of such Plan. None of the Borrowers or
the ERISA Affiliates has made contributions to any Multiemployer Plan within the
past five years, and such contributions are not now being made or expected to be
required.
SECTION 3.17. Support Agreements. The Support Agreements have been
-------------------
duly executed and delivered by JCPenney and, where applicable, Funding and, as
of the Closing Date, are in full force and effect in accordance with their
terms. A complete and correct copy of each Support Agreement as in effect on
the Closing Date has previously been furnished to each Lender and to the Agent.
<PAGE>
50
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. Subject to the provisions of the last
---------------
sentence of this Section 4.01, on the date of each Borrowing:
(a) The Agent shall have received such notice of such Borrowing as is
required by Section 2.03 or Section 2.04, as applicable.
(b) The representations and warranties set forth in Article III hereof
(except, in the case of all Borrowings hereunder, the representation set
forth in Section 3.06) shall be true and correct in all material respects
on and as of the date of such Borrowing with the same effect as though
made on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing, no Event of
Default or Default shall have occurred and be continuing.
Each Borrowing (other than any new Borrowing described in the last sentence of
this Section 4.01) shall be deemed to constitute a representation and warranty
by the Borrowers on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01. Notwithstanding the other
provisions of this Section 4.01, the refinancing of any Borrowing with a new
Borrowing that does not increase the outstanding aggregate principal amount of
the Loans of any Lender shall not be subject to the satisfaction of any of the
foregoing conditions.
SECTION 4.02. First Borrowing. [INTENTIONALLY OMITTED].
----------------
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so long as
this Agreement shall remain in effect or the principal of or interest on any
Loan, any Fees or any other expenses or amounts payable under this Agreement
shall be
<PAGE>
51
unpaid, unless the Required Lenders shall otherwise consent in writing, each of
the Borrowers will, and will cause each of the Restricted Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause
-------------------------------------
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as would not cause a Default under Section
6.04 or otherwise cause an Event of Default under this Agreement.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations and orders
of any Governmental Authority, whether now in effect or hereafter enacted;
except in each case where the failure to do so would not result in a Material
Adverse Effect; and at all times maintain and preserve all property material to
the conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this
-------- -------
paragraph (b) shall prevent any Borrower or Restricted Subsidiary from
discontinuing the operation and maintenance of any of its properties no longer
deemed useful in the conduct of its business.
SECTION 5.02. Insurance. Maintain insurance and/or self insurance
----------
programs in force that adequately protect the Principal Properties and the
public liability exposures of the Borrowers, as may be required by law, and as
is customary with companies in the same or similar businesses or of the same
general financial net worth.
SECTION 5.03. Obligations and Taxes. Pay and discharge promptly when
----------------------
due all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its properties, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any material part thereof; provided, however, that such
-------- -------
payment and discharge shall not be required with
<PAGE>
52
respect to any such tax, assessment, charge, levy or claim so long as (a) the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and (b) the applicable Borrower has made appropriate reserves
therefor as required by GAAP.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
-----------------------------------
Borrowers, furnish to the Agent for distribution to the Lenders:
(a) as soon as available and in any event within 120 days after the end
of each fiscal year, a copy of the reports filed by each of JCPenney and
Funding with the SEC on Form 10-K in respect of such fiscal year,
accompanied by JCPenney's annual report in respect of such fiscal year or,
if either of JCPenney or Funding is not required to file such a report in
respect of such fiscal year, the consolidated balance sheets and related
consolidated statements of income and cash flows of JCPenney and its
Subsidiaries, or of Funding and its Subsidiaries, as the case may be, as
of the close of such fiscal year, all audited by KPMG Peat Marwick L.L.P.
or other independent public accountants of recognized national standing
and accompanied by an opinion of such accountants (which shall be in scope
and substance reasonably satisfactory to the Required Lenders) to the
effect that such consolidated financial statements fairly present the
financial position, results of operations and cash flows of JCPenney and
its Subsidiaries or of Funding and its Subsidiaries, as the case may be,
in accordance with GAAP;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarterly periods of each fiscal year, a copy
of the quarterly reports filed by each of JCPenney and Funding with the
SEC on Form 10-Q in respect of such quarterly period, or if either of
JCPenney or Funding is not required to file such a report in respect of
such quarterly period, the consolidated balance sheets and related
consolidated statements of income and cash flows of JCPenney and its
Subsidiaries, or of Funding and its Subsidiaries, as the case may be, as
of the close of such fiscal quarter, certified by its chief financial
officer, treasurer or controller as fairly presenting the financial
position, results of operations and cash flows of JCPenney and its
<PAGE>
53
Subsidiaries or of Funding and its Subsidiaries, as the case may be, in
accordance with GAAP, subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements by JCPenney
or Funding under (a) above (whether contained in a report filed with the
SEC or otherwise), a certificate of its chief financial officer,
president, treasurer or controller (i) stating that no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (ii) with
respect to JCPenney, setting forth computations in reasonable detail
demonstrating compliance with the covenant contained in Section 6.02;
(d) promptly after the same become publicly available, copies of all
documents and reports that any Borrower may be required to file with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, or with any Governmental Authority succeeding to any of
or all the functions of the SEC;
(e) promptly after the execution and delivery thereof by the parties
thereto, copies of all agreements and other instruments that have the
effect of amending, modifying or waiving any provision of a Support
Agreement; and
(f) promptly, from time to time, such other documents and information
regarding the operations, business affairs and financial condition of any
Borrower or Restricted Subsidiary, or compliance with the terms of this
Agreement, as the Agent or any Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the Agent
-----------------------------
prompt written notice of the following promptly after becoming aware thereof:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(b) the filing or commencement of, or any threat or notice of intention
of any person to file or commence, any action, suit or proceeding, whether
at law
<PAGE>
54
or in equity or by or before any Governmental Authority, against any
Borrower or Restricted Subsidiary which, if adversely determined, would
result in a Material Adverse Effect; and
(c) any development that has resulted in, or would result in, a
Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
------
applicable provisions of ERISA and (b) furnish to the Agent and each Lender (i)
as soon as possible, and in any event within 30 days after any Responsible
Officer of any Borrower or ERISA Affiliate either knows or has reason to know
that any Reportable Event has occurred that alone or together with any other
Reportable Events could reasonably be expected to result in liability of the
Borrowers and/or the Restricted Subsidiaries to the PBGC in an aggregate amount
exceeding $200,000,000, a statement of a Responsible Officer of JCPenney setting
forth details as to such Reportable Event and the action proposed to be taken
with respect thereto, together with a copy of the notice, if any, of such
Reportable Event given to the PBGC, (ii) promptly after receipt thereof, a copy
of any notice that any Borrower or ERISA Affiliate receives from the PBGC
relating to the intention of the PBGC to terminate any Plan or Plans (other than
a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint
a trustee to administer any Plan or Plans and (iii) within 10 days after the due
date for filing with the PBGC pursuant to Section 412(n) of the Code of a notice
of failure to make a required installment or other payment with respect to a
Plan, a statement of a Responsible Officer of JCPenney setting forth details as
to such failure and the action proposed to be taken with respect thereto,
together with a copy of such notice given to the PBGC. Any failure to comply
with applicable provisions of ERISA shall not be deemed to be material, unless
such failure or failures would result in a Material Adverse Effect.
SECTION 5.07. Maintaining Records; Access to Properties and
------------------------------ --------------
Inspections. Maintain all financial records in accordance with GAAP and permit
- ------------
any representatives designated by any Lender to (a) visit and inspect the
financial records and the Principal Properties of any Borrower or Restricted
Subsidiary during business hours upon reasonable notice, (b) make extracts from
and copies of such financial records, (c) discuss the affairs, finances and
condition of any Borrower or Restricted Subsidiary with the chief financial
officer, treasurer or any assistant treasurer
<PAGE>
55
of any Borrower or Restricted Subsidiary and (d) discuss the affairs, finances
and condition of any Borrower or Restricted Subsidiary with such person's
independent accountants in the presence of any of the chief financial officer,
treasurer or any assistant treasurer of such person. No such inspection,
discussion or other right granted under this Section 5.07 and exercised by any
Lender shall disrupt the normal and ordinary conduct of business of any Borrower
or Restricted Subsidiary, and all costs and expenses incurred in connection
therewith, shall, prior to the occurrence and continuance of an Event of
Default, be borne by the Lender exercising such right.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for
----------------
the purposes set forth in the preamble to this Agreement.
SECTION 5.09. Pari-Passu. Ensure that (a) the payment obligations of
-----------
any Borrower under this Agreement will at all times rank at least equally and
ratably in all respects with the claims of any other unsecured creditor of such
Borrower and (b) the proceeds of any Loan made to Funding will be used for the
purpose of making either (i) Investments of the type referred to in clause (v)
of Section 6.06(c) or (ii) loans to JCPenney constituting senior unsecured
indebtedness of JCPenney, and not for any other purpose.
SECTION 5.10. Support Agreements. Ensure that (a) each Support
-------------------
Agreement remains in full force and effect in accordance with its terms and (b)
no amendment or modification is made to any Support Agreement or any of the
terms thereof, and no waiver is given or agreed to be given by or on behalf of
Funding with respect to any of its rights under any Support Agreement, which
would have a Material Adverse Effect.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender and the Agent, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any Fees or any other expenses or amounts payable under this Agreement
shall be unpaid, unless the Required Lenders shall otherwise consent in writing,
as follows:
SECTION 6.01. Limitation on Liens--JCPenney. JCPenney will not, and
------------------------------
will not permit any Restricted Subsidiary to, issue, assume or guarantee any
notes, bonds, debentures or other similar evidences of indebtedness for
<PAGE>
56
money borrowed (referred to in this Section 6.01 as "indebtedness") secured by
any Lien upon any Principal Property, or shares of capital stock or evidences of
indebtedness for money borrowed issued by any Restricted Subsidiary and owned by
JCPenney or any Restricted Subsidiary, whether owned on the Closing Date or
thereafter acquired, without making effective provision whereby the Loans made
to JCPenney are secured by such Lien equally and ratably with any and all other
indebtedness thereby secured, so long as such indebtedness shall be so secured;
provided, however, that the foregoing restriction shall not apply to
- -------- -------
indebtedness secured by any of the following:
(i) Liens on any property existing at the time of acquisition thereof
by JCPenney or any Restricted Subsidiary;
(ii) Liens on property of a corporation existing at the time such
corporation is merged into or consolidated with JCPenney or any Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety or
substantially as an entirety to JCPenney or any Restricted Subsidiary,
provided that such Lien as a result of such merger, consolidation, sale,
--------
lease or other disposition is not extended to property owned by JCPenney
or such Restricted Subsidiary immediately prior thereto;
(iii) Liens on property of a corporation existing at the time such
corporation first becomes a Restricted
Subsidiary;
(iv) Liens securing indebtedness of a Restricted Subsidiary to
JCPenney or to another Restricted Subsidiary;
(v) Liens on property to secure all or part of the cost of acquiring,
substantially repairing or altering, constructing, developing or
substantially improving such property, or to secure indebtedness incurred
to provide funds for any such purpose or for reimbursement of funds
previously expended for any such purpose, provided that the commitment of
the creditor to extend the credit secured by any such Lien shall have been
obtained not later than twelve months after the later of (a) the
completion of the acquisition, substantial repair or alteration,
construction, development or substantial improvement of such property or
(b) the placing in operation of
<PAGE>
57
such property or of such property as so substantially repaired or altered,
constructed, developed or substantially improved;
(vi) Liens securing indebtedness payable on demand or not more than
one year after the date as of which the determination is made (excluding
any indebtedness renewable or extendable at the option of the debtor for a
period or periods ending more than one year after the date as of which
such determination is made), which indebtedness in accordance with GAAP
would be included among current liabilities; or
(vii) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred to in
the foregoing clauses (i) through (vi), inclusive; provided, however, that
-------- -------
the principal amount of indebtedness secured thereby and not otherwise
authorized by said clauses (i) through (vi), inclusive, shall not exceed
the principal amount of indebtedness, plus any premium or fee payable in
connection with any such extension, renewal or replacement, so secured at
the time of such extension, renewal or replacement;
(viii) Liens arising under workmen's compensation laws, unemployment
insurance laws and old age pensions or other social security benefits or
other similar laws;
(ix) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of business;
(x) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(xi) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(xii) Liens incidental to the normal conduct of the business of
JCPenney and its Restricted Subsidiaries
<PAGE>
58
or the ownership of their property and not securing Funded Indebtedness
(including zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto and with respect to leasehold interests, Liens that are incurred,
created, assumed or permitted to exist and arise by, through or under or
are asserted by a landlord or owner of the leased property, with or
without consent of the lessee) which do not in the aggregate materially
impair the value or use of the property used in the business of JCPenney
and its Restricted Subsidiaries taken as a whole, or the use of such
property for the purpose for which such property is held;
(xiii) Liens arising from capitalized lease obligations, such Liens
not to extend to any other property of JCPenney;
(xiv) Liens in respect of litigation or other similar proceedings in
an amount not to exceed $500,000,000 on an aggregate basis (i) the
validity of which is being currently contested on a timely basis in good
faith by appropriate proceedings (provided that the enforcement of any
Liens arising out of such proceedings shall be stayed during such
proceedings) and (ii) for which adequate reserves shall have been
established;
(xv) Liens in respect of leases or subleases granted to other persons
in the ordinary course of business and not materially interfering with the
conduct of business of JCPenney and its Restricted Subsidiaries;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
JCPenney or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of JCPenney and its
Restricted Subsidiaries; or
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law securing payment of customs duties in connection with the
importation of goods.
Notwithstanding the provisions of the immediately preceding sentence,
JCPenney or any Restricted Subsidiary may issue, assume or guarantee
indebtedness secured by Liens
<PAGE>
59
which would otherwise be subject to the restrictions of this Section in an
aggregate amount which, together with all attributable debt (as defined in
Section 5.09(b) of the Indenture) outstanding pursuant to Section 5.09(b) of the
Indenture, all Senior Funded Indebtedness outstanding pursuant to the second
sentence of Section 6.03(a), the capitalized amount of all capitalized leases
referred to in Section 6.05(j), and all indebtedness outstanding pursuant to
this sentence, does not exceed 5% of Stockholders' Equity.
SECTION 6.02. Limitations on Senior Funded Indebtedness. JCPenney
------------------------------------------
will not, and will not permit any Restricted Subsidiary to, issue, assume or
guarantee any Senior Funded Indebtedness (otherwise than in connection with any
renewal, extension or refunding of Senior Funded Indebtedness which does not,
except for any premium or fee payable in connection with such renewal, extension
or refunding, increase the unpaid principal amount of Senior Funded Indebtedness
outstanding), or sell, transfer or otherwise dispose of any Senior Funded
Indebtedness of a Restricted Subsidiary, unless, after giving effect thereto and
to the retirement of any Senior Funded Indebtedness to be retired substantially
concurrently therewith, Net Tangible Assets shall be at least 200% of Senior
Funded Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.03. Limitations with Respect to Restricted Subsidiaries.
----------------------------------------------------
(a) JCPenney will not permit any Restricted Subsidiary to issue, assume or
guarantee any Senior Funded Indebtedness; provided, however, that the foregoing
-------- -------
restriction shall not apply to any of the following:
(i) Senior Funded Indebtedness secured by a Lien permitted under the
first sentence of Section 6.01;
(ii) Senior Funded Indebtedness of a corporation existing at the time
such corporation is merged into or consolidated with a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety or
substantially as an entirety to a Restricted Subsidiary;
(iii) Senior Funded Indebtedness of a corporation existing at the time
such corporation first becomes a Restricted Subsidiary:
<PAGE>
60
(iv) Senior Funded Indebtedness of a Restricted Subsidiary to or held
by JCPenney or another Restricted Subsidiary; or
(v) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Senior Funded
Indebtedness referred to in the foregoing clauses (i) through (iv),
inclusive; provided, however, that the principal amount or the aggregate
-------- -------
preference on involuntary liquidation, as the case may be, of Senior
Funded Indebtedness issued pursuant to such extension, renewal or
replacement and not otherwise authorized by said clauses (i) through (iv),
inclusive, shall not exceed the principal amount or the aggregate
preference on involuntary liquidation, as the case may be, of the Senior
Funded Indebtedness so extended, renewed or replaced, plus any premium or
fee payable in connection with any such extension, renewal or replacement.
Notwithstanding the provisions of the immediately preceding sentence,
any Restricted Subsidiary may issue, assume or guarantee Senior Funded
Indebtedness which would otherwise be subject to the restrictions of this
Section 6.03(a) in an aggregate amount which, together with all indebtedness
outstanding pursuant to the second sentence of Section 6.01, all attributable
debt (as defined in Section 5.09(b) of the Indenture) outstanding pursuant to
Section 5.09(b) of the Indenture and all Senior Funded Indebtedness of the
Restricted Subsidiaries outstanding pursuant to this sentence, does not exceed
5% of Stockholders' Equity.
(b) JCPenney will not, and will not permit any Restricted Subsidiary
to, (i) sell or transfer (except to JCPenney or a Restricted Subsidiary) any
Senior Funded Indebtedness of a Restricted Subsidiary, except Senior Funded
Indebtedness secured by a Lien permitted under the provisions of the first
sentence of Section 6.01 and except to carry out a transaction permitted by
Section 6.03(c) or (ii) sell or transfer (except, in each case, to the extent,
if any, required to qualify directors of a Restricted Subsidiary under
applicable law or to permit any person to maintain his proportionate interest in
a Restricted Subsidiary or except to effect dissolution of any such Restricted
Subsidiary or to carry out a transaction permitted by Section 6.03(c) or except
to JCPenney or a Restricted Subsidiary) any shares of common stock of a
Restricted Subsidiary, unless all the common stock of such Restricted Subsidiary
at the time owned
<PAGE>
61
by JCPenney and the Restricted Subsidiaries shall be sold or transferred at the
same time and unless thereafter Net Tangible Assets shall be at least 200% of
Senior Funded Indebtedness of JCPenney and the Restricted Subsidiaries
(eliminating intercompany items).
(c) JCPenney will not permit any Restricted Subsidiary to sell or
otherwise dispose of its assets substantially as an entirety or consolidate with
or merge into any other corporation, unless the corporation to which such assets
shall be sold or otherwise disposed of or which shall be formed by or result
from such consolidation or merger shall be JCPenney or any Restricted Subsidiary
or unless thereafter Net Tangible Assets shall be at least 200% of Senior Funded
Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
--------------------------------------------
Acquisitions. (a) JCPenney shall not consoli-date with or merge into any other
- -------------
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, unless:
(i) the corporation formed by such consolidation or into which JCPenney
is merged or the person which acquires by conveyance or transfer the
properties and assets of JCPenney substantially as an entirety shall be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall expressly
assume, by an instrument in writing (delivered to the Lenders) the due and
punctual payment of the principal and interest, if any, on all the Loans
and all other amounts payable by JCPenney under this Agreement and all the
rights, interests and other obligations of JCPenney under this Agreement;
(ii) immediately after giving effect to such transaction, (x) the
representations and warranties set forth in Article III shall be true and
correct in all material respects on the date of such transaction with the
same effect as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date and (y)
no Event of Default or Default shall have occurred and be continuing; and
(iii) JCPenney shall have delivered an Officer's Certificate stating
that such consolidation, merger,
<PAGE>
62
conveyance or transfer and such written instrument comply with this
Section 6.04(a).
(b) Funding shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, except that Funding may merge into JCPenney or a direct
or indirect wholly-owned Subsidiary of JCPenney subject to the satisfaction of
the following conditions:
(i) the corporation formed by such consolidation or into which
Funding is merged or the person which acquires by conveyance or transfer
the properties and assets of Funding substantially as an entirety shall
expressly assume, by an instrument in writing (delivered to the Lenders)
the due and punctual payment of the principal and interest, if any, on all
the Loans and all other amounts payable by Funding under this Agreement
and all the rights, interests and other obligations of Funding under this
Agreement;
(ii) immediately after giving effect to such transaction, (x) the
representations and warranties set forth in Article III shall be true and
correct in all material respects on the date of such transaction with the
same effect as if made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date and (y)
no Event of Default or Default shall have occurred and be continuing; and
(iii) Funding shall have delivered an Officer's Certificate stating
that such consolidation, merger, conveyance or transfer and such written
instrument comply with this Section 6.04(b).
SECTION 6.05. Limitations on Liens--Funding. Funding will not, and
------------------------------
will not permit any of its Subsidiaries to, create or assume any Lien upon any
of the property of Funding or any such Subsidiary, whether now owned or
hereafter acquired, in connection with the borrowing of money or the acquisition
or construction of property; provided, however, that nothing in this Section
-------- -------
6.05 shall prevent or be deemed to prohibit:
(a) Funding or any of its Subsidiaries from acquiring property subject
to a Lien existing thereon at the time of acquisition, and assuming the
same, or from creating a Lien on property being constructed or
<PAGE>
63
acquired to secure a portion of the cost or purchase price thereof,
provided, however, that (i) any such Lien shall cover solely fixed assets
-------- -------
or other physical properties and (ii) such property is not or shall not
thereby become encumbered in an amount in excess of two-thirds of the
lesser of the cost and fair value thereof (as determined in good faith by
the board of directors of Funding);
(b) any Subsidiary of Funding from creating a Lien upon all or any part
of its property in favor of Funding or a wholly-owned Subsidiary of
Funding to secure indebtedness owed by such Subsidiary to Funding or a
wholly-owned Subsidiary;
(c) Liens existing on all or any part of the assets of a Subsidiary of
Funding at the time it shall become such a Subsidiary;
(d) Funding or any of its Subsidiaries from extending, renewing or
refunding any Lien permitted by the foregoing provisions of this Section
6.05 upon the same property theretofore subject thereto in connection with
the extension, renewal or refunding of the indebtedness secured thereby;
(e) Liens arising under workmen's compensation laws, unemployment
insurance laws and old age pensions or other social security benefits or
other similar laws;
(f) Liens securing the performance of bids, tenders, leases, contracts,
statutory obligations, surety and appeal bonds, and other obligations of
like nature, incurred in the ordinary course of business;
(g) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(h) Liens for taxes to the extent nonpayment thereof shall be permitted
by Section 5.03 hereof;
(i) Liens incidental to the normal conduct of the business of Funding
and its Subsidiaries or the
<PAGE>
64
ownership of their property and not securing Funded Indebtedness
(including zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto and with respect to leasehold interests, Liens that are incurred,
created, assumed or permitted to exist and arise by, through or under or
are asserted by a landlord or owner of the leased property, with or
without consent of the lessee) which do not in the aggregate materially
impair the value or use of the property used in the business of Funding
and its Subsidiaries taken as a whole, or the use of such property for the
purpose for which such property is held;
(j) Liens arising from capitalized lease obligations, such Liens not to
extend to any other property of Funding;
(k) Liens in respect of litigation or other similar proceedings in an
amount not to exceed $500,000,000 on an aggregate basis (i) the validity
of which is being currently contested on a timely basis in good faith by
appropriate proceedings (provided that the enforcement of any Liens
arising out of such proceedings shall be stayed during such proceedings)
and (ii) for which adequate reserves shall have been established;
(l) Liens in respect of leases or subleases granted to other persons in
the ordinary course of business and not materially interfering with the
conduct of business of Funding and its Subsidiaries;
(m) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by Funding or
any of its Subsidiaries in the ordinary course of business in accordance
with the past practices of Funding and its Subsidiaries; or
(n) Liens in favor of customs and revenue authorities arising as a
matter of law securing payment of customs duties in connection with the
importation of goods.
SECTION 6.06. Conduct of Funding's Business. (a) Funding will not,
------------------------------
and will not permit any Subsidiary of Funding to, engage in any business other
than dealing in Receivables and Penney Supplier Receivables, making Invest-
<PAGE>
65
ments as permitted by paragraph (c) below, financing the acquisition of
Receivables and Penney Supplier Receivables and making of such Investments, and
any activities incidental or related to the foregoing. Receivables at any time
acquired by Funding and its Subsidiaries from JCPenney and its Subsidiaries,
together with Receivables previously acquired from JCPenney and its Subsidiaries
and then owned by Funding and its Subsidiaries, shall be reasonably
representative of the then outstanding Receivables which have arisen in the
business of JCPenney and those Subsidiaries of JCPenney from which such
Receivables have been or are being acquired; provided, however, that Receivables
-------- -------
at any time acquired and owned by Funding and its Subsidiaries may exclude any
type or types of Receivables which are sold or assigned by JCPenney and its
Subsidiaries to one or more third parties if in the opinion of Funding's board
of directors such type or types of Receivables may be serviced more efficiently
or economically by any such third party than by JCPenney, Funding or any such
Subsidiary.
(b) Funding will not, and will not permit any of its subsidiaries to,
make any loan or advance to JCPenney or any Subsidiary of JCPenney (other than
Funding or a Subsidiary of Funding) except on a basis which in the opinion of
Funding's board of directors reasonably reflects sound credit practices at the
time of such loan or advance.
(c) Funding will not, and will not permit any of its subsidiaries to,
make any Investments, directly or indirectly, other than
(i) Investments in Receivables;
(ii) loans and advances to JCPenney and its Subsidiaries;
(iii) Investments in wholly-owned Subsidiaries of Funding or
Investments by any Subsidiary of Funding in Funding;
(iv) Investments in Penney Supplier Receivables; and,
(v) Investments in any direct and indirect obligations of the United
States of America or any agency thereof having a maturity not in excess of
ten years from the date of purchase; obligations having a maturity not in
excess of ten years from the date of purchase of any county, municipality
or state of the United States of America and having any of the three
<PAGE>
66
highest ratings assigned by any nationally recognized organization
regularly engaged in rating the investment quality of such obligations;
open market commercial paper; bankers' acceptances; certificates of
deposit; and other obligations which, in the opinion of Funding's board of
directors, are similar in risk, quality and maturity to any of the
foregoing.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) (i) any representation or warranty made or deemed made pursuant to
this Agreement shall prove to have been false or misleading in any
respect, or (ii) any material representation, warranty, statement or
information contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to this
Agreement shall prove to have been false or misleading in any respect; and
---
only if, in both subsection (i) and subsection (ii), such falsehood or
misleading matter would result in a Material Adverse Effect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise, and such default shall continue unremedied for one
Business Day;
(c) default shall be made in the payment of any interest on any Loan or
any Fee or any other amount (other than an amount referred to in (b)
above) due under this Agreement, when and as the same shall become due and
payable, and such default shall continue unremedied for a period of five
Business Days;
(d) default shall be made in the due observance or performance by the
Borrowers of any covenant, condition or agreement contained in Section
5.01(a), 5.05 or 5.10 or in Article VI and such default shall continue
unremedied for a period of five Business Days;
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67
(e) default shall be made in the due observance or performance by any
Borrower or Restricted Subsidiary of any covenant, condition or agreement
contained in this Agreement (other than those specified in (b), (c) or (d)
above) and such default shall continue unremedied for a period of 30 days
after notice thereof from the Agent or any Lender to such Borrower or, if
such default is able to be cured and such Borrower is using its best
efforts to cure such default, such longer period as is reasonably required
to cure such default;
(f) any Borrower or Restricted Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
indebtedness for borrowed money in a principal amount in excess of
$50,000,000, when and as the same shall become due and payable (after the
expiration of any applicable grace period), and (unless such indebtedness
is already due and payable at the time of such default) such default
results in an acceleration of such indebtedness and in either case is not
cured within five Business Days thereafter or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in any
agreement or instrument evidencing or governing any such indebtedness if
any failure referred to in this clause (ii) results in an acceleration of
such indebtedness that is not annulled or rescinded within 15 days after
the date of such acceleration;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of any Borrower or Material Subsidiary, or of a
substantial part of the property or assets of any Borrower or Material
Subsidiary, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for any Borrower or Material Subsidiary or for a substantial part
of the property or assets of any Borrower or Material Subsidiary or (iii)
the winding-up or liquidation of any Borrower or Material Subsidiary; and
such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
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68
(h) any Borrower or Material Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Borrower or Material Subsidiary or for a substantial part of the property
or assets of any Borrower or Material Subsidiary, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) admit in writing its inability or fail generally to pay
its debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $100,000,000 shall be rendered against any Borrower,
any Restricted Subsidiary or any combination of Borrowers and Restricted
Subsidiaries and the same shall remain undischarged for a period of 30
consecutive Business Days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to
levy upon assets or properties of any Borrower or Restricted Subsidiary to
enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to make a
required installment or other payment (within the meaning of Section
412(n)(l) of the Code), shall have occurred with respect to any Plan or
Plans that reasonably could be expected to result in liability of the
Borrowers to the PBGC or to any Plan or Plans in an aggregate amount
exceeding $200,000,000 and, within 30 days after the reporting of any such
Reportable Event to the Agent or after the receipt by the Agent of the
statement required pursuant to Section 5.06, the Agent shall have notified
the Borrowers in writing that (i) the Required Lenders have made a
determination that, on the basis of such Reportable Event or Reportable
Events or the failure to make a required payment, there are reasonable
grounds (A) for the termination
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69
of such Plan or Plans by the PBGC, (B) for the appointment by the
appropriate United States District Court of a trustee to administer such
Plan or Plans or (C) for the imposition of a lien in favor of a Plan and
(ii) as a result thereof an Event of Default exists hereunder; or a
trustee shall be appointed by a United States District Court to administer
any such Plan or Plans; or the PBGC shall institute proceedings to
terminate any Plan or Plans;
(k) Funding (or any permitted successor thereto under Section 6.04(b))
shall cease to be a direct or indirect wholly-owned subsidiary of JCPenney
(unless Funding or such permitted successor shall be merged into
JCPenney); or
(l) an Event of Default shall occur under the Tranche B Credit
Agreement.
then, and in every such event (other than an event described in paragraph (g)
or (h) above), and at any time thereafter during the continuance of such event,
the Agent, at the request of the Required Lenders, shall, by notice to the
Borrowers, take either or both of the following actions, at the same or
different times: (x) terminate forthwith the Commitments and (y) declare the
Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrowers accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers, anything contained
herein to the contrary notwithstanding; and in any event described in paragraph
(g) or (h) above, the Commitments shall automatically and immediately terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrowers
accrued hereunder, shall automatically and immediately become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrowers, anything contained herein to
the contrary notwithstanding.
ARTICLE VIII. THE AGENT
In order to expedite the transactions contemplated by this Agreement,
each Lender hereby appoints the Agent to act as its agent hereunder. Each of
the Lenders hereby
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70
irrevocably authorizes the Agent to take such actions on behalf of such Lender
and to exercise such powers as are specifically delegated to the Agent by the
terms and provisions hereof, together with such actions and powers as are
reasonably incidental thereto. The Agent is hereby expressly authorized by the
Lenders, without hereby limiting any implied authority, (a) to receive on behalf
of the Lenders all payments of principal of and interest on the Loans and all
other amounts due to the Lenders hereunder, and promptly to distribute to each
Lender its proper share of each payment so received; (b) to give notice on
behalf of each of the Lenders to the Borrowers of any Event of Default specified
in this Agreement of which the Agent has actual knowledge acquired in connection
with its agency hereunder; and (c) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrowers
pursuant to this Agreement as received by the Agent.
The Agent and its directors, officers, employees and agents shall not
be liable as such for any action taken or omitted by any of them, or be
responsible for any statement, warranty or representation herein or the contents
of any document delivered in connection herewith, except in each case to the
extent of its or his own gross negligence or wilful misconduct in connection
therewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrowers of any of the terms, conditions,
covenants or agreements contained in this Agreement. The Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other instruments or
agreements; provided, however, that the Agent shall be responsible for its own
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due execution of this Agreement and any other instrument or agreement relating
to this Agreement. The Agent shall in all cases be fully protected in acting,
or refraining from acting, in accordance with written instructions signed by the
Required Lenders (or, when expressly required hereby, all the Lenders) and,
except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any instrument or document believed by it in good faith to be genuine and
correct and to have been signed or sent by the proper person or persons. The
Agent and its directors, officers, employees and agents shall not have any
responsibility to any Borrower on account of the failure of or delay in
performance or breach by any Lender of any of its obligations hereunder or to
any Lender on account of the failure of or delay in performance or breach by any
other
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71
Lender or any Borrower of any of its respective obligations hereunder or in
connection herewith. The Agent may execute any and all of its duties hereunder
by or through agents of recognized standing or employees and shall be entitled
to rely upon the advice of legal counsel of recognized standing selected by it
with respect to all matters arising hereunder and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement unless it shall be requested in writing to do so by
the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by notifying the Lenders and
the Borrowers. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor; provided, however, that any such appointment shall
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be subject to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). If no successor shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent; provided, however, that any such appointment shall be subject
-------- -------
to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). Upon the acceptance of any
appointment as Agent hereunder by a permitted successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent shall be discharged from its duties
and obligations as Agent hereunder. After an Agent's resignation hereunder, the
provisions of this Article and Section 9.05 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
The Borrowers shall have the right to replace any Agent requesting
compensation under Section 2.19, but only in accordance with the provisions of
Section 2.20(b).
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72
With respect to the Loans made by it hereunder, the Agent (and any
Lender appointed as a successor Agent) in its individual capacity and not as
Agent shall have the same rights and powers as any other Lender and may exercise
the same as though it were not the Agent (or such successor Agent) and the Agent
and its Affiliates (and any such successor Agent and its Affiliates) may accept
deposits from, lend money to and generally engage in any kind of business with
any Borrower or Subsidiary or any Affiliate of any Borrower as if the Agent (or
such successor Agent) were not an Agent.
Each Lender agrees (i) to reimburse the Agent, on demand, in the amount
of its pro rata share (based on its Commitment hereunder) of any expenses (other
than expenses in connection with the negotiation, preparation and closing of
this Agreement) incurred for the benefit of the Lenders by the Agent, including
counsel fees and compensation of agents and employees paid for services rendered
on behalf of the Lenders, which shall not have been reimbursed by the Borrowers
and (ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees or agents, on demand, in the amount of such pro rata share,
from and against any and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against it in its capacity as an Agent or any of them in any way relating to or
arising out of this Agreement or any action taken or omitted by it or any of
them under this Agreement, to the extent the same shall not have been reimbursed
by the Borrowers; provided that no Lender shall be liable to the Agent for any
--------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or wilful misconduct of the Agent or any of its directors, officers,
employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder or thereunder.
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73
No Co-Agent shall have any duties or responsibilities hereunder in its
capacity as such.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telex, graphic scanning or other telegraphic
communications equipment, as follows:
(a) if to J.C. Penney, to it at J.C. Penney Company, Inc., 6501 Legacy
Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of Treasurer
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the same
address;
(b) if to Funding, to it at J.C. Penney Funding Corporation, 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of President
Telephone: (972) 431-2011
Telecopy: (972) 431-2044 With a copy to: General Counsel - J.C.
Penney Company, Inc., at the same address.
(c) if to the Agent, to it at Morgan Guaranty Trust Company of New
York, 60 Wall Street, 22nd Floor, New York, NY 10260, Attention of Ms.
Laura Reim
Telephone: (212) 648-6793
Telecopy: (212) 648-5336
(d) if to a Lender, to it at its address (or telecopy number) set forth
in Schedule 2.01.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telex, telecopy or other telegraphic communications equipment, or on the date
five Business Days after dispatch by certified or registered mail if mailed, in
each case delivered, sent or mailed (properly addressed) to such party as
provided in this Section 9.01 or in accordance with the latest unrevoked
direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any
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74
Borrower herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall be considered
to have been relied upon by the Lenders and shall survive the making by the
Lenders of the Loans, regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any Fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the
Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by each of the Borrowers and the Agent and when
the Agent shall have received copies hereof which, when taken together, bear the
signatures of each Lender, and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Lender and their respective
successors and permitted assigns in accordance with its terms, except that no
Borrower shall have any right to assign or delegate any of its respective rights
or duties hereunder or any interest herein without the prior consent of all the
Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of any Borrower, the Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and permitted assigns.
(b) Each Lender may assign to an Eligible Assignee, at the expense of
the assignor and/or the assignee, all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it); provided, however, that (i) except in
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the case of an assignment by a Lender to an Affiliate of such Lender which is a
bank or bank holding company, the Borrowers and the Agent must give their prior
written consent to such assignment (which consent in each case shall not be
unreasonably withheld), (ii) the amount of the Commitment of the assigning
Lender subject to such assignment (determined as of the date of such assignment)
shall not be less than $20,000,000 (or the remaining amount of the Commitment of
such Lender), (iii) other than the case of an assignment by a Lender of the
remaining amount of the Commitment of such Lender, no Lender shall make more
than two assignments under this Section 9.04(b) after the Closing Date and prior
to the
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75
Maturity Date, (iv) the parties to each such assignment shall execute and
deliver to the Agent an instrument evidencing such assignment (the "Assignment
Instrument") and a processing and recordation fee of $2,500 (which fee shall not
in any event be an obligation of the Borrowers) and (v) as of the date of such
assignment, except with the prior written consent of JCPenney, (x) the assignee
shall not have any right, and shall have no knowledge that such assignment would
result in its having the right, to request compensation pursuant to Section 2.13
or 2.19 after giving effect to such assignment in excess of any compensation to
which the assigning Lender would have been entitled under such Sections and (y)
the parties to such assignment shall have no knowledge that such assignment (A)
would cause it to be unlawful for any party thereto to make or maintain any
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to any Eurodollar Loan or (B) would cause any Borrower to incur any
liability under Section 2.15. Upon acceptance and recording pursuant to
paragraph (d) of this Section 9.04, from and after the effective date specified
in each Assignment Instrument, which effective date shall be at least five days
after the execution thereof, (A) the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment Instrument, shall
have the rights and obligations of, and shall for all purposes be, a Lender
under this Agreement and (B) the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment Instrument, be released from
its obligations under this Agreement (and, in the case of an Assignment
Instrument covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto (but, subject to Section 2.20, shall continue to be entitled to the
benefits of Sections 2.13, 2.15, 2.19 and 9.05, as well as to any Fees accrued
for its account hereunder and not yet paid)). Notwithstanding the foregoing,
any Lender assigning any portion of its rights and obligations under this
Agreement may retain any Competitive Loans made by it outstanding at such time,
and in such case shall retain its rights hereunder in respect of any Loans so
retained until such Loans have been repaid in full in accordance with this
Agreement. No assignment may be made by any Lender except in accordance with
the provisions of this Section 9.04(b).
(c) By executing and delivering an Assignment Instrument, the assignee
thereunder shall be deemed to confirm to and agree with the other parties hereto
as follows: (i) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most
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76
recent financial statements delivered pursuant to Section 5.04 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment Instrument; (ii) such
assignee will independently and without reliance upon the Agent, the assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (iii) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (iv) such assignee agrees that it will perform in accordance with their
terms all the obligations which by the terms of this Agreement are required to
be performed by it as a Lender.
(d) The Agent shall retain a copy of each Assignment Instrument
delivered to it and a register for the recordation of the name and address of,
and the Commitment of, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive in the absence of manifest error and
the Borrowers, the Agent and the Lenders may treat each person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by any Borrower or any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(e) Each Lender may without the consent of the Borrowers or the Agent
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it); provided, however, that (i) such
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Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other entities
shall not be entitled to the benefit of the provisions contained in Sections
2.13, 2.15, 2.19 and 9.05 and (iv) the Borrowers, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of the
Borrowers relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement (other than any amendments,
modifications or waivers decreasing any fees payable
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77
hereunder or the amount of principal of or the rate at which interest is payable
on the Loans, or extending any scheduled principal payment date or date fixed
for the payment of interest on the Loans, that would affect the Lender in
question and its participants).
(f) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to any Borrower furnished to such Lender by
or on behalf of such Borrower; provided that, prior to any such disclosure of
--------
information designated by such Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree to preserve the confidentiality
of such confidential information in accordance with Section 9.15.
(g) Any Lender may at any time, without the consent of any other party
hereto, assign all or any portion of its rights under this Agreement and any
notes issued to it to a Federal Reserve Bank provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at
the request of the assigning Lender, promptly execute and deliver to the
assigning Lender a note with terms in accordance with this Agreement, in a form
reasonably acceptable to the Agent and the Borrower, evidencing the Loans made
to the Borrower by the assigning Lender hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree, jointly
--------------------
and severally, to pay all reasonable out-of-pocket expenses incurred by the
Agent in connection with the negotiation, preparation and closing of this
Agreement, including the reasonable fees and disbursements of Davis Polk and
Wardwell, special counsel for the Agent, and, only with the written consent of
the Borrowers prior to any incurrence, all reasonable out-of-pocket expenses
incurred by the Agent in connection with any amendment, modification or waiver
of this Agreement. The Borrowers agree, jointly and severally, to pay all
reasonable out-of-pocket costs and expenses of the Agent and Lenders, as well as
the allocated costs of in-house counsel, in connection with the collection or
enforcement of this Agreement.
(b) The Borrowers agree, jointly and severally, to indemnify the
Agent, J.P. Morgan Securities Inc., each Lender and each of their respective
directors, officers and
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78
employees (each such person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any Indemnitee arising as a result of (i) any breach by
any Borrower of any of its obligations under this Agreement or any agreement or
instrument contemplated hereby, (ii) the use of the proceeds of the Loans or
(iii) any claim, litigation, investigation or proceeding relating to any of the
foregoing, if any Indemnitee is at any time a party thereto; provided that such
--------
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) arise in connection
with any judgment rendered by a court of competent jurisdiction in favor of any
Borrower and against such Indemnitee, (y) result from the gross negligence or
wilful misconduct of such Indemnitee (or, if such Indemnitee is a Lender or the
Agent, any of its directors, officers or employees) or (z) result from any
disputes among the Lenders and the Agent, or any of them, other than disputes
resulting from the fault of a Borrower.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement, or any investigation made by or on behalf of the
Agent or the Lender. All amounts due under this Section 9.05 shall be payable
on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing and any three Lenders representing at least
$50,000,000 in aggregate amount of the Commitments have requested the Agent, in
writing, in accordance with the provisions of Article VII, to declare the Loan
to be forthwith due and payable, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of any Borrower against any of and all the
obligations of such Borrower now or hereafter existing under this Agreement held
by such Lender (other than obligations purchased after such Event of Default
shall have become known to such Lender), irrespective of whether or not such
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this
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79
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have. Any Lender exercising its rights under this
Section shall give notice thereof to JCPenney concurrently with or prior to the
exercise of such rights.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
---------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Agent or Lender in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Agent, the Lenders and the
Borrowers hereunder are cumulative and are not exclusive of any rights or
remedies which they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on any Borrower in any
case shall entitle such Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
-------- -------
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan, or waive or excuse any such payment or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each Lender affected thereby, (ii) change the Commitment or decrease
the Facility Fees of any Lender without the prior written consent of such
Lender, or (iii) amend or modify the provisions of Section 2.16 or Section 9.03,
the provisions of this Section or the definition of the "Required Lenders",
without the prior written consent of each Lender; provided further that no such
-------- -------
agreement shall amend, modify or otherwise affect the rights or duties of the
Agent hereunder without the prior written consent of the Agent. Each Lender
shall be bound by any waiver, amendment or modification authorized by this
Section,
<PAGE>
80
and any consent by any Lender pursuant to this Section shall bind any subsequent
assignee of such Lender.
SECTION 9.09. Interest and Charges. Notwithstanding any other
---------------------
provision in this Agreement, no Lender shall ever be entitled to receive,
collect or apply, as interest on any amount owing to such Lender under this
Agreement or in connection herewith, any amount in excess of the Maximum Amount.
If any Lender ever receives, collects or applies, as interest, any such excess,
such excess shall be deemed a partial repayment of principal and treated
hereunder as such; and if principal is paid in full, any remaining excess shall
be paid to the appropriate Borrower. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount, the
Borrowers and the Lenders shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of this
Agreement so that the interest rate is uniform throughout the entire period that
any amount is outstanding under or in connection with this Agreement; provided,
--------
however, that if any obligation owing to a Lender hereunder or in connection
- -------
herewith is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received by such Lender on such obligation for
its actual term exceeds the Maximum Amount with respect thereto, such Lender
shall refund to the appropriate Borrower the amount of such excess or credit the
amount of such excess against the total principal amount of all amounts owing to
such Lender hereunder or in connection herewith, and, in such event, such Lender
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Maximum Amount.
SECTION 9.10. Entire Agreement. This written Agreement together with
-----------------
the letter agreement with respect to payment of fees dated November 7, 1996
represent the final agreement among the parties with respect to the subject
matter hereof and may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties. There are no unwritten oral
agreements among the parties with respect to the subject matter hereof.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the
<PAGE>
81
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) Each
----------------------------------- --------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to the foregoing and to paragraph (b) below, nothing in this Agreement
shall affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party hereto
in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent
<PAGE>
82
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.15. Confidentiality. Notwithstanding anything contained in
----------------
this Agreement to the contrary, the Lenders and the Agent shall hold in
confidence all agreements, statements, reports and information that are not in
the public domain concerning the Borrowers and their Subsidiaries that the Agent
or any Lender receives pursuant to or in connection with this Agreement. The
Agent and each of the Lenders shall not distribute any such confidential
information to other persons except (a) to its counsel, its Affiliates, its
examiners, regulatory authorities and prospective assignees of, or participants
in, its interest herein and their respective counsel (each of which shall be
instructed to hold the same in confidence, and in the case of any prospective
assignee or prospective participant, shall execute an agreement to such effect
pursuant to Section 9.04(f) as a condition to receiving a copy of this Agreement
and becoming an assignee or participant hereunder), (b) pursuant to legal
process, (c) in connection with litigation against or by the Lenders and/or the
Agent arising in connection with this Agreement or (d) with the prior written
consent of the Borrowers. The Agent and each of the Lenders shall give prior or
contemporaneous notice to the Borrowers of any disclosure by it of confidential
information pursuant to clause (b) or (c) above.
SECTION 9.16. Liability of Borrowers. Except as expressly provided in
-----------------------
this Agreement, the obligations of each Borrower hereunder shall be several
obligations with respect to Loans made to it.
SECTION 9.17. No Collateral. Each of the Lenders represents to the
-------------
Agent and each of the other Lenders that it in good faith is not relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
IN WITNESS WHEREOF, the Borrowers, the Agent, the Co-Agents and the
Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
<PAGE>
83
J.C. PENNEY COMPANY, INC.
By /s/ Robert B. Cavanaugh
------------------------
Title: Vice President & Treasurer
J.C. PENNEY FUNDING CORPORATION
By /s/ Frank N. Napoli
------------------------
Title: Vice President & Treasurer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Lender and as Agent
By /s/ Laura E. Reim
------------------------
Title: Vice President
CREDIT SUISSE
By /s/ James P. Moran
------------------------
Title: Member & Senior Management
By /s/ Thomas G. Muoio
------------------------
Title: Associate
BANK OF AMERICA ILLINOIS
By /s/ Claire Liu
------------------------
Title: Vice President
BANKERS TRUST COMPANY
By /s/ Anthony LoGrippo
------------------------
Title: Vice President
<PAGE>
84
THE CHASE MANHATTAN BANK
By /s/ Neil R. Boylan
------------------------
Title: Vice President
CITIBANK, N.A.
By /s/ Jolie Eisner
-------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Bianca Hemmen
-------------------------
Title: Senior Vice President
THE BANK OF NEW YORK
By /s/ Charlotte Sohn
------------------------
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ J. Mearns
------------------------
Title: Vice President & Manager
THE CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Robin W. Elliott
------------------------
Title: Authorized Signatory
By /s/ Aleksandra K. Dymanus
---------------------------
Title: Authorized Signatory
<PAGE>
85
CORESTATES BANK, N.A.
By /s/ Rodger Levenson
------------------------
Title: Vice President
FLEET BANK
By /s/ Thomas J. Bullard
------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ David J. Egan
------------------------
Title: Senior Vice President
ROYAL BANK OF CANADA
By /s/ Karen T. Hull
------------------------
Title: Manager, Corporate Banking
UNION BANK OF SWITZERLAND
By /s/ Michael J. Ahearn
------------------------
Title: Managing Director
By /s/ Daniel R. Strickford
-------------------------
Title: Assistant Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By /s/ David K. Alexander
------------------------
Title: Senior Vice President
<PAGE>
86
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Bethann R. Halligan
------------------------
Title: Division Executive
BANQUE NATIONALE DE PARIS
By /s/ David P. Camp
------------------------
Title: Banking Officer
DAI-ICHI KANGYO BANK, LTD.
By /s/ Masayoshi Komaki
------------------------
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Catherine A. Muszynski
---------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ Jane W. Workman
------------------------
Title: Senior Vice President
THE FUJI BANK, LTD.
By /s/ David Kelley
------------------------
Title: Senior Vice President
<PAGE>
87
MELLON BANK, N.A.
By /s/ Marc T. Kennedy
------------------------
Title: Assistant Vice President
NATIONAL AUSTRALIA BANK, LIMITED
A.C.N. 004044937
By /s/ Harvey R. Horowitz
------------------------
Title: Vice President
THE SAKURA BANK, LIMITED
NEW YORK BRANCH
By /s/ Yasumasa Kikuchi
------------------------
Title: Senior Vice President
SUNTRUST BANK
By /s/ Harold Bitler
------------------------
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/ Ken Taylor
------------------------
Title: Assistant Vice-President
BANK OF HAWAII
By /s/ Joseph T. Donalson
------------------------
Title: Vice President
<PAGE>
88
BANK ONE TEXAS, N.A.
By /s/ Scott Rhea
------------------------
Title: Assistant Vice President
BARCLAYS BANK PLC
By /s/ Gary Albanese
------------------------
Title: Associate Director
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Martha Skidmore
------------------------
Title: Vice President
By /s/ Eric Longuet
------------------------
Title: Vice President
CREDIT AGRICOLE
By /s/ W. Leroy Startz
------------------------
Title: First Vice President
THE HONGKONG SHANGHAI BANKING
CORPORATION LIMITED
By /s/ Chris Lewis
------------------------
Title: Vice President
By /s/ J.L. Peanick
------------------------
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By /s/ Akijiro Yoshino
------------------------
Title: Executive Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, HOUSTON OFFICE
(Authorized Representative)
<PAGE>
89
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., NEW YORK BRANCH
By /s/ Satoru Otsubo
------------------------
Title: Joint General Manager
THE NORTHERN TRUST COMPANY
By /s/ James F.T. Monhart
------------------------
Title: Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Scott D. Bjelde
------------------------
Title: Vice President
INSTITUTO BANCARIO SAN PAOLO
DI TORINO SPA-NEW YORK
By /s/ Robert Wurster
------------------------
Title: First Vice President
By /s/ William J. DeAngelo
------------------------
Title: First Vice President
THE SANWA BANK LTD.
By /s/ Robert S. Smith
------------------------
Title: Vice President
<PAGE>
90
THE SUMITOMO BANK, LTD.
By /s/ Harumitsu Seki
------------------------
Title: General Manager
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Chris J. Karlin
------------------------
Title: Vice President
YASUDA TRUST AND BANKING CO., LTD.
By /s/ Makoto Tagawa
------------------------
Title: Deputy General Manager
UNITED MISSOURI BANK, N.A.
By /s/ James A. Sangster
------------------------
Title: Divisional Executive Vice
President
FIRSTAR BANK MILWAUKEE, N.A.
By /s/ James Spredemann
------------------------
Title: Vice President
FIRST SECURITY BANK
OF UTAH, N.A.
By /s/ Judy C. Callister
------------------------
Title: Vice President
HIBERNIA NATIONAL BANK
By /s/ Edward K. Santos
------------------------
Title: Vice President
<PAGE>
91
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Attention: [ ] [Date]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the Revolving Credit
Agreement dated as of December 16, 1993, as amended and restated as of December
7, 1994, as amended as of December 6, 1995, as amended and restated as of
December 3, 1996 and as further amended, modified, extended or restated from
time to time (the "Credit Agreement"), among J.C. Penney Company, Inc.
("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders and
Morgan Guaranty Trust Company of New York, as Agent and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A.,
Credit Suisse and NationsBank of Texas, N.A., as Co-Agents. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower hereby gives you notice pursuant to Section
2.03(a) of the Credit Agreement that it requests a Competitive Borrowing under
the Credit Agreement, and in that connection set forth below the terms on which
such Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
-------------
(B) Principal Amount of Competitive
Borrowing/1/
-------------
(C) Interest rate basis/2/
-------------
- ------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the Total Commitment on the date of
such Borrowing minus the outstanding aggregate principal amount on such date of
all Competitive Loans
/2/ Eurodollar Loan, Fixed Rate Loan or CD Loan
<PAGE>
92
(D) Interest Period and the last
day thereof/3/
-------------
Upon acceptance of any or all of the Loans offered by the Lenders in response
to this request, the Borrower shall be deemed to have represented and warranted,
except as otherwise provided in Section 4.01, that the conditions to lending
specified in Section 4.01(b) and (c) of the Credit Agreement have been
satisfied.
Very truly yours,
By
---------------------------------
Title: [Responsible Officer]/4/
- --------------------------
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date
/4/Chairman, vice chairman, president, chief financial officer, treasurer or
controller of such corporation or any executive or senior vice president of such
corporation.
<PAGE>
1
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
[Date]
Attention: [ ]
Dear Sirs:
Reference is made to the Revolving Credit Agreement dated as of December
16, 1993, as amended and restated as of December 7, 1994, as amended as of
December 6, 1995, as amended and restated as of December 3, 1996 and as further
amended, modified, extended or restated from time to time (the "Credit
Agreement"), among J.C. Penney Company, Inc. ("JCPenney"), J.C. Penney Funding
Corporation ("Funding"), the Lenders and Morgan Guaranty Trust Company of New
York, as Agent and Bank of America Illinois, Bankers Trust Company, The Chase
Manhattan Bank, Citibank, N.A., Credit Suisse and NationsBank of Texas, N.A., as
Co-Agents. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Credit Agreement. [ ]/1/ made a
Competitive Bid Request on [ ], 19[ ], pursuant to Section 2.03(a) of the
Credit Agreement, and in that connection you are invited to submit a Competitive
Bid by [time], on [date]./2/ Your Competitive Bid must comply with Section
2.03(b) of the Credit Agreement and the terms set forth below on which the
Competitive Bid Request was made:
(A) Date of Competitive Borrowing
-------------
(B) Principal Amount of Competitive
Borrowing
-------------
- --------------------
/1/ JCPenney or Funding.
/2/ The Competitive Bid must be received by the Agent: (i) in the case of
Eurodollar Loans or CD Loans, not later than 9:00 a.m., New York City time,
three Business Days before the proposed Competitive Borrowing, and (ii) in the
case of Fixed Rate Loans, not later than 9:00 a.m., New York City time, on the
day of a proposed Competitive Borrowing
<PAGE>
2
(C) Interest rate basis
-------------
(D) Interest Period and the last
day thereof
-------------
Very truly yours,
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
By
---------------------------------
Title:
<PAGE>
1
EXHIBIT A-3
FORM OF COMPETITIVE BID
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [name of Lender], refers to the Revolving Credit Agreement
dated as of December 16, 1993, as amended and restated as of December 7, 1994,
as amended as of December 6, 1995, as amended and restated as of December 3,
1996 and as further amended, modified, extended or restated from time to time
(the "Credit Agreement"), among J.C. Penney Company, Inc. ("JCPenney"), J.C.
Penney Funding Corporation ("Funding"), the Lenders and Morgan Guaranty Trust
Company of New York, as Agent and Bank of America Illinois, Bankers Trust
Company, The Chase Manhattan Bank, Citibank, N.A. and NationsBank of Texas,
N.A., as Co-Agents. Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Credit Agreement. The undersigned
hereby makes a Competitive Bid pursuant to Section 2.03(b) of the Credit
Agreement, in response to the Competitive Bid Request made by [ ]/1/ on
[ ], 19[ ], and in that connection sets forth below the terms on
which such Competitive Bid is made:
(A) Principal Amount/2/
-------------
(B) Competitive Bid Rate[s]/3/
-------------
- ------------------
/1/ JCPenney or Funding.
/2/ An integral multiple of $5,000,000 (unless equal to the requested
Competitive Borrowing) and not greater than the requested Competitive Borrowing.
Multiple bids will be accepted by the Agent.
/3/ One or more rates; i.e., LIBO Rate + or - ___%, in the case of Eurodollar
----
Loans, Adjusted CD Rate + or - ___%, in the case of CD Loans, or ____%, in the
case of Fixed Rate Loans.
<PAGE>
2
(C) Interest Rate Period and last
day thereof
-------------
The undersigned hereby confirms that it will, subject only to the
conditions set forth in the Credit Agreement, extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of the
Credit Agreement.
Very truly yours,
[NAME OF LENDER]
By
-----------------------------------
Title:
<PAGE>
1
EXHIBIT A-4
FORM OF STANDBY BORROWING REQUEST
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the Revolving Credit
Agreement dated as of December 16, 1993, as amended and restated as of December
7, 1994, as amended as of December 6, 1995, as amended and restated as of
December 3, 1996 and as further amended, modified, extended or restated from
time to time (the "Credit Agreement"), among J.C. Penney Company, Inc.
("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders and
Morgan Guaranty Trust Company of New York, as Agent and Bank of America
Illinois, Bankers Trust Company, The Chase Manhattan Bank, Citibank, N.A.,
Credit Suisse and Nationsbank of Texas, N.A., as Co-Agents. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. The Borrower hereby gives you notice pursuant to Section
2.04 of the Credit Agreement that it requests a Standby Borrowing under the
Credit Agreement, and in that connection sets forth below the terms on which
such Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
-------------
(B) Principal Amount of Standby
Borrowing/1/
-------------
(C) Interest rate basis/2/
-------------
- ------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the remaining available balance of
the Total Commitment.
/2/ Eurodollar Loan or ABR Loan. Notice under Section 2.04 is necessary to
refinance a Standby Borrowing with a Eurodollar Borrowing. In the absence of
such a notice,
<PAGE>
2
(D) Interest Period and the Last
day thereof/3/
-------------
Upon acceptance of any or all of the Loans made by the Lenders in response
to this request, the Borrower shall be deemed to have represented and warranted,
except as otherwise provided in Section 4.01, that the conditions to lending
specified in Section 4.01(b) and (c) of the Credit Agreement have been
satisfied; provided, however, that in the case of a refinancing of a Standby
-------- -------
Borrowing with a new Standby Borrowing that does not increase the outstanding
aggregate principal amount of the Loans of any Lender, the Borrower shall not be
subject to the satisfaction of any of the Section 4.01 conditions.
Very truly yours,
By
------------------------------------
Title: [Responsible Officer]/4/
- -----------------------
unless the Borrowing is repaid at the end of the applicable Interest Period, the
Borrower shall be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing of 5 days' duration.
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
/4/ Chairman, vice chairman, president, chief financial officer, treasurer, or
controller of such corporation or any executive or senior vice president of such
corporation.
<PAGE>
1
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE>
1
EXHIBIT C
GUARANTY
--------
This Guaranty Agreement is executed as of this 3rd
day of December, 1996, by J.C. Penney Company, Inc., a
Delaware corporation ("Guarantor"), in favor of J.C.
Penney Funding Corporation, a Delaware corporation
("Funding"), and the lenders ("") (as defined below).
RECITALS:
--------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day and
Five-Year Revolving Credit Agreements (collectively, the "Agreements") dated as
of December 16, 1993, as amended and restated with new Lenders as of December 7,
1994, as amended as of December 6, 1995, as amended and restated as of December
3, 1996 and as further amended, modified, extended or restated from time to time
with the written consent of the Guarantor (the "Restated Agreements"), among
Guarantor, Funding, Morgan Guaranty Trust Company of New York, as agent for the
Lenders, Bank of America Illinois, Bankers Trust Company, The Chase Manhattan
Bank, Citibank, N.A., Credit Suisse and Nationsbank of Texas, N.A., as co-agents
for the Lenders, and certain other financial institutions named in the Restated
Agreements (collectively, the "Lenders") in amounts not to exceed One Billion
Five Hundred Million Dollars ($1,500,000,000) and One Billion Five Hundred
Million Dollars ($1,500,000,000), respectively; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding under
the Restated Agreements on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises, Guarantor hereby agrees
as follows:
1. Subject to the terms and conditions of subordination set forth in this
Guaranty, Guarantor hereby unconditionally guarantees in favor of the Lenders,
the prompt payment when
<PAGE>
2
due of all interest, principal, and other amounts owing under the Restated
Agreements (collectively, the "Guaranteed Debt"). This is an unconditional
guaranty of payment, and in the event of default by Funding in the payment of
interest, principal, or any other amounts payable under the Guaranteed Debt, the
Lenders may proceed directly against Guarantor to enforce this Guaranty
(including by the institution of legal proceedings) without first proceeding
against Funding.
2. Guarantor acknowledges that it has received and will receive a direct
or indirect benefit from the making of this Guaranty and the creation of the
Guaranteed Debt.
3. a. The Guaranteed Debt shall be subordinated and subject in right of
payment to the prior payment in full of any and all other indebtedness for
borrowed money incurred, created, assumed, or otherwise guaranteed by Guarantor
(collectively referred to as the Guarantor's "Senior Debt").
b. In the event of (1) any dissolution or winding-up or total or partial
liquidation or reorganization of Guarantor, whether voluntary or involuntary, or
any bankruptcy, insolvency, receivership, or similar proceeding relative to
Guarantor, or (2) any default in the payment of principal (including any
acceleration or required prepayments or amortization) of or interest on any
Senior Debt of Guarantor, then, subject to the provisions of subsection d.
below, the Lenders shall not be entitled to receive any payment under this
Guaranty on account of the Guaranteed Debt unless and until all Senior Debt
shall have been paid in full or otherwise discharged.
c. For purposes of determining the priority of payments between the Senior
Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or any part
thereof, is declared due and payable prior to its stated maturity, all principal
of and interest and any other amounts due on all Senior Debt outstanding at the
time of such declaration as to the Guaranteed Debt shall first have been paid in
full, before any payment is made by Guarantor upon the Guaranteed Debt.
d. In no event shall any Lender be required by this subordination to refund
any amounts paid to it pursuant to this Guaranty on account of the Guaranteed
Debt prior to the events specified in subsections b. and c. above, and prior to
such events the Lenders shall be entitled to be paid hereunder as agreed and to
collect any sums due such Lenders hereunder by any lawful means.
<PAGE>
3
e. The provisions of this Section are for the purpose of defining the
relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation of Guarantor, which is
unconditional and absolute, to guarantee the prompt payment when due of the
Guaranteed Debt in accordance with the terms and provisions thereof; nor shall
anything herein prevent the Lenders from exercising all remedies otherwise
permitted by applicable law upon default hereunder, subject to the rights, if
any, under this Section of any Senior Debt holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
J.C. PENNEY COMPANY, INC.,
a Delaware corporation, as Guarantor,
By /s/
---------------------------------
Name: Robert B. Cavanaugh
Title: Vice President & Treasurer
<PAGE>
4
EXHIBIT D
---------
PRICING SCHEDULE
The "Facility Fee Percentage" and "Euro-Dollar Margin" for any day are
the respective percentages set forth below in the applicable row under the
column corresponding to the Category that exists on such day:
<TABLE>
<CAPTION>
================================================================
Category I II III IV V VI
================================================================
<S> <C> <C> <C> <C> <C> <C>
Facility 0.065% 0.070% 0.080% 0.100% 0.1750% 0.250%
Fee
Percentage
- ----------------------------------------------------------------
Euro- 0.1350% 0.1550% 0.170% 0.200% 0.3750% 0.500%
Dollar
Margin
===============================================================
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Category I" exists at any date if, at such date, the Index Debt is rated
at least A+ by S&P or A1 by Moody's.
"Category II" exists at any date if, at such date, (i) the Index Debt is
rated at least A by S&P or A2 by Moody's and (ii) Category I does not exist.
"Category III" exists at any date if, at such date, (i) the Index Debt is
rated at least A- by S&P or A3 by Moody's and (ii) neither Category I nor
Category II exists.
"Category IV" exists at any date if, at such date, (i) the Index Debt is
rated at least BBB+ by S&P or Baa1 by Moody's and (ii) none of Category I,
Category II and Category III exists.
"Category V" exists at any date if, at such date, (i) the Index Debt is
rated at least BBB- by S&P or Baa3 by Moody's and (ii) none of Category I,
Category II, Category III and Category IV exists.
<PAGE>
5
"Category VI" exists at any date if, at such date, (i) the Index Debt is
rated below BBB- by S&P or below Baa3 by Moody's and (ii) no other Category
exists.
"Category" refers to the determination of which of Category I, Category
II, Category III, Category IV, Category V or Category VI exists at any date.
"Moody's" means Moody's Investors Services, Inc.
"S&P" means Standard & Poor's Ratings Services.
For purposes of the foregoing, (i) if no rating for the Index Debt shall
be available from either rating agency, (other than because (a) such rating
agency shall no longer be in the business of rating corporate debt obligations
or (b) of any other reason outside the control of JCPenney and Funding), such
rating agency shall be deemed to have established a rating in Category VI and
(ii) if any rating established or deemed to have been established by Moody's or
S&P shall be changed (other than as a result of a change in the rating system of
either Moody's or S&P), such change shall be effective as of the date on which
such change is first publicly announced by the rating agency making such change.
If the rating system of either Moody's or S&P shall change prior to the Maturity
Date, or if either such rating agency shall cease to be in the business of
rating corporate debt obligations or shall no longer have in effect a rating for
any reason outside the control of JCPenney and Funding, the Borrowers and the
Lenders shall negotiate in good faith to amend the references to specific
ratings in this definition to reflect such changed rating system or the absence
of such a rating. Pending agreement on any such amendment, (i) if the rating
system of one such rating agency shall remain unchanged, or if a rating shall be
available from one such rating agency, the Facility Fee Percentage and the Euro-
Dollar Margin shall be determined by reference to the rating established by such
rating agency, (ii) if no rating for the Index Debt shall be available from
either rating agency then (A) for 60 days, the Facility Fee Percentage and the
Euro-Dollar Margin shall be determined by reference to the rating or ratings
most recently available, (B) after 60 days, the Facility Fee Percentage and the
Euro-Dollar Margin shall be determined by reference to Category V (or Category
VI if such Percentage or Margin shall have been determined by reference to
Category V or VI under clause (A) above) and (C) after 180 days, the Facility
Fee Percentage or Euro-Dollar Margin shall be determined by reference to
Category VI.
In the case of split ratings from S&P and Moody's, the rating to be used
to determine Categories is the higher of the two (e.g., A+/A2 results in
---
Category I); provided that in the event the split is more than one full ratings
--------
"notch", the average rating (or the higher of the two intermediate ratings)
shall be used (e.g., A+/A3 results in
----
<PAGE>
6
Category II, as does A+/Baa1); and provided further that if at any date the
----------------
Index Debt is rated BB+ or lower by S&P or Ba1 or lower by Moody's, the Facility
Fee Percentage and the Euro-Dollar Margin shall be determined by reference to
Category VI; and provided further that the Facility Fee Percentage and the Euro-
----------------
Dollar Margin shall be determined by reference to Category III from December 3,
1996 until such time thereafter as the ratings by S&P and Moody's of the Index
Debt are either affirmed or changed.
<PAGE>
SCHEDULE 2.01
LENDERS
-------
Name of Lender and Address for Notices /1/ Commitment
- ------------------ ------------------- --- ----------
Applicable Lending
- ------------------
Office /1/
- ------ ---
Morgan Guaranty Trust $87,500,000
Company of New York
Credit Suisse $75,000,000
Bank of America Illinois $62,500,000
Bankers Trust Company $62,500,000
The Chase Manhattan Bank $62,500,000
Citibank, N.A. $62,500,000
NationsBank of Texas, N.A. $62,500,000
The Bank of New York $50,000,000
The Bank of Tokyo-Mitsubishi, LTD. $50,000,000
The Canadian Imperial $50,000,000
Bank of Commerce
Corestates Bank, N.A. $50,000,000
Fleet Bank $50,000,000
PNC Bank, National $50,000,000
Association
Royal Bank of Canada $50,000,000
Union Bank of Switzerland $50,000,000
Wachovia Bank of Georgia, N.A. $50,000,000
The First National Bank $28,750,000
of Boston
Banque Nationale de Paris $28,750,000
Dai-Ichi Kangyo Bank, LTD. $28,750,000
The First National Bank of Chicago $28,750,000
- -----------------
/1/ As per Agent's Administrative Questionnaires.
<PAGE>
First Union National Bank $28,750,000
of North Carolina
The Fuji Bank, LTD. $28,750,000
Mellon Bank, N.A. $28,750,000
National Australia Bank, $28,750,000
Limited
The Sakura Bank, Limited $28,750,000
New York Branch
SunTrust Bank $28,750,000
Wells Fargo Bank, N.A. $28,750,000
Bank of Hawaii $15,000,000
Bank One Texas, N.A. $15,000,000
Barclays Bank PLC $15,000,000
Compagnie Financiere de CIC $15,000,000
et de L'Union Europeenne
Credit Agricole $15,000,000
The HongKong Shanghai Banking $15,000,000
Corporation Limited
The Industrial Bank of Japan $15,000,000
Trust Company
The Long Term Credit Bank of $15,000,000
Japan, LTD., New York Branch
The Northern Trust Company $15,000,000
Norwest Bank Minnesota, $15,000,000
National Association
Instituto Bancario San Paolo $15,000,000
Di Torino Spa-New York
The Sanwa Bank, LTD. $15,000,000
The Sumitomo Bank, LTD. $15,000,000
United States National $15,000,000
Bank of Oregon
Yasuda Trust and Banking $15,000,000
Company, LTD.
UMB Bank, n.a. $10,000,000
<PAGE>
Firstar Bank Milwaukee, N.A. $ 8,750,000
First Security Bank of Utah, N.A. $ 7,500,000
Hibernia National Bank $ 7,500,000
<PAGE>
SCHEDULE 3.06
MATERIAL ADVERSE CHANGE
-----------------------
None
<PAGE>
SCHEDULE 3.08
RESTRICTED SUBSIDIARIES
-----------------------
J. C. Penney Life Insurance Company
J. C. Penney Properties, Inc.
Thrift Drug, Inc.
<PAGE>
SCHEDULE 3.09
MATERIAL LITIGATION
-------------------
None
<PAGE>
EXHIBIT 4(f)
EXECUTION COPY
================================================================================
J. C. PENNEY COMPANY, INC.
J. C. PENNEY FUNDING CORPORATION
____________________
$1,500,000,000
364-DAY REVOLVING CREDIT AGREEMENT
Dated as of December 3, 1996
____________________
BANK OF AMERICA ILLINOIS, BANKERS TRUST COMPANY,
THE CHASE MANHATTAN BANK, CITIBANK, N.A.,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
AND NATIONSBANK OF TEXAS, N.A., as Co-Agents
and
CREDIT SUISSE,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Article Section Page
- ------- ------- ----
I. DEFINITIONS......................................................... 1
1.01. Defined Terms....................................... 1
-------------
1.02. Terms Generally..................................... 15
---------------
II. THE CREDITS......................................................... 15
2.01. Commitments......................................... 15
-----------
2.02. Loans............................................... 15
-----
2.03. Competitive Bid Procedure........................... 17
-------------------------
2.04. Standby Borrowing Procedure......................... 19
---------------------------
2.05. Refinancings........................................ 20
------------
2.06. Fees................................................ 20
----
2.07. Repayment of Loans; Evidence of the Borrowers'
---------------------------------------------
Obligations........................................ 20
-----------
2.08. Interest on Loans................................... 21
-----------------
2.09. Default Interest.................................... 22
----------------
2.10. Alternate Rate of Interest.......................... 22
--------------------------
2.11. Termination and Reduction of Commitments............ 22
----------------------------------------
2.12. Prepayment.......................................... 23
----------
2.13. Reserve Requirements; Change in Circumstances....... 23
---------------------------------------------
2.14. Change in Legality.................................. 24
------------------
2.15. Indemnity........................................... 25
---------
2.16. Pro Rata Treatment.................................. 26
------------------
2.17. Sharing of Setoffs.................................. 26
------------------
2.18. Payments............................................ 27
--------
2.19. Taxes............................................... 27
-----
2.20. Mitigation; Duties of Lenders and
----------------------------------
Administrative Agent............................... 29
--------------------
III. REPRESENTATIONS AND WARRANTIES.................................... 31
3.01. Organization; Powers................................ 31
--------------------
3.02. Authorization....................................... 32
-------------
3.03. Enforceability...................................... 32
--------------
3.04. Governmental Approvals.............................. 32
----------------------
3.05. Financial Statements................................ 32
--------------------
3.06. No Material Adverse Change.......................... 32
--------------------------
3.07. Title to Properties; Possession Under Leases........ 33
--------------------------------------------
3.08. Restricted Subsidiaries............................. 33
-----------------------
3.09. Litigation; Compliance with Laws.................... 33
--------------------------------
3.10. Agreements.......................................... 33
----------
<PAGE>
Contents, p.2
Article Section Page
- ------- ------- ----
3.11. Federal Reserve Regulations......................... 33
---------------------------
3.12. Investment Company Act; Public Utility Holding
----------------------------------------------
Company Act........................................ 34
-----------
3.13. Use of Proceeds..................................... 34
---------------
3.14. Tax Returns......................................... 34
-----------
3.15. No Material Misstatements........................... 34
-------------------------
3.16. Employee Benefit Plans.............................. 34
----------------------
3.17. Support Agreements.................................. 34
------------------
IV. CONDITIONS OF LENDING.............................................. 35
4.01. All Borrowings...................................... 35
--------------
4.02. First Borrowing..................................... 35
---------------
V. AFFIRMATIVE COVENANTS.............................................. 36
5.01. Existence; Businesses and Properties................ 36
------------------------------------
5.02. Insurance........................................... 36
---------
5.03. Obligations and Taxes............................... 37
---------------------
5.04. Financial Statements, Reports, etc.................. 37
----------------------------------
5.05. Litigation and Other Notices........................ 38
----------------------------
5.06. ERISA............................................... 38
-----
5.07. Maintaining Records; Access to Properties
-----------------------------------------
and Inspections.................................... 39
---------------
5.08. Use of Proceeds..................................... 39
---------------
5.09. Pari Passu.......................................... 39
----------
5.10. Support Agreements.................................. 39
------------------
VI. NEGATIVE COVENANTS................................................. 39
6.01. Limitation on Liens--JCPenney....................... 39
-----------------------------
6.02. Limitations on Senior Funded Indebtedness........... 42
-----------------------------------------
6.03. Limitations with Respect to Restricted Subsidiaries. 42
---------------------------------------------------
6.04. Mergers, Consolidations, Sales of Assets
----------------------------------------
and Acquisitions................................... 43
----------------
6.05. Limitations on Liens--Funding....................... 44
-----------------------------
6.06. Conduct of Funding's Business....................... 46
-----------------------------
VII. EVENTS OF DEFAULT.................................................. 47
VIII. THE ADMINISTRATIVE AGENT........................................... 49
IX. MISCELLANEOUS...................................................... 52
9.01. Notices............................................. 52
-------
9.02. Survival of Agreement............................... 53
---------------------
9.03. Binding Effect...................................... 53
--------------
9.04. Successors and Assigns.............................. 53
----------------------
9.05. Expenses; Indemnity................................. 55
-------------------
9.06. Right of Setoff..................................... 56
---------------
9.07. Applicable Law...................................... 56
--------------
<PAGE>
Contents, p. 3
Article Section Page
- ------- ------- ----
9.08. Waivers; Amendment.................................. 56
------------------
9.09. Interest and Charges................................ 57
--------------------
9.10. Entire Agreement.................................... 57
----------------
9.11. Severability........................................ 57
------------
9.12. Counterparts........................................ 58
------------
9.13. Headings............................................ 58
--------
9.14. Jurisdiction; Consent to Service of Process......... 58
-------------------------------------------
9.15. Confidentiality..................................... 58
---------------
9.16. Liability of Borrowers.............................. 59
----------------------
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Standby Borrowing Request
Exhibit B Form of Guaranty
Exhibit C Form of Closing Certificate
Exhibit D Form of Opinion
Exhibit E Form of Assignment and Acceptance
Schedule 2.01 Commitments
Schedule 3.06 Disclosure
Schedule 3.08 Restricted Subsidiaries
Schedule 3.09 Material Litigation
<PAGE>
364-DAY REVOLVING CREDIT AGREEMENT dated as of December
3, 1996 (the "Agreement"), among J. C. PENNEY COMPANY, INC., a
Delaware corporation ("JCPenney"), J. C. PENNEY FUNDING
CORPORATION, a Delaware corporation ("Funding"), the lenders
listed in Schedule 2.01 (as of any date, together with any
permitted assigns hereunder on such date, the "Lenders"), BANK
OF AMERICA ILLINOIS, BANKERS TRUST COMPANY, THE CHASE MANHATTAN
BANK, CITIBANK, N.A., MORGAN GUARANTY TRUST COMPANY OF NEW YORK
and NATIONSBANK OF TEXAS, N.A., as co-agents for the Lenders
(in such capacity, the "Co-Agents"), and CREDIT SUISSE, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
The Borrowers (as herein defined) have requested the Lenders to extend
credit to the Borrowers in order to enable them to borrow on a standby revolving
credit basis on and after the Closing Date (as herein defined) and at any time
and from time to time prior to the Maturity Date (as herein defined) an
aggregate principal amount not in excess of $1,500,000,000 at any time
outstanding. The Borrowers have also requested the Lenders to provide a
procedure pursuant to which the Borrowers may invite the Lenders to bid on an
uncommitted basis on borrowings by the Borrowers scheduled to mature on or prior
to the Maturity Date. The proceeds of such borrowings are to be used (i) to
finance the purchase by Acquisition Co. (as herein defined) of common stock of
Eckerd (as herein defined) pursuant to the Tender Offer (as herein defined),
(ii) to finance the purchase by JCPenney of shares of its own common stock
pursuant to the Share Repurchase (as herein defined), (iii) to finance the
repayment of certain outstanding indebtedness of Eckerd, (iv) to pay fees and
expenses relating to the foregoing transactions and (v) for general corporate
purposes, including, without limitation, working capital requirements, liquidity
and the repayment of maturing commercial paper and other indebtedness of the
Borrowers. The Lenders will extend such credit to the Borrowers on the terms
and subject to the conditions herein set forth.
Accordingly, the Borrowers, the Lenders, the Co-Agents and the
Administrative Agent agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the following
--------------
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquisition Co." shall mean Omega Acquisition Corporation, a Delaware
---------------
corporation, a wholly owned Subsidiary of JCPenney.
<PAGE>
2
"Additional Costs" shall mean, with respect to any Lender, any
----------------
increased costs or reduction in amounts received or receivable or reduction in
return on capital incurred or suffered by such Lender and in respect of which
such Lender is entitled to request compensation in accordance with Section 2.13.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing
----------------
requested by any Borrower for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%) equal to the sum of (a)
a rate per annum equal to the product of (i) the Fixed CD Rate in effect for
such Interest Period and (ii) Statutory Reserves, plus (b) the Assessment Rate.
For purposes hereof, the term "Fixed CD Rate" shall mean the arithmetic average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the prevailing rates
per annum bid at or about 10:00 a.m., New York City time, to the Administrative
Agent on the first Business Day of the Interest Period applicable to such CD
Borrowing by three New York City negotiable certificate of deposit dealers of
recognized standing selected by the Administrative Agent for the purchase at
face value of negotiable certificates of deposit of major United States money
center banks in a principal amount approximately equal to (x) in the case of a
Standby Borrowing, the Administrative Agent's portion of such CD Borrowing and
(y) in the case of a Competitive Borrowing, the product of (1) the aggregate
principal amount of such CD Borrowing as specified in the related Competitive
Bid Request and (2) the percentage which the Administrative Agent's Commitment
represents of the Total Commitment, and with a maturity comparable to such
Interest Period.
"Administrative Fees" shall have the meaning assigned to such term in
-------------------
Section 2.06(b).
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 0.50%. For purposes hereof, "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the rates quoted to the
Administrative Agent on such day for such transactions by three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate shall be effective on the date such
change is announced publicly.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the office or branch of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan in the administrative questionnaire
delivered by such Lender to the Administrative Agent or such other office or
branch of such Lender (or of an Affiliate of such Lender) as such
<PAGE>
3
Lender may from time to time, in accordance with the terms of this Agreement,
specify to the Administrative Agent and the Borrowers as the office or branch by
which its Loans of such Type are to be made and maintained.
"Applicable Rate" shall mean on any date, with respect to each Standby
---------------
Loan and with respect to the Facility Fee, as the case may be, the applicable
per annum percentage, based upon the ratings applicable on such date to the
Index Debt, set forth below:
<TABLE>
<CAPTION>
=====================================================================================================
Eurodollar CD Facility
Standby Standby ABR Fee
Loans Loans Loans Rate
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level I
- -------
At least A+ by S&P OR at least A1 by Moody's 0.155% 0.280% 0% 0.045%
- -----------------------------------------------------------------------------------------------------
Level II
- --------
At least A by S&P OR at least A2 by Moody's
AND
Level I does not apply 0.175% 0.300% 0% 0.050%
- -----------------------------------------------------------------------------------------------------
Level III
- --------
At least A- by S&P OR at least A3 by Moody's
AND
neither Level I nor Level II applies 0.195% 0.320% 0% 0.055%
- -----------------------------------------------------------------------------------------------------
Level IV
- --------
At least BBB+ by S&P OR at least Baa1 by Moody's
AND
neither Level I, Level II nor Level III applies 0.235% 0.360% 0% 0.065%
- -----------------------------------------------------------------------------------------------------
Level V
- -------
At least BBB- by S&P OR at least Baa3 by Moody's
AND
neither Level I, Level II, Level III nor Level IV
applies 0.400% 0.525% 0% 0.150%
- -----------------------------------------------------------------------------------------------------
Level VI
- --------
Lower than BBB- by S&P
AND
Lower than Baa3 by Moody's 0.500% 0.625% 0% 0.250%
=====================================================================================================
</TABLE>
For purposes of this definition, (i) except as otherwise provided in
the next succeeding paragraph, the applicable Level shall be determined by
reference to the higher of the two ratings then in effect with respect to the
Index Debt, (ii) if a rating for the Index Debt shall not be available from each
rating agency (other than because (a) such rating agency shall no longer be in
the business of rating corporate debt obligations or (b) of any other reason
outside the control of JCPenney and Funding), the Applicable Rate shall be
determined by reference to Level VI and (iii) if any rating established by
Moody's or S&P shall be changed (other than as a
<PAGE>
4
result of a change in the rating system of either Moody's or S&P), such change
shall be effective as of the date on which such change is first publicly
announced by the rating agency making such change.
Notwithstanding anything to the contrary in this definition, in the
event that, at any time, the Numerical Equivalents of the ratings established
for the Index Debt shall differ by more than 1, the rating established by each
rating agency shall be deemed to be the rating set forth below opposite the
Numerical Equivalent corresponding to the Average Numerical Equivalent of the
two ratings. As used herein, (a) "Numerical Equivalent" shall mean, with
respect to any rating set forth below, the number set forth opposite such rating
and (b) "Average Numerical Equivalent" shall mean, at any time, the sum of the
respective Numerical Equivalents of the two ratings then in effect divided by 2,
----------
and rounded down, if necessary, to the nearest whole number. In the event that
any rating lower than the ratings set forth below shall apply, an appropriate
Numerical Equivalent shall be assigned to such rating.
<TABLE>
<CAPTION>
===========================================
S&P Moody's Numerical
Rating Rating Equivalent
- -------------------------------------------
<S> <C> <C>
AAA Aaa 1
- -------------------------------------------
AA+ Aa1 2
- -------------------------------------------
AA Aa2 3
- -------------------------------------------
AA- Aa3 4
- -------------------------------------------
A+ A1 5
- -------------------------------------------
A A2 6
- -------------------------------------------
A- A3 7
- -------------------------------------------
BBB+ Baa1 8
- -------------------------------------------
BBB Baa2 9
===========================================
</TABLE>
In the event that, on the date hereof, the rating of the Index Debt by
either rating agency shall have been announced as being on "CreditWatch" or
otherwise under review (a "Reviewed Rating"), the Applicable Rate shall be
determined by reference to Level III until each such Reviewed Rating is either
confirmed or changed, and thereafter shall be determined in accordance with the
other provisions of this definition.
If the rating system of either Moody's or S&P shall change prior to the
Maturity Date, or if either such rating agency shall cease to be in the business
of rating corporate debt obligations or shall no longer have in effect a rating
for any reason outside the control of JCPenney and Funding, the Borrowers and
the Lenders shall negotiate in good faith to amend the references to specific
ratings in this definition to reflect such changed rating system or the absence
of such a rating. Pending agreement on any such amendment, (i) if the rating
system of one such rating agency shall remain unchanged, or if a rating shall be
available from one such rating agency, the Applicable Rate shall be determined
by reference to the rating established by such rating agency, and (ii) if no
rating for the Index Debt shall be available from either rating agency then (A)
for 60 days, the Applicable Rate shall be determined by reference to the rating
or ratings most recently available, (B) after 60 days, the Applicable Rate shall
be determined by
<PAGE>
5
reference to Level V (or Level VI if the Applicable Rate shall have been
determined by reference to Level V or Level VI under clause (A) above) and (C)
after 180 days, the Applicable Rate shall be determined by reference to Level
VI.
"Assessment Rate" shall mean for any date the then current net annual
---------------
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
actually employed by Morgan Guaranty Trust Company of New York in determining
amounts payable by Morgan Guaranty Trust Company of New York to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at Morgan
Guaranty Trust Company of New York's domestic offices.
"Board" shall mean the Board of Governors of the Federal Reserve System
-----
of the United States.
"Borrowers" shall mean JCPenney and Funding.
---------
"Borrowing" shall mean any Loan or group of Loans of a single Type made
---------
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) to
the same Borrower, which Loans (except in the case of ABR Loans) have the same
borrowing date and the same Interest Period.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
-------- -------
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CD Borrowing" shall mean a Borrowing comprised of CD Loans.
------------
"CD Competitive Loan" shall mean any Competitive Loan bearing interest
-------------------
at a rate determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"CD Loan" shall mean any CD Competitive Loan or CD Standby Loan.
-------
"CD Standby Loan" shall mean any Standby Loan bearing interest at a
---------------
rate determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"Closing Date" shall mean the date on which the conditions precedent
------------
specified in Section 4.02 shall have been satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment of
----------
such Lender hereunder as set forth as of the date hereof in Schedule 2.01 hereto
and, thereafter, in the Register (or as otherwise determined by the parties
hereto in the event of manifest error in the Register), as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.11. The Commitment of each Lender shall automatically and
<PAGE>
6
permanently terminate on the Maturity Date if not terminated earlier pursuant to
the terms hereof.
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
---------------
Loan pursuant to Section 2.03.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
--------------------
Lender pursuant to Section 2.03(b), (a) in the case of a Eurodollar Competitive
Loan or a CD Competitive Loan, the Competitive Margin, and (b) in the case of a
Fixed Rate Loan, the fixed rate of interest offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section
-----------------------
2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03 by the Borrower requesting such Borrowing.
"Competitive Loan" shall mean a Loan from a Lender to a Borrower
----------------
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan, a CD Competitive Loan or a Fixed
Rate Loan.
"Competitive Margin" shall mean, as to any Eurodollar Competitive Loan
------------------
or CD Competitive Loan, the margin (expressed as a percentage rate per annum in
the form of a decimal to no more than four decimal places) to be added to or
subtracted from the LIBO Rate or the Adjusted CD Rate, as applicable, in order
to determine the interest rate applicable to such Eurodollar Competitive Loan or
CD Competitive Loan, as specified in the Competitive Bid relating to such
Eurodollar Competitive Loan or CD Competitive Loan.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
--------------
America.
"Eckerd" shall mean Eckerd Corporation, a Delaware corporation.
------
"Eligible Assignee" shall mean (a) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having total assets in
excess of $1,000,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is described in this clause; and (c) the central bank of any
country which is a member of the Organization for Economic Cooperation and
Development.
<PAGE>
7
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time, and the rules and regulations
promulgated thereunder, as from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) that is a member of a group of which any Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing interest
-----------------------
at a rate determined by reference to the LIBO Rate in accordance with the
provisions of Article II.
"Events of Default" shall have the meaning assigned to such term in
-----------------
Article VII.
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.06(a).
"Facility Fee Rate" shall mean the applicable per annum rate determined
-----------------
pursuant to the definition of "Applicable Rate".
"Fees" shall mean the Facility Fees and the Administrative Fees.
----
"Fixed Rate Borrowing" shall mean a Competitive Borrowing comprised of
--------------------
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
---------------
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
related Competitive Bid.
"Funded Indebtedness" of any corporation shall mean, at any date for
-------------------
the determination thereof, without duplication, the outstanding aggregate
principal amount of (a) all indebtedness created, incurred or assumed by such
corporation (including, in the case of any Borrower, the Loans made to such
Borrower) which by its terms is not payable on demand and which matures by its
terms, or which by its terms such corporation has the right at its option to
renew or extend to a date, more than one year after the date of determination,
whether outstanding on the date hereof or thereafter created, incurred or
assumed (including the current portion of any indebtedness which shall
constitute Funded Indebtedness at the time of its incurrence), and which is (i)
for money borrowed or (ii) evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or assets, including
securities, (b) any indebtedness of others of the kinds described in the
preceding clause (a) for the payment of which such corporation is responsible or
liable as guarantor or otherwise and (c) amendments, renewals and refundings of
any such indebtedness; provided, however, that such term shall not include any
-------- -------
obligations under leases or any guarantees of obligations of
<PAGE>
8
others under leases. It is understood that for the purposes of this definition
the term "principal" when used at any date with respect to any indebtedness
issued at a discount shall mean the amount of principal of such indebtedness
that could be declared due and payable on that date upon the occurrence of one
or more events permitting the acceleration of such indebtedness pursuant to the
terms of such indebtedness.
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a consistent basis.
"Governmental Authority" shall mean any court or governmental agency,
----------------------
authority, instrumentality or regulatory body, in each case whether Federal,
state, local or foreign.
"Indenture" shall mean the Indenture dated as of April 1, 1994, between
---------
JCPenney and Bank of America National Trust and Savings Association, as trustee.
"Index Debt" shall mean JCPenney's senior unsecured, non credit-
----------
enhanced, publicly held long-term indebtedness.
"Interest Payment Date" shall mean (a) with respect to any Loan other
---------------------
than an ABR Loan, the last day of the Interest Period applicable thereto and, in
the case of a Eurodollar Loan with an Interest Period of more than three months'
duration or a CD Loan or Fixed Rate Loan with an Interest Period of more than 90
days' duration, each day that would have been an Interest Payment Date for such
Loan had successive Interest Periods of three months' duration or 90 days'
duration, as the case may be, been applicable to such Loan and, in addition, the
date of any refinancing or conversion of such Loan with or to a Loan of a
different Type and (b) with respect to any ABR Loan, the last Business Day of
each March, June, September and December and the Maturity Date.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing that is
---------------
a Standby Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower
requesting such Borrowing may elect, (b) as to any CD Borrowing that is a
Standby Borrowing, the period commencing on the date of such Borrowing or on the
last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending 30, 60, 90, 180 or, subject to
availability from each Lender, 360 days thereafter, as the Borrower requesting
such Borrowing may elect, (c) as to any Eurodollar Borrowing that is a
Competitive Borrowing, the period commencing on the date of such Borrowing and
ending on the date specified in the Competitive Bids in which the offers to make
the Eurodollar Competitive Loans comprising such Borrowing were extended (which
date shall be (A) the numerically corresponding day (or, if there is no
numerically corresponding day, the last day) in the calendar month that is 1, 2,
3, 6 or 9 months after the date of such Borrowing or (B) such other date as
shall be specified in such Competitive Bids) and (d) as to any CD Competitive
Borrowing or Fixed Rate Borrowing, the period specified in the Competitive Bids
in which the offers to make the CD Competitive Loans or Fixed Rate Loans
comprising such Borrowing were extended, commencing on the date of such
Borrowing (which period shall be a period of 30, 60, 90, 180 or 360 days'
duration or such other duration as shall be specified in such Competitive Bids);
provided, however, that (x) if any Interest Period would end on a day other than
- -------- -------
a Business Day,
<PAGE>
9
such Interest Period shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans only, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (y) no Interest Period may be selected
that ends later than the Maturity Date then in effect and (z) the Interest
Period for any CD Loan made in lieu of, or resulting from the conversion of, a
Eurodollar Loan pursuant to Section 2.10 or 2.14 shall be determined in
accordance with the provisions of such Section. Interest shall accrue from and
including the first day of an Interest Period to but excluding the last day of
such Interest Period.
"Investment" means, with respect to each of Funding and its
----------
Subsidiaries only, any acquisition of any of the capital stock of any
corporation, or any acquisition of indebtedness of, or any capital contribution,
loan or advance to, or any guarantee of an obligation of, any person, except (i)
any loan or advance made in connection with the lease, purchase or construction
of office space for Funding or any of its Subsidiaries or the purchase of
materials, supplies, services or equipment for the offices of Funding or any of
its Subsidiaries and (ii) any guarantee or endorsement made in the ordinary
course of business in connection with the deposit of items for collection or any
guarantee of an obligation of an agent or an employee of Funding or any of its
Subsidiaries that is required to meet applicable legal requirements.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, the rate per annum determined by the Administrative Agent
at approximately 11:00 a.m. (London time) on the date which is two Business Days
prior to the beginning of such Interest Period by reference to the British
Bankers' Association Interest Settlement Rates for deposits in Dollars (as set
forth by any service selected by the Administrative Agent which has been
nominated by the British Bankers' Association as an authorized information
vendor for the purpose of displaying such rates) for a period equal to such
Interest Period (rounded, if necessary, upward to the nearest whole multiple of
1/16th of 1%); provided that, to the extent that an interest rate is not
--------
ascertainable pursuant to the foregoing provisions of this definition, the "LIBO
Rate" shall be the interest rate per annum determined by the Administrative
Agent to be the average (rounded, if necessary, upward to the nearest whole
multiple of 1/16th of 1% per annum, if such average is not such a multiple) of
the rates per annum at which deposits in Dollars are offered for such Interest
Period to major banks in the London interbank market in London, England by the
LIBO Reference Lenders at approximately 11:00 a.m. (London time) on the date
which is two Business Days prior to the beginning of such Interest Period. If
any of the LIBO Reference Lenders shall be unable or shall otherwise fail to
supply such rates to the Administrative Agent upon its request, the rate of
interest shall be determined on the basis of the quotations of the remaining
LIBO Reference Lenders or LIBO Reference Lender. Each determination by the
Administrative Agent or the LIBO Reference Lenders pursuant to this definition
shall be conclusive absent manifest error.
"LIBO Reference Lenders" shall mean Credit Suisse, Morgan Guaranty
----------------------
Trust Company of New York and The First National Bank of Chicago, or such other
or additional Lenders as the Borrowers, the Administrative Agent and the
Required Lenders shall designate in writing as "LIBO Reference Lenders".
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge or security interest in or on such asset.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made as
----
a Eurodollar Loan, a CD Loan, a Fixed Rate Loan or an ABR Loan, as permitted
hereby.
<PAGE>
10
"Margin Stock" shall have the meaning given such term under
------------
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on
-----------------------
the business, assets or financial condition of (i) JCPenney and the Restricted
Subsidiaries, taken as a whole, or (ii) Funding and its Subsidiaries, taken as a
whole, (b) a material impairment of the ability of any Borrower to perform any
of its obligations under this Agreement or (c) a material impairment of the
rights of or benefits available to the Lenders under this Agreement (other than
any such impairment of rights or benefits that is primarily attributable to (x)
action taken by or against one or more Lenders (excluding any action against one
or more Lenders taken by any Borrower or Restricted Subsidiary) or (y)
circumstances that are unrelated to any Borrower).
"Material Subsidiary" shall mean, at any date of determination, any
-------------------
Restricted Subsidiary then having more than 1% of the consolidated assets of
JCPenney and its Subsidiaries.
"Maturity Date" shall mean December 2, 1997.
-------------
"Maximum Amount" shall mean, with respect to any amount owing to any
--------------
Lender under this Agreement or in connection herewith, the maximum amount of
interest that such Lender is permitted to charge under applicable law on such
amount.
"Merger" shall mean either (a) the merger of Eckerd with and into
------
Acquisition Co., with Acquisition Co. being the surviving corporation of such
merger or (b) the merger of Acquisition Co. with and into Eckerd, with Eckerd
being the surviving corporation of such merger, with the form of such merger
being determined as provided in the Merger Agreement.
"Merger Agreement" shall mean the Amended and Restated Agreement and
----------------
Plan of Merger, dated as of November 2, 1996, among JCPenney, Acquisition Co.
and Eckerd.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
-------
thereto that is a nationally recognized rating agency.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Net Tangible Assets" means the aggregate amount at which the assets of
-------------------
JCPenney and all Restricted Subsidiaries are reflected, in accordance with GAAP
as in effect on the date hereof, on the asset side of the consolidated balance
sheet, as at the close of a monthly accounting period (selected by JCPenney)
ending within the 65 days next preceding the date of determination, of JCPenney
and the Restricted Subsidiaries (after deducting all valuation and qualifying
reserves relating to said assets), except any of the following described items
that may be included among said assets:
(a) trademarks, patents, goodwill and similar intangibles;
(b) investments in and advances to Non-Restricted Subsidiaries;
and
<PAGE>
11
(c) capital lease property rights,
after deducting from such amount current liabilities (other than deferred tax
effects) as reflected, in accordance with GAAP as in effect on the date hereof,
on such balance sheet.
"Non-Restricted Subsidiary" shall mean any Subsidiary other than the
-------------------------
Restricted Subsidiaries.
"Officer's Certificate" of any corporation shall mean a certificate
---------------------
signed by a Responsible Officer of such corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"Penney Supplier" means any person that supplies goods or services to
---------------
JCPenney or any Subsidiary.
"Penney Supplier Receivables" means the obligations of Penney Suppliers
---------------------------
for the payment of money for goods or services sold by JCPenney or any
Subsidiary to Penney Suppliers for use in goods or services to be supplied to
JCPenney or any Subsidiary.
"person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
Governmental
Authority.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code that
is maintained for employees of any Borrower or ERISA Affiliate.
"Prime Rate" means the rate of interest publicly announced by Credit
----------
Suisse from time to time as its prime rate in effect at its principal office in
New York City.
"Principal Property" means all real property and tangible personal
------------------
property owned by JCPenney or a Restricted Subsidiary constituting a part of any
store, warehouse or distribution center located within one of the 50 states of
the United States or the District of Columbia, exclusive of motor vehicles,
mobile materials-handling equipment and other rolling stock, cash registers and
other point of sale recording devices and related equipment, and data processing
and other office equipment; provided, however, that such term shall not include
-------- -------
any such property constituting a part of any such store, warehouse or
distribution center unless the net book value of all real property (including
leasehold improvements) and store fixtures constituting a part of such store,
warehouse or distribution center exceeds .25% of Stockholders' Equity.
"Receivables" means the obligations of customers for the payment of
-----------
money arising under agreements between such customers and JCPenney or any
Subsidiary.
"Register" shall have the meaning assigned to such term in
--------
Section 9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
<PAGE>
12
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Lenders" shall mean, at any time, (a) for the purposes of
----------------
terminating the Commitments pursuant to clause (x) of Article VII, Lenders
having Commitments representing at least 66-2/3% of the Total Commitment, (b)
for purposes of acceleration pursuant to clause (y) of Article VII, Lenders
holding Loans representing at least 66-2/3% of the aggregate principal amount of
the Loans outstanding and (c) for all other purposes, Lenders having Commitments
representing greater than 50% of the Total Commitment or, if the Commitments
shall have been terminated, Lenders holding Loans representing greater than 50%
of the aggregate principal amount of the Loans outstanding.
"Responsible Officer" of any corporation shall mean the chairman, vice
-------------------
chairman, president, chief financial officer, treasurer or controller of such
corporation or any executive or senior vice president of such corporation.
"Restricted Margin Stock" shall mean Margin Stock owned by JCPenney or
-----------------------
any Restricted Subsidiary which represents not more than 33-1/3% of the
aggregate value (determined in accordance with Regulation U), on a consolidated
basis, of the assets of JCPenney and the Subsidiaries (other than any shares of
Margin Stock) that are subject to the provisions of Article VI (including
Section 6.01).
"Restricted Subsidiary" means any Subsidiary of JCPenney (other than
---------------------
Funding) which JCPenney shall, by an Officer's Certificate of JCPenney, have
designated as a Restricted Subsidiary and the designation of which as a
Restricted Subsidiary shall not have been cancelled by an Officer's Certificate
of JCPenney; provided, however, that neither the designation of a Subsidiary as
-------- -------
a Restricted Subsidiary nor the cancellation of such designation shall be
operative if the immediate effect of such designation or cancellation shall be
to make Net Tangible Assets less than 200% of the Senior Funded Indebtedness of
JCPenney and the Restricted Subsidiaries on a pro forma basis (eliminating
intercompany items); and provided, further, that any Officer's Certificate
-------- -------
designating a Subsidiary as a Restricted Subsidiary or cancelling such
designation shall set forth the Net Tangible Assets and Senior Funded
Indebtedness of JCPenney and its Restricted Subsidiaries on a pro forma basis
(eliminating intercompany items) and show compliance with the first proviso of
this paragraph. Any such designation or cancellation of such designation may be
made more than once with respect to any Subsidiary.
"S&P" shall mean Standard & Poor's Ratings Services and any successor
---
thereto that is a nationally recognized rating agency.
"SEC" shall mean the Securities and Exchange Commission.
---
<PAGE>
13
"Senior Funded Indebtedness" of JCPenney shall mean any Funded
--------------------------
Indebtedness of JCPenney unless in any instrument or instruments evidencing or
securing such Funded Indebtedness or pursuant to which the same is outstanding,
or in any amendment, renewal, extension or refunding of such Funded
Indebtedness, it is provided that such Funded Indebtedness is subordinate in
right of payment to the Loans (a) in the event of any dissolution or winding-up
or total or partial liquidation or reorganization of JCPenney, whether voluntary
or involuntary, or any bankruptcy, insolvency, receivership or similar
proceedings relative to JCPenney and (b) in the event of any default in the
payment of principal (including any required prepayments or amortization) of or
interest on any Loans of JCPenney. "Senior Funded Indebtedness" of any
Restricted Subsidiary means any Funded Indebtedness of such Restricted
Subsidiary and the aggregate preference on involuntary liquidation of any class
of stock of such Restricted Subsidiary ranking, either as to payment of
dividends or distribution of assets, prior to any other class of stock of such
Restricted Subsidiary.
"Share Repurchase" shall mean the purchase by JCPenney of up to
----------------
15,000,000 shares of its own common stock.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-4.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrowers pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan, a CD Standby Loan or an ABR Loan.
"Standby Margin" shall mean, with respect to any Standby Loan, the
--------------
applicable per annum rate determined pursuant to the definition of "Applicable
Rate".
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the actual reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to the applicable
Interest Period. Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Stockholders' Equity" means the sum, as at the close of a monthly
--------------------
accounting period (selected by JCPenney) ending within the 65 days next
preceding the date of determination, of (a) the aggregate of capital, capital
stock, capital surplus, capital in excess of par value of stock, reinvested
earnings, earned surplus and net income retained for use in the business
(however the foregoing may be designated), after deducting the cost of shares of
capital stock of JCPenney held in its treasury, of JCPenney and its consolidated
Subsidiaries, determined in accordance with GAAP, plus (b) the amount reflected
in such determination as deferred tax effects.
"Subsidiary" means (a) any corporation of which JCPenney, directly or
----------
indirectly, owns more than 50% of the outstanding stock which at the time shall
have by the
<PAGE>
14
terms thereof ordinary voting power to elect directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency, or (b) any such corporation of which such
percentage of shares of outstanding stock of the character described in the
foregoing clause (a) shall at the time be owned, directly or indirectly, (i) by
JCPenney and one or more Subsidiaries as defined in the foregoing clause (a) or
(ii) by one or more such Subsidiaries.
"Support Agreements" shall mean (a) the Amended and Restated
------------------
Receivables Agreement dated as of January 29, 1980, between JCPenney and Funding
(formerly J. C. Penney Financial Corporation), as amended by Amendment No. 1
thereto dated as of January 25, 1983, (b) the Loan Agreement dated as of January
28, 1986, between JCPenney and Funding, as amended by Amendment No. 1 thereto
dated as of December 26, 1986 and by Amendment No. 2 thereto dated as of
November 22, 1996, in each case as amended or modified from time to time in
compliance with Section 5.10 and (c) the subordinated Guaranty of the
obligations of Funding dated as of December 3, 1996, executed by JCPenney in
favor of the Lenders and attached hereto as Exhibit B.
"Taxes" shall mean, with respect to any Lender or the Administrative
-----
Agent, any and all U.S. Federal income taxes after application of any relevant
treaty or convention and all interest and penalties with respect thereto,
attributable to any payment made by any Borrower hereunder to such Lender or the
Administrative Agent, as the case may be.
"Tender Offer" shall mean the offer by Acquisition Co. to purchase
------------
50.1% of the common stock of Eckerd.
"Tender Offer Materials" shall mean the Offer and Schedule 14D-1 dated
----------------------
November 7, 1996 filed by Acquisition Co. with the SEC in connection with the
Tender Offer, together with all exhibits thereto.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Tranche A Credit Agreement" shall mean the $1,500,000,000 Five-Year
--------------------------
Revolving Credit Agreement dated as of December 3, 1996 among the Borrowers, the
financial institutions named therein as lenders (which include certain of the
Lenders), Bank of America Illinois, Bankers Trust Company, The Chase Manhattan
Bank, Citibank, N.A., Morgan Guaranty Trust Company of New York and NationsBank
of Texas, N.A., as co-agents, and Credit Suisse, as administrative agent, as
such agreement may be amended from time to time.
"Transactions" shall mean the collective reference to (a) the
------------
consummation of the Tender Offer, the Share Repurchase and the Merger and (b)
the execution, delivery and performance by each Borrower of this Agreement, the
borrowings hereunder and the use of proceeds thereof.
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the
LIBO Rate, the Adjusted CD Rate, and the Alternate Base Rate and, in the case of
any Fixed Rate Loan, the fixed percentage rate per annum specified by the Lender
making such Loan in its related Competitive Bid.
<PAGE>
15
"Unrestricted Margin Stock" shall mean any Margin Stock owned by
-------------------------
JCPenney or any Subsidiary which is not Restricted Margin Stock.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. In the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding". Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided, however, that, for purposes of determining
-------- -------
compliance with any covenant set forth in Article VI, such terms shall be
construed in accordance with GAAP as in effect on the date of this Agreement
applied on a basis consistent with the application used in preparing JCPenney's
audited consolidated financial statements referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrowers at any
time and from time to time on and after the Closing Date and until the earlier
of the Maturity Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment, subject, however, to the conditions that (a) at no time shall the
outstanding aggregate principal amount of all Loans made by all Lenders exceed
the Total Commitment and (b) at all times the outstanding aggregate principal
amount of all Standby Loans made by each Lender to a Borrower shall equal the
product of (i) the percentage which its Commitment represents of the Total
Commitment times (ii) the outstanding aggregate principal amount of all Standby
Loans made to such Borrower pursuant to Section 2.04. Subject to Section
2.03(h), any Lender may at its discretion make Competitive Loans in an aggregate
principal amount up to the amount of the Total Commitment of the Lenders
hereunder. Each Lender's Commitment as of the date hereof is set forth opposite
its respective name in Schedule 2.01 and, after the date hereof, each Lender's
Commitment shall be set forth opposite its respective name in the Register.
Such Commitments may be terminated, reduced or extended from time to time
pursuant to Section 2.11.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and reborrow hereunder, on and after the Closing Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of
------
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
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Standby Loan shall not by itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be
<PAGE>
16
made in accordance with the procedures set forth in Section 2.03. The Standby
Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $5,000,000 and not less than $25,000,000 (or, if less, an aggregate
principal amount equal to the Total Commitment on the date of such Borrowing
minus the outstanding aggregate principal amount on such date of all Competitive
Loans) and (ii) in the case of Standby Loans, in an aggregate principal amount
which is an integral multiple of $5,000,000 and not less than $25,000,000 (or an
aggregate principal amount equal to the remaining available balance of the Total
Commitment).
(b) Subject to Sections 2.10 and 2.14, each Competitive Borrowing
shall be comprised entirely of Eurodollar Competitive Loans, CD Competitive
Loans or Fixed Rate Loans, and each Standby Borrowing shall be comprised
entirely of Eurodollar Standby Loans, CD Standby Loans or ABR Loans, as the
Borrower requesting such Competitive Borrowing or Standby Borrowing may specify
pursuant to Section 2.03 or 2.04, as the case may be.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in New York, New York,
not later than 12:00 noon, New York City time (11:00 a.m., New York City time,
in the case of a Eurodollar Loan), and the Administrative Agent shall by 2:00
p.m., New York City time, transfer by wire the amounts so received in accordance
with the instructions of the relevant Borrower or, if a Borrowing shall not
occur on such date because any condition precedent herein specified shall not
have been met, return the amounts so received to the respective Lenders.
Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids
therefor are accepted pursuant to Section 2.03 in the amounts so accepted and
Standby Loans shall be made by the Lenders pro rata in accordance with Section
2.16. Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make available to
the Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to it on the date of such Borrowing in accordance with this paragraph (c) and
may, in reliance upon such assumption, make a corresponding amount available on
such date to the Borrower requesting such Borrowing. If and to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and such Borrower severally agree to pay or repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of such Borrower, the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Lender, the
Federal Funds Effective Rate; provided, however, that such Borrower shall not in
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any event have any liability in respect of such repayment under Section 2.15.
If such Lender shall pay to the Administrative Agent such corresponding amount,
such amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.
(e) The Loans of each Type made by each Lender shall be made through
and maintained at such Lender's Applicable Lending Office for Loans of such
Type. Any Lender may change its Applicable Lending Office for any Type of Loans
without the prior written consent of JCPenney so long as (i) such Lender shall
have no knowledge that such change
<PAGE>
17
would cause it to be unlawful for such Lender to make or maintain any Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
any Eurodollar Loan and (ii) such Lender shall not be entitled to recoupment,
reimbursement or indemnification in accordance with the terms and conditions of
Sections 2.13 and 2.15 to the extent that such Lender shall have had knowledge
at the time of such change in Applicable Lending Office that such entitlement
would arise as a result of such change.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Competitive Bid Request in the form of
Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case
of a Eurodollar Borrowing or a CD Borrowing, not later than 11:00 a.m., New York
City time, four Business Days before a proposed Competitive Borrowing and (ii)
in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before a proposed Competitive Borrowing. No ABR Loan
shall be requested in, or made pursuant to, a Competitive Bid Request. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit A-1 shall be rejected and the Administrative Agent shall promptly notify
the appropriate Borrower of such rejection by telecopier. Such request shall in
each case refer to this Agreement and specify (x) that the Borrowing then being
requested is to be a Eurodollar Borrowing, a CD Borrowing or a Fixed Rate
Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and
the aggregate principal amount thereof (which shall be, subject to the third
sentence of Section 2.02(a), in a minimum principal amount of $25,000,000 and in
an integral multiple of $5,000,000 and (z) the Interest Period with respect
thereto (which may not end after the Maturity Date). Promptly after its receipt
of a Competitive Bid Request that is not rejected as aforesaid, the
Administrative Agent shall invite by telecopier (in the form set forth in
Exhibit A-2 hereto) the Lenders to bid, on the terms and conditions of this
Agreement, to make Competitive Loans pursuant to the Competitive Bid Request.
(b) The Administrative Agent may, in its sole discretion, make one or
more Competitive Bids to the appropriate Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by the Administrative Agent must
be submitted to the Borrower via telecopier, in the form of Exhibit A-3 hereto,
(i) in the case of a Eurodollar Borrowing or CD Borrowing, not later than 8:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 8:30
a.m., New York City time, on the day of a proposed Competitive Borrowing. Each
Lender may, in its sole discretion, make one or more Competitive Bids to the
appropriate Borrower responsive to such Borrower's Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Administrative Agent
via telecopier, in the form of Exhibit A-3 hereto, (i) in the case of a
Eurodollar Borrowing or CD Borrowing, not later than 9:00 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 9:00 a.m., New York City
time, on the day of a proposed Competitive Borrowing. Multiple bids will be
accepted by the Administrative Agent. Competitive Bids that do not conform
substantially to the format of Exhibit A-3 may be rejected by the Administrative
Agent after conferring with, and upon the instruction of, the Borrower
requesting such Competitive Bids, and the Administrative Agent shall notify the
Lender making such nonconforming bid of such rejection as soon as practicable.
Each Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in an integral multiple of $5,000,000 (unless such
principal amount shall equal the entire principal amount of the Competitive
Borrowing requested by such Borrower) and which may equal such entire principal
amount) of the Competitive Loan or Loans that the Lender is willing to make to
the
<PAGE>
18
Borrower requesting such Competitive Bid, (y) the Competitive Bid Rate or Rates
at which the Lender is prepared to make the Competitive Loan or Loans and (z)
the Interest Period and the last day thereof. If any Lender shall elect not to
make a Competitive Bid, such Lender shall so notify the Administrative Agent via
telecopier (A) in the case of a Eurodollar Borrowing or a CD Borrowing, not
later than 9:00 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing and (B) in the case of a Fixed Rate Borrowing, not later
than 9:00 a.m., New York City time, on the day of a proposed Competitive
Borrowing; provided, however, that failure by any Lender to give such notice
-------- -------
shall not cause such Lender to be obligated to make any Competitive Loan as part
of such Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant
to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall notify the appropriate Borrower by
telecopier not later than (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, 10:00 a.m., New York City time, three Business Days before the
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
10:00 a.m., New York City time, on the day of the proposed Competitive Borrowing
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Administrative Agent
shall send a copy of all Competitive Bids to such Borrower for its records as
soon as practicable after completion of the bidding process set forth in this
Section 2.03.
(d) The appropriate Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d) and paragraph (h) below,
accept or reject any Competitive Bid referred to in paragraph (c) above. Such
Borrower shall notify the Administrative Agent by telecopier not later than (i)
in the case of a Eurodollar Borrowing or a CD Borrowing, 11:30 a.m., New York
City time, three Business Days before the proposed Competitive Borrowing and
(ii) in the case of a Fixed Rate Borrowing, not later than 11:30 a.m., New York
City time, on the day of the proposed Competitive Borrowing whether and to what
extent it has decided to accept or reject any or all of the bids referred to in
paragraph (c) above; provided, however, that (v) the failure by such Borrower to
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give such notice shall be deemed to be a rejection of all the bids referred to
in paragraph (c) above, (w) such Borrower shall not accept a bid made at a
particular Competitive Bid Rate if it has decided to reject a bid made at a
lower Competitive Bid Rate, (x) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
related Competitive Bid Request, (y) if such Borrower shall accept a bid or bids
made at a particular Competitive Bid Rate but the amount of such bid or bids
shall cause the total amount of bids to be accepted by such Borrower to exceed
the amount specified in the related Competitive Bid Request, then such Borrower
shall accept a portion of such bid or bids in an amount equal to the amount
specified in the related Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (z) except pursuant to clause (y) above, no bid shall be accepted
for a Competitive Loan unless the principal amount of such Competitive Loan is
in an integral multiple of $5,000,000 or is equal to the entire principal amount
of the Competitive Borrowing being requested by such Borrower; provided further,
-------- -------
however, that if a Competitive Loan must be in an amount less than $5,000,000
- -------
because of the provisions of clause (y) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (y) the amounts shall be rounded to
integral multiples
<PAGE>
19
of $1,000,000 in a manner which shall be in the discretion of such
Borrower. A notice given pursuant to this paragraph (d) by the appropriate
Borrower shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in what amount
and at what Competitive Bid Rate) by telecopier sent by the Administrative
Agent, and each successful bidder will thereupon become bound, subject to the
other applicable conditions hereof, to make the Competitive Loan in respect of
which its bid has been accepted.
(f) The Borrowers shall not make more than 10 Competitive Bid Requests
during any 30-day period.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
(h) At no time shall the outstanding aggregate principal amount of all
Competitive Loans made by all Lenders exceed the Total Commitment in effect at
such time.
(i) The Administrative Agent shall hold in confidence each Competitive
Bid received by the Administrative Agent until such Competitive Bid has been
disclosed to the appropriate Borrower pursuant to paragraph (d) above.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
----------------------------
Standby Borrowing, a Borrower shall hand deliver or telecopy a Standby Borrowing
Request in the form of Exhibit A-4 to the Administrative Agent (a) in the case
of a Standby Borrowing that is a Eurodollar Borrowing, not later than 11:00
a.m., New York City time, three Business Days before a proposed borrowing, (b)
in the case of a Standby Borrowing that is a CD Borrowing, not later than 11:00
a.m., New York City time, two Business Days before a proposed borrowing, and (c)
in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time,
on the day of a proposed borrowing. A Borrower shall be deemed to have given a
Standby Borrowing Request if it (i) notifies an officer of the Administrative
Agent identified in Section 9.01 by telephone of the content of such Standby
Borrowing Request not later than the relevant time set forth above for delivery
thereof and (ii) delivers such Standby Borrowing Request to the Administrative
Agent as soon as practicable; provided, however, that a Borrower shall not have
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any right to receive the proceeds of a Standby Borrowing unless the
Administrative Agent has received the related written Standby Borrowing Request.
Such notice shall be irrevocable and shall in each case specify (i) whether the
Borrowing then being requested is to be a Eurodollar Borrowing, a CD Borrowing
or an ABR Borrowing; (ii) the date of such Standby Borrowing (which shall be a
Business Day) and the amount thereof; and (iii) except in the case of ABR
Borrowings, the Interest Period with respect thereto. If no election as to the
Type of Standby Borrowing is specified in any such notice, then the requested
Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect
to any Standby Borrowing comprised of Eurodollar Loans or CD Loans is specified
in any such notice, then the Borrower requesting such Borrowing shall be deemed
to have selected an Interest Period of one month's duration, in the case of a
Eurodollar Borrowing, or 30 days' duration, in the case of a CD Borrowing. If a
Borrower shall not have given notice in accordance with this Section 2.04 of its
election to refinance a Standby Borrowing of such Borrower comprised of
Eurodollar Loans or CD Loans prior to the end of the Interest Period in effect
for such Borrowing, then such Borrower shall (unless such Borrowing is repaid at
the end of such Interest Period) be deemed to have given notice of an election
to refinance such Borrowing with an ABR Borrowing. The Administrative
<PAGE>
20
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.04 and of each Lender's portion of the requested Borrowing.
SECTION 2.05. Refinancings. Any Borrower may refinance all or any
-------------
part of any Borrowing of such Borrower with a Borrowing of the same or a
different Type made pursuant to Section 2.03 or Section 2.04, subject to the
conditions and limitations set forth herein and elsewhere in this Agreement,
including refinancings of Competitive Borrowings with Standby Borrowings and
Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid in accordance with Section 2.07 with
the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to the appropriate Borrower pursuant to Section
2.02(c); provided, however, that (i) if the principal amount extended by a
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Lender in a refinancing is greater than the principal amount extended by such
Lender in the Borrowing being refinanced, then such Lender shall pay such
difference to the Administrative Agent for distribution to the Lenders described
in (ii) below, (ii) if the principal amount extended by a Lender in the
Borrowing being refinanced is greater than the principal amount being extended
by such Lender in the refinancing, the Administrative Agent shall return the
difference to such Lender out of amounts received pursuant to (i) above and
(iii) to the extent any Lender fails to pay to the Administrative Agent amounts
due from it pursuant to (i) above, any Loan or portion thereof being refinanced
shall not be deemed repaid in accordance with Section 2.07 and shall be payable
by the Borrower to which such Loan was made; provided, however, that such
-------- -------
Borrower shall not have any liability under Section 2.15 in respect of any of
its payment obligations under this clause (iii).
SECTION 2.06. Fees. (a) The Borrowers agree, jointly and severally,
-----
to pay to each Lender, through the Administrative Agent, a facility fee (a
"Facility Fee") at a rate per annum equal to the Facility Fee Rate from time to
- -------------
time in effect on the amount of the Commitment of such Lender, whether used or
unused, from time to time in effect during the period for which such payment is
made. All Facility Fees shall be payable quarterly on the last Business Day of
each March, June, September and December and on the Maturity Date or such
earlier date on which the Commitment of the relevant Lender shall terminate as
provided herein, commencing on the first of such dates to occur after the date
hereof. All Facility Fees shall be computed in arrears on the basis of the
actual number of days elapsed in a year of 360 days. The Facility Fee due to
each Lender shall commence to accrue on the date hereof (or, if later, the date
on which such Lender became a Lender) and shall cease to accrue on the earlier
of the Maturity Date and the termination of the Commitment of such Lender as
provided herein.
(b) The Borrowers agree, jointly and severally, to pay to the
Administrative Agent from time to time, for its own account, agent and
administrative fees (the "Administrative Fees") at such times and in such
-------------------
amounts as have been previously agreed upon in writing between the Borrowers and
the Administrative Agent.
(c) All Fees shall be paid on the dates due in immediately available
funds. Once paid, none of the Fees shall be refundable, except in the event of
manifest error.
SECTION 2.07. Repayment of Loans; Evidence of the Borrowers'
----------------------------------------------
Obligations. Subject to Section 4.01, the outstanding principal balance of each
- ------------
Competitive Loan and Standby Loan made by any Lender shall be payable (i) except
in the case of ABR Loans, on the last day of the Interest Period applicable to
such Loan and (ii) on the Maturity Date. Each Competitive
<PAGE>
21
Loan and each Standby Loan shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.08. With
respect to each Lender, the entries made in the accounts maintained by the
Administrative Agent and such Lender shall be prima facie evidence of the
existence and amounts of the monetary obligations payable by any Borrower to
such Lender in respect of the Loans made by such Lender to such Borrower;
provided that the failure to maintain any such accounts or any error therein
- --------
shall not affect the obligations of the Borrowers hereunder.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum on any date of determination equal to (i) in the case
of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect
for such Borrowing plus the Standby Margin for such date, and (ii) in the case
of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Loan plus the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Loan pursuant to Section
2.03. The LIBO Rate for each Interest Period shall be determined by the
Administrative Agent (in consultation, if applicable, with the LIBO Reference
Lenders), and such determination shall be conclusive absent manifest error. The
Administrative Agent shall promptly advise the Borrowers and each Lender of such
determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, or,
when the Alternate Base Rate is determined by reference to the Federal Funds
Effective Rate, computed on the basis of the actual number of days elapsed over
a year of 360 days) at a rate per annum equal to the Alternate Base Rate. The
Alternate Base Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error. The Administrative
Agent shall promptly advise the Borrowers and each Lender of such determination.
(c) Subject to the provisions of Section 2.09, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum on any date
of determination equal to (i) in the case of each CD Standby Loan, the Adjusted
CD Rate for the Interest Period in effect for such Borrowing plus the Standby
Margin for such date and (ii) in the case of each CD Competitive Loan, the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus the
Competitive Margin offered by the Lender making such Loan and accepted by the
Borrower requesting such Borrowing pursuant to Section 2.03, provided, however,
-------- -------
that any CD Loan made pursuant to Section 2.10 or 2.14 shall bear interest
(computed as described in this paragraph) at a rate per annum on any date of
determination equal to the Adjusted CD Rate for the Interest Period applicable
to such CD Loan plus the Standby Margin for such date.
(d) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
requesting the applicable Fixed Rate Borrowing pursuant to Section 2.03.
(e) Interest on each Borrowing shall be payable on each applicable
Interest Payment Date.
<PAGE>
22
SECTION 2.09. Default Interest. If any Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, such Borrower shall on demand from time to time from the
Administrative Agent pay interest, to the extent permitted by applicable law, on
such defaulted amount from the date on which the Administrative Agent first
notifies such Borrower that it will be required to pay interest pursuant to this
Section on such defaulted amount up to (but not including) the date of actual
payment (after as well as before judgment) at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be) equal to the Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Required Lenders shall have
determined and communicated to the Administrative Agent that dollar deposits in
the principal amounts of the Eurodollar Loans comprising such Borrowing are not
generally available in the London interbank market, or that the rates at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to any Lender of making or maintaining its Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for ascertaining the LIBO
Rate, the Administrative Agent shall, as soon as practicable thereafter, give
written notice of such determination to the Borrowers and the Lenders. In the
event of any such determination, until the Administrative Agent shall have
advised the Borrowers and the Lenders that the circumstances giving rise to such
notice no longer exist, (i) any request by any Borrower for a Eurodollar
Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be
denied by the Administrative Agent and (ii) any request by any Borrower for a
Eurodollar Borrowing pursuant to Section 2.04 shall be deemed to be a request
for, as applicable, (A) an ABR Borrowing or a CD Borrowing or (B) a refinancing
of an ABR Borrowing or a CD Borrowing, as the case may be, with an ABR Borrowing
or a CD Borrowing, in each case as such Borrower shall elect by notice to the
Administrative Agent not later than 11:00 a.m., New York City time, one Business
Day before such refinancing, comprised of ABR Loans or of CD Loans having an
Interest Period as close as possible to the Interest Period requested by such
Borrower in connection with such Eurodollar Borrowing, provided, that in the
--------
absence of such election such Borrower shall be deemed to have requested an ABR
Borrowing. The parties hereto shall have the same rights and obligations in
respect of a deemed request for a CD Borrowing or an ABR Borrowing pursuant to
this Section and the CD Loans and ABR Loans made pursuant thereto, and the
Commitments shall be utilized by such CD Loans and such ABR Loans, as if such
Borrowing were a Standby Borrowing requested, and such Loans were Standby Loans
made, pursuant to Section 2.04.
SECTION 2.11. Termination and Reduction of Commitments. (a) Any
-----------------------------------------
Commitment that has not been terminated prior to the Maturity Date shall be
automatically terminated on the Maturity Date.
(b) Except as provided in Section 2.20 hereof, upon at least 5
Business Days' prior irrevocable written notice to the Administrative Agent,
JCPenney may at any time in whole permanently terminate, or from time to time in
part permanently reduce, the Total Commitment; provided, however, that each
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partial reduction of the Total Commitment shall be in an integral multiple of
$5,000,000 and in a minimum principal amount of $25,000,000 or, if less, the
Total Commitment then in effect.
<PAGE>
23
(c) Except as provided in Section 2.20, each reduction in the Total
Commitment hereunder shall be made ratably among the Lenders in accordance with
their respective Commitments. Subject to Section 9.09, the Borrowers shall pay
to the Administrative Agent for the account of the Lenders, on the date of each
termination or reduction, the Facility Fees accrued through the date of such
termination or reduction.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing of such Borrower,
in whole or in part, subject to the requirements of Section 2.15 but otherwise
without premium or penalty, upon giving written notice (or telephone notice
promptly confirmed by written notice) to the Administrative Agent before 10:00
a.m., New York City time, one Business Day prior to such prepayment; provided,
--------
however, that each partial prepayment shall be in an amount which is an integral
- -------
multiple of $5,000,000 and not less than $25,000,000. Competitive Borrowings
may not be prepaid without the prior written consent of the relevant Lender.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Standby Loans outstanding will not exceed the Total Commitment
after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower giving such notice to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments under this
Section 2.12 (other than prepayments of ABR Loans) shall be accompanied by
accrued interest on the principal amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. Subject
----------------------------------------------
to the procedures and limitations of Section 2.20:
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan
made by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on such Lender by the jurisdiction in which
such Lender is organized, has its principal office or maintains its Applicable
Lending Office for such Loan or by any political subdivision or taxing authority
in any such jurisdiction), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such Lender, or shall impose on such
Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Loan, CD Loan or Fixed Rate Loan made by such
Lender, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Eurodollar Loan, CD Loan or Fixed Rate
Loan or to reduce the amount of any sum received or receivable by such Lender
hereunder (whether of principal, interest or otherwise) by an amount deemed by
such Lender in its reasonable judgment to be material, then such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered will be paid to such Lender in accordance with
Section 2.20 (i) if such additional costs or reduction shall relate
<PAGE>
24
to a particular Loan, by the Borrower to which such Loan was made and (ii)
otherwise, by JCPenney. Notwithstanding the foregoing, no Lender shall be
entitled to request compensation under this paragraph with respect to any Loan
if it shall have been aware that the change giving rise to such request had been
adopted or enacted at the earlier of the time at which the Lender became a party
to this Agreement or, with respect to a Competitive Loan, the time of submission
of the Competitive Bid pursuant to which such Competitive Loan shall have been
made.
(b) If the adoption after the date hereof of any law, rule, regulation
or guideline regarding capital adequacy, or any change after the date hereof in
any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or any Applicable Lending Office of such Lender) with any request or
directive regarding capital adequacy (whether or not having the force of law)
made or issued after the date hereof by any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital as a consequence of this Agreement or the Loans made by
such Lender pursuant hereto to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender in its reasonable judgment to be material, then subject to Section
2.20 hereof, from time to time such additional amount or amounts as will
compensate such Lender for any such reduction suffered will be paid to such
Lender in accordance with Section 2.20 (i) if such reduction shall relate to a
particular Loan, by the Borrower to which such Loan was made and (ii) otherwise,
by JCPenney.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change after the date hereof in any law or regulation
or in the interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrowers and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by
such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request by any Borrower for a Standby Borrowing comprised
of Eurodollar Loans shall, as to such Lender only, be deemed a request
for an ABR Loan or a CD Loan, as such Borrower shall elect by notice to
the Administrative Agent not later than 11:00 a.m., New York City time,
one Business Day before such Borrowing, having an Interest Period (in
the case of a CD Loan) as close as possible to the Interest Period
applicable to such Eurodollar Loans unless such declaration shall be
subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans or to CD Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans or, if
JCPenney shall so notify the Administrative Agent on the date of such
conversion and the Administrative Agent shall have determined that the
Adjusted CD Rate can be determined for the Interest Period in question,
to CD Loans as of the effective date of such notice as provided in
paragraph (b) below.
<PAGE>
25
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans or CD Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans. The parties hereto shall have the same
rights and obligations in respect of a deemed request for a CD Loan pursuant to
clause (i) above and any CD Loan made pursuant to paragraph (a) above, and the
Commitments shall be utilized by any such CD Loan, as if such CD Loan were a
Standby Loan requested and made pursuant to Section 2.04.
(b) For purposes of this Section 2.14, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrowers (in which case any CD Loan resulting from the conversion of such
Eurodollar Loan pursuant to clause (ii) of paragraph (a) above shall have an
Interest Period as close as possible to the Interest Period applicable to such
Eurodollar Loan).
SECTION 2.15. Indemnity. Each Borrower agrees to indemnify the
----------
Administrative Agent and each Lender against any reasonable out-of-pocket loss
or expense which the Administrative Agent and/or such Lender may sustain or
incur as a consequence of (a) any failure by such Borrower to fulfill on the
date of any borrowing hereunder the applicable conditions set forth in Article
IV, (b) any failure by such Borrower to borrow or to refinance or continue any
Loan hereunder after irrevocable notice of such borrowing, refinancing or
continuation has been given pursuant to Section 2.03 or 2.04, (c) any payment,
prepayment or conversion of a Eurodollar Loan, CD Loan or Fixed Rate Loan made
to such Borrower that is required by any other provision of this Agreement or
otherwise made or deemed made on a date other than the last day of the Interest
Period applicable thereto or (d) any default in payment or prepayment of the
principal amount of any Eurodollar Loan, CD Loan or Fixed Rate Loan made to such
Borrower or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, whether by scheduled maturity, acceleration,
irrevocable notice of prepayment or otherwise), after the expiration of the
applicable grace period, including, in each such case, any reasonable out-of-
pocket loss or expense sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such Loan or any part
thereof as a Eurodollar Loan, CD Loan or Fixed Rate Loan. Such loss or
reasonable expense shall include an amount equal to the excess, if any, as
reasonably determined by the Administrative Agent and/or such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid, converted or not
borrowed (based on the LIBO Rate or Adjusted CD Rate or, in the case of a Fixed
Rate Loan, the fixed rate of interest applicable thereto) for the period from
the date of such payment, prepayment or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined in good
faith by the Administrative Agent and/or such Lender) that would be realized by
the Administrative Agent and/or such Lender in reemploying the funds so paid,
prepaid or not borrowed for such period or Interest Period, as the case may be;
provided, however, that with respect to any Eurodollar Loan or CD Loan for which
- -------- -------
the corresponding LIBO Rate or Adjusted CD Rate, as the case may be, is
available for the period or Interest Period in question, the amount of interest
realized in reemploying such funds shall be computed at such LIBO Rate or
Adjusted CD Rate, as the case may be, at the time of the applicable payment,
prepayment or failure to borrow. In order to exercise its rights under this
Section, the Administrative Agent and/or a Lender shall deliver to the
appropriate Borrower a certificate
<PAGE>
26
setting forth any amount or amounts which the Administrative Agent and/or such
Lender is entitled to receive pursuant to this Section. Such Borrower shall
have a 30-Business Day period following the receipt of such certificate (if such
Borrower in good faith disagrees with the assertion that any payment under such
section is due or with the amount shown as due on such certificate and so
notifies the Administrative Agent and/or such Lender of such disagreement within
10 Business Days following receipt of such certificate) to negotiate with the
Administrative Agent and/or such Lender, which negotiations shall be conducted
by the respective parties in good faith, and to agree upon another amount that
will adequately compensate the Administrative Agent and/or such Lender, it being
expressly understood that if such Borrower does not provide the required notice
of its disagreement as provided above, such Borrower shall pay the amount shown
as due on the certificate on the tenth Business Day following receipt thereof
and further if such Borrower does provide such required notice, and negotiations
are entered into but do not result in agreement by such Borrower and the
Administrative Agent and/or such Lender within the 30-Business Day period, then
such Borrower shall pay the amount shown as due on the certificate on the last
day of such period.
SECTION 2.16. Pro Rata Treatment. Except as required under Sections
-------------------
2.14 and 2.20(b), each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their outstanding Standby
Loans). Each payment of principal of any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective principal amounts of their outstanding
Competitive Loans comprising such Borrowing. Each payment of interest on any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective amounts of
accrued and unpaid interest on their outstanding Competitive Loans comprising
such Borrowing. For purposes of determining the available Commitments of the
Lenders at any time, each outstanding Competitive Borrowing shall be deemed to
utilize the Commitments of each of the Lenders pro rata in accordance with their
respective Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against any Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Standby Loan or
Loans as a result of which the unpaid principal portion of its Standby Loans
shall be proportionately less than the unpaid principal portion of the Standby
Loans of any other Lender, it shall be deemed simultaneously to have purchased
from such other Lender at face value, and shall promptly pay to such other
Lender the purchase price for, a participation in the Standby Loans of such
other Lender, so that the aggregate unpaid principal amount of the Standby Loans
and participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's lien,
setoff
<PAGE>
27
or counterclaim or other event; provided, however, that, if any such purchase or
-------- -------
purchases or adjustments shall be made pursuant to this Section 2.17 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that,
subject to Section 9.06, any Lender holding a participation in a Standby Loan
deemed to have been so purchased may exercise any and all rights of banker's
lien, setoff or counterclaim with respect to any and all moneys owing by any
Borrowers to such Lender by reason thereof as fully as if such Lender had made a
Standby Loan directly to the Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) Each Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) required to be made by it hereunder not later than 12:00 (noon), New
York City time (11:00 a.m., New York City time, in the case of any payment to be
made to the Administrative Agent), on the date when due in dollars to the
Administrative Agent, in each case in immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) If any Borrower shall be required by reason
------
of any change occurring after the date of this Agreement in applicable law or
regulation or tax treaty or in the interpretation or administration thereof by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having force of law) (a "Change of Law") to deduct any
Taxes from or in respect of any sum payable by it hereunder to any Lender or to
the Administrative Agent, then except as otherwise provided in this Section 2.19
and subject to Section 2.20, (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.19) such
Lender or the Administrative Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Borrower shall make such deductions and (iii) such Borrower shall pay the
full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrowers agree, jointly and severally, to pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as "Other Taxes") other than any Other
Taxes imposed upon any assignment or participation of a Lender's rights,
interests and obligations hereunder; provided, however, that the amount the
-------- -------
Borrowers shall be required to pay to a particular Lender in respect of Other
Taxes shall not exceed 1% of the aggregate amount of the Loans or, if
applicable, the Commitment of such Lender on which such Other Taxes are imposed
and provided further, however, that if a Lender is actually aware of the
---------------- -------
application of any Other Tax to any such payment, execution, delivery or
registration, such Lender shall promptly notify the Borrowers of such Other Tax
and the Borrowers shall thereafter have the benefit of the provisions of Section
2.20(b).
<PAGE>
28
(c) Within 30 days after the date of any payment of Taxes withheld by
any Borrower in respect of any payment to any Lender or the Administrative
Agent, such Borrower will furnish to the Administrative Agent, at its address
referred to in Section 9.01, the original or a certified copy of a receipt
evidencing payment thereof or, if such a receipt is not available, a certificate
of the treasurer or any assistant treasurer of such Borrower setting forth the
amount of such payment and the date on which such payment was made.
(d) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(e) On the date hereof (or, in the case of an entity that becomes a
Lender after the date hereof, on the date such entity becomes a Lender) and
thereafter as required by applicable law, each Lender that is organized under
the laws of a jurisdiction outside the United States shall deliver to JCPenney
and the Administrative Agent such certificates, documents or other evidence, and
any amendments or supplements to such certificates, documents or other evidence,
as required by the Code or Treasury Regulations issued pursuant thereto,
including Internal Revenue Service Form 1001 or Form 4224 and any other
certificate or statement of exemption required by Treasury Regulation Section
1.1441-1, 1.1441-2, 1.441-4(a) or 1.1441-6(c) or any similar or successor
provision, properly completed and duly executed by such Lender (or the
Administrative Agent) establishing that payments made under this Agreement to
such Lender (or to the Administrative Agent) are (i) not subject to withholding
under the Code because such payments are effectively connected with the conduct
by such Lender (or the Administrative Agent) of a trade or business in the
United States or (ii) totally exempt from United States tax under a provision of
an applicable tax treaty. Unless JCPenney and the Administrative Agent have
received forms or other documents satisfactory to them indicating that payments
hereunder are not subject to Taxes or are subject to such Taxes at a rate
reduced by an applicable tax treaty, the appropriate Borrower shall withhold
Taxes from such payments at the applicable statutory rate in the case of
payments to or for any Lender (or to the Administrative Agent) organized under
the laws of a jurisdiction outside the United States.
(f) The Borrowers shall not be required to pay any additional amounts
to any Lender (or to the Administrative Agent) pursuant to paragraph (a) above
if the obligation to pay such additional amounts would not have arisen but for a
failure by such Lender (or the Administrative Agent) to comply with the
provisions of paragraph (e) above unless such failure results from a change
occurring after the date of this Agreement in applicable law or regulation or
tax treaty or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(whether or not having force of law).
(g) The Borrowers shall not be liable under this Section 2.19 to any
Lender or to the Administrative Agent that has changed the location of its
principal office or any of its Applicable Lending Offices after the date (the
"Relevant Date") on which it first becomes a party to this Agreement (a "Change
in Location") for any Taxes that would have not been imposed but for a Change of
Law enacted, promulgated or effective before the Relevant Date, but only to the
extent such Taxes exceed the amount the Borrowers were required to pay such
Lender or the Administrative Agent pursuant to this Section 2.19 immediately
prior to such Change in Location.
(h) If any Lender or the Administrative Agent shall become aware that
it is entitled to receive a refund in respect of Taxes indemnified and paid by
the Borrower, such
<PAGE>
29
Lender or the Administrative Agent shall promptly notify the Borrowers of the
availability of such refund and shall, within 30 days after receipt of a request
by JCPenney, apply for such refund at JCPenney's expense. If any Lender or the
Administrative Agent receives a refund in respect of any Taxes for which such
Lender or the Administrative Agent has received payment from any Borrower
hereunder, it shall within 30 days after receipt thereof repay the lesser of
such refund and the amount paid by the Borrowers with respect to such Taxes to
the appropriate Borrower, in each case net of all reasonable out-of-pocket
expenses of such Lender or the Administrative Agent and with interest received
by such Lender or the Administrative Agent from the relevant taxing authority
attributable to such refund; provided, however, that such Borrower, upon the
-------- -------
request of such Lender or the Administrative Agent, agrees to return such refund
(plus interest, penalties or other charges) to such Lender or the Administrative
Agent in the event such Lender or the Administrative Agent is required to repay
such refund to any Governmental Authority.
(i) Each Lender and the Administrative Agent severally (but not
jointly) represents and warrants to the Borrowers that, as of the date such
person becomes a party to this Agreement, payments made by the Borrowers to such
Lender or to the Administrative Agent in connection with the Agreement are
effectively connected with the conduct by such Lender or the Administrative
Agent of a trade or business in the United States.
SECTION 2.20. Mitigation; Duties of Lenders and Administrative Agent.
-------------------------------------------------------
(a) If, with respect to any Lender or the Administrative Agent, an event or
circumstance occurs that would entitle such Lender or the Administrative Agent
to exercise any of the rights or benefits afforded by Section 2.13 or 2.19(a),
such Lender or the Administrative Agent, promptly upon becoming aware of the
same, shall take all steps as may be reasonably available (including, as may be
applicable, designating a different Applicable Lending Office, making the
affected Type of Loan through an Affiliate, or furnishing the proper
certificates under any applicable tax laws, tax treaties, conventions, and
governmental regulations to the extent that such certificates are legally
available to such Lender or to the Administrative Agent) to eliminate or
mitigate the effects of any event resulting in the ability of such Lender or the
Administrative Agent to exercise rights under any of such Sections; provided,
--------
however, that, no Lender or the Administrative Agent shall be under any
- -------
obligation to take any step that, in its reasonable judgment, would (i) result
in its incurring Additional Costs or taxes in performing its obligations
hereunder unless the Borrowers have expressly agreed to reimburse it therefor or
(ii) be materially disadvantageous to such Lender or to the Administrative
Agent. Within 60 days after the occurrence of any event giving rise to any
rights or benefits provided by Sections 2.13 and 2.19(a) in favor of any Lender
or the Administrative Agent, such Lender or the Administrative Agent (i) will
notify the Borrowers of such event or circumstance and (ii) provide the
Borrowers with a certificate setting forth in reasonable detail (x) the event or
circumstance giving rise to any benefit under Sections 2.13 and 2.19(a), (y) the
effective date of, and the time period during which, compensation for any
Additional Costs or Taxes are being claimed and (z) the determination of amount
or amounts claimed thereby and detailed calculations with respect thereto;
provided, however, that if such Lender or the Administrative Agent does not give
- -------- -------
the Borrowers such notice and certificate within the 60-day period set forth in
this sentence, the Borrowers shall be required to indemnify such Lender or the
Administrative Agent only for such Additional Costs and Taxes as are
attributable to the period from and after the first date as of which such notice
and certificate have been received by the Borrowers. Such Lender or the
Administrative Agent shall notify the Borrowers of any change in circumstances
with respect to the event specified in the above-described notice and
certificate as promptly as practicable after such Lender or the Administrative
Agent obtains knowledge thereof. Such certificate shall be
<PAGE>
30
conclusive absent manifest error. Notwithstanding the foregoing, no Lender or
Administrative Agent shall deliver the notice and certificate described in this
paragraph (a) to the Borrowers in respect of any Additional Costs or Taxes
unless it is then the general policy of such Lender or the Administrative Agent
to pursue similar rights and remedies in similar circumstances under comparable
provisions of other credit agreements.
(b) With respect to Sections 2.13 and 2.19, the Borrowers shall have
the right, should any Lender request any compensation or indemnity thereunder,
to (i) unless an Event of Default shall have occurred and be continuing, (A)
promptly terminate such Lender's Commitment by irrevocable written notice of
such termination to such Lender and the Administrative Agent without the
necessity of complying with Sections 2.11(b) and (c) hereof, (B) reduce the
Total Commitments by the amount of such Lender's Commitment, and (C) pay or
prepay in immediately available funds all Loans made by such Lender hereunder,
together with accrued and unpaid interest thereon and all other amounts owed to
such Lender hereunder, including under Section 2.15 in connection with any such
prepayment or (ii) require such Lender to assign its Commitment and Loans,
without recourse to or representation or warranty by such Lender, to another
Lender or assignee acceptable to the Borrowers and with the consent of the
Administrative Agent, which consent shall not be unreasonably withheld;
provided, however, that (x) such assignment shall not conflict with any statute,
- -------- -------
law, rule, regulation, order or decree of any Governmental Authority and (y) the
assigning Lender shall have received from the Borrowers and/or such assignee
full payment in immediately available funds of the principal of and interest
accrued to the date of such payment on the Loans made by it hereunder to the
extent that such Loans are subject to such assignment and all other amounts owed
to it hereunder. The Borrowers shall have the right, should the Administrative
Agent request any compensation or indemnity under such Sections, to require the
Administrative Agent to assign its rights and obligations hereunder to a
successor Administrative Agent with the consent of the Required Lenders, which
consent shall not be unreasonably withheld.
(c) With respect to Sections 2.13 or 2.19 (i) other than with respect
to Section 2.19(b), no Lender or Administrative Agent shall be entitled to
exercise any right or benefit afforded thereby and no Borrower shall be
obligated to reimburse any Lender or the Administrative Agent pursuant to such
Sections unless (x) such Lender or the Administrative Agent has delivered to the
Borrowers in accordance with Section 9.01 the notice and the certificate
described in Section 2.20(a) hereof and (y) the affected Borrower has had a 30-
Business Day period following the receipt of such notice and certificate (if
such Borrower in good faith disagrees with the assertion that any payment under
such Sections is due or with the amount shown as due on such certificate and so
notifies the Lender or the Administrative Agent of such disagreement within 10
Business Days following receipt of the notice and certificate) to negotiate with
the requesting Lender or the Administrative Agent, which negotiations shall be
conducted by the respective parties in good faith, and to agree upon another
amount that will adequately compensate such Lender or the Administrative Agent,
it being expressly understood that if such Borrower does not provide the
required notice of its disagreement as provided above, such Borrower shall pay
the amount shown as due on the certificate on the tenth Business Day following
receipt thereof and further if such Borrower does provide such required notice,
and negotiations are entered into but do not result in agreement by such
Borrower and such Lender or the Administrative Agent within the 30-Business Day
period, then such Borrower shall pay the amount shown as due on the certificate
on the last day of such period, but in either event not earlier than the date as
of which the relevant Additional Costs or Taxes are incurred, (ii) other than
with respect to Other Taxes, unless the appropriate notice and certificate are
delivered to the Borrowers within the 60-day period described in Section
2.20(a), the Borrowers
<PAGE>
31
shall be liable only for Additional Costs, Taxes or amounts required to be paid
which are attributable to the period from and after the date such notice and
certificate have been received by the Borrowers, (iii) the Borrowers' liability
for any amounts incurred as a result of any change in Applicable Lending Office
shall be limited as set forth in Section 2.02(e), (iv) in no event shall the
Borrowers be liable for any taxes (other than Other Taxes) that would not have
been imposed but for a connection between such Lender or the Administrative
Agent (other than by reason of the activities contemplated by this Agreement)
and the relevant taxing jurisdiction, (v) each Lender or the Administrative
Agent shall in good faith allocate all Additional Costs, Taxes, and payments
required to be made fairly among all its commitments and credit extensions
(whether or not it seeks compensation from all affected borrowers), (vi) no
Lender or Administrative Agent shall be entitled to exercise any right or
benefit afforded hereby or receive any payment otherwise due under Sections 2.13
or 2.19 (including without limitation, any repayment by a Borrower of any refund
of Taxes pursuant to Section 2.19(h)) which arises from any gross negligence,
fraud or wilful misconduct of any Lender or the Administrative Agent, or the
failure of such Lender or the Administrative Agent to comply with the terms of
this Agreement, (vii) if a Lender or the Administrative Agent shall have
recouped any amount or received any offsetting tax benefit (other than a refund
of Taxes as described in Section 2.19(h)) or reserve or capital benefits
theretofore paid to it by such Borrower, such Lender or the Administrative Agent
shall promptly pay to such Borrower an amount equal to the amount of the
recoupment received by such Lender or the Administrative Agent reduced by any
reasonable out-of-pocket expenses of such Lender or the Administrative Agent
attributable to such recoupment, as determined in good faith by such Lender or
the Administrative Agent, and (viii) the liability of either Borrower to any
Lender or the Administrative Agent with respect to any taxes shall be reduced to
the extent that such Lender or the Administrative Agent receives an offsetting
tax benefit (or could have received such a benefit by taking reasonable measures
to receive it); provided, however, that there shall not be any reductions
-------- -------
pursuant to this clause (viii) with respect to any tax benefit (x) the existence
of which such Lender or the Administrative Agent is unaware, (y) the claiming of
which would result in any cost or tax to such Lender or the Administrative Agent
(unless such Borrower shall have agreed to pay its reasonably allocable portion
of such cost or tax) and (z) unless such Borrower shall agree to indemnify the
Lender or the Administrative Agent to the extent any tax benefit taken into
account under this clause (viii) is thereafter lost or becomes unavailable.
(d) In addition to their obligations under Section 2.19 hereof,
each of the Lenders and the Administrative Agent hereby agrees to execute and
deliver, and to make any required filings of, all certificates, agreements,
documents, reports, statements and other instruments as are reasonably necessary
to effectuate the purposes of this Section 2.20 and Sections 2.13 and 2.19. The
Borrowers agree, jointly and severally, to pay all filing fees incurred by any
Lender or the Administrative Agent in performing its obligations under this
Section 2.20.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrowers and the
---------------------
Restricted Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be
<PAGE>
32
conducted, (c) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Effect, and (d) in the case of each Borrower, has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each other agreement or instrument
contemplated hereby to which it is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The Transactions (a) have been duly
--------------
authorized by all requisite corporate and, if required, stockholder action and
(b) will not (i) violate (A) any applicable provision of law, statute, material
rule or material regulation, or of the certificate or articles of incorporation
or other constitutive documents or by-laws of JCPenney, Funding or any
Restricted Subsidiary, (B) any applicable material order of any Governmental
Authority or (C) any material provision of any indenture, agreement or other
instrument to which JCPenney, Funding or any Restricted Subsidiary is a party or
by which any of them or any of their property is or may be bound, (ii) be in
conflict with, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, in each case in any material respect, or (iii) result in the
creation or imposition of any Lien upon or with respect to any property or
assets now owned or hereafter acquired by JCPenney, Funding or any Restricted
Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly executed
---------------
and delivered by each Borrower and constitutes a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms, except as enforceability may be limited by (a) any applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws relating to or affecting creditors' rights generally and (b)
general principles of equity.
SECTION 3.04. Governmental Approvals. No action, consent or approval
-----------------------
of, registration or filing with, or any other action by, any Governmental
Authority is or will be required in connection with the Transactions, except (a)
such as have been made or obtained and are in full force and effect or as to
which the failure to be made or obtained and in full force and effect would not
result in a Material Adverse Effect and (b) such periodic and current reports,
if any, as (i) are required to disclose the Transactions and (ii) will be filed
with the SEC on a timely basis.
SECTION 3.05. Financial Statements. Each of JCPenney and Funding has
---------------------
heretofore furnished to the Lenders its consolidated balance sheets and related
consolidated statements of income and cash flows (a) as of and for the fiscal
year ended January 27, 1996, audited by and accompanied by the opinion of KPMG
Peat Marwick L.L.P., independent public accountants, and (b) as of and for the
fiscal quarter and the portion of the fiscal year ended July 27, 1996, as filed
by JCPenney or Funding, as the case may be, with the SEC on Form 10-Q in respect
of such fiscal quarter. Such financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its Subsidiaries,
or of Funding and its Subsidiaries, as the case may be, in accordance with GAAP,
subject, in the case of the financial statements referred to in clause (b)
above, to normal year-end audit adjustments.
SECTION 3.06. No Material Adverse Change. Except as set forth on
---------------------------
Schedule 3.06, as of the date hereof, there has been no material adverse change
in the business, assets, operations or financial condition of JCPenney, Funding
or JCPenney and the Restricted Subsidiaries taken as a whole since January 27,
1996.
<PAGE>
33
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
---------------------------------------------
of the Borrowers and the Restricted Subsidiaries has good and marketable title
to all its Principal Properties, except for minor defects in title and other
restrictions that do not interfere with its ability to conduct its business as
currently conducted or to utilize such Principal Properties for their intended
purposes. All the Principal Properties are free and clear of Liens, other than
Liens expressly permitted by Section 6.01.
(b) Each of the Borrowers and the Restricted Subsidiaries has valid
leasehold interests in all the material properties that it purports to hold
under lease, except for restrictions that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes. Each of the Borrowers and the Restricted Subsidiaries
has complied with all material obligations under all material leases to which it
is a party and all such leases are in full force and effect, except in each case
for provisions of such leases that are being contested in good faith in the
ordinary course of the Borrower's business. Each of the Borrowers and the
Restricted Subsidiaries enjoys peaceful and undisturbed possession under all
such material leases.
SECTION 3.08. Restricted Subsidiaries. Schedule 3.08 sets forth as of
------------------------
the date hereof a list of all the Restricted Subsidiaries and the percentage
ownership interest of JCPenney therein. JCPenney owns, free and clear of all
Liens, all the issued and outstanding shares of the capital stock of Funding,
and all such outstanding shares are validly issued, fully paid and
nonassessable.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
---------------------------------
forth in Schedule 3.09 or as subsequently disclosed in writing to the Lenders,
there are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority now pending or, to the knowledge of any
Borrower, threatened against or affecting JCPenney or Funding or any Restricted
Subsidiary or any business, property or rights of any such person (i) which
involve this Agreement or the borrowings hereunder or (ii) as to which there is
a reasonable possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) None of the Borrowers or the
-----------
Restricted Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted or would result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing indebtedness for money borrowed, or any other material
agreement or instrument to which it is a party or by which it or any of its
material properties or material assets are bound, where such default would
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of the Borrowers
----------------------------
or the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
<PAGE>
34
(b) No part of the proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, in each case in violation of the applicable
requirements of the Regulations of the Board (including Regulation G, U or X),
or (ii) for any other purpose which entails a violation of, or which is
inconsistent with, the provisions of the Regulations of the Board (including
Regulation G, U or X).
SECTION 3.12. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. None of the Borrowers is (a) an "investment company" as defined in, or
- ----
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds of
----------------
the Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the Restricted
------------
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the appropriate Borrower or Restricted Subsidiary
shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. No information, report,
--------------------------
financial statement, exhibit or schedule furnished by or on behalf of any
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or included herein or delivered pursuant hereto
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. During the immediately
----------------------
preceding six-year period with respect to the Plans, there were no: (a)
violations known to the Borrowers of ERISA, or (b) Reportable Events (other than
a Reportable Event for which the PBGC has waived the 30-day notice requirement
of Section 4043(a) of ERISA), that would, individually or in the aggregate,
result in a Material Adverse Effect. The present value of all benefit
liabilities under each Plan (based on the assumptions used to fund such Plan)
does not exceed the value of the assets of such Plan. None of the Borrowers or
the ERISA Affiliates has made contributions to any Multiemployer Plan within the
past five years, and such contributions are not now being made or expected to be
required.
SECTION 3.17. Support Agreements. The Support Agreements have been
-------------------
duly executed and delivered by JCPenney and, where applicable, Funding and, as
of the date hereof, are in full force and effect in accordance with their terms.
A complete and correct copy of each Support Agreement as in effect on the date
hereof has previously been furnished to each Lender and to the Administrative
Agent.
<PAGE>
35
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. Subject to the provisions of the last
---------------
sentence of this Section 4.01, on the date of each Borrowing:
(a) The Administrative Agent shall have received such notice of
such Borrowing as is required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in Article III
hereof (except, in the case of all Borrowings hereunder, the
representation set forth in Section 3.06) shall be true and correct in
all material respects on and as of the date of such Borrowing with the
same effect as though made on and as of such date, except to the extent
such representations and warranties expressly relate to an earlier
date.
(c) At the time of and immediately after such Borrowing, no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing (other than any new Borrowing described in the last sentence of
this Section 4.01) shall be deemed to constitute a representation and warranty
by the Borrowers on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01. Notwithstanding the other
provisions of this Section 4.01, the refinancing of any Borrowing with a new
Borrowing that does not increase the outstanding aggregate principal amount of
the Loans of any Lender shall not be subject to the satisfaction of any of the
foregoing conditions.
SECTION 4.02. First Borrowing. The obligation of each Lender to make
----------------
its initial Loan is subject to the satisfaction of the following conditions:
(a) The Administrative Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of each
Borrower and each Lender and (ii) the subordinated Guaranty of
JCPenney, substantially in the form of Exhibit B, executed and
delivered by a duly authorized officer of JCPenney.
(b) The Administrative Agent shall have received a Closing
Certificate of each Borrower, substantially in the form of Exhibit C,
with appropriate insertions and attachments.
(c) Acquisition Co. shall have acquired at least 50.1% of the
outstanding common stock of Eckerd in accordance with the Tender Offer
Materials concurrently with the making of the initial Loans. The
Tender Offer Materials shall not have been waived, amended,
supplemented or otherwise modified in any material respect (other than
to the extent necessary to extend the expiration date of the Tender
Offer) without the prior written consent of the Required Lenders.
<PAGE>
36
(d) All governmental and third party approvals (including
approvals under the Hart-Scott-Rodino Antitrust Improvements Act of
1976) the absence of which would have a Material Adverse Effect shall
have been obtained and be in full force and effect, and all applicable
waiting periods shall have expired without any action being taken by
any competent authority which has restrained, prevented or otherwise
imposed materially adverse conditions on the Transactions.
(e) The Lenders shall have received the upfront fees previously
agreed by the Borrowers to be paid to the Lenders.
(f) The Administrative Agent shall have received an executed
opinion of counsel to the Borrowers, dated the date hereof,
substantially in the form of Exhibit D.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so long as this
Agreement shall remain in effect or the principal of or interest on any Loan,
any Fees or any other expenses or amounts payable under this Agreement shall be
unpaid, unless the Required Lenders shall otherwise consent in writing, each of
the Borrowers will, and will cause each of the Restricted Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause
-------------------------------------
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as would not cause a Default under Section
6.04 or otherwise cause an Event of Default under this Agreement.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations and orders
of any Governmental Authority, whether now in effect or hereafter enacted;
except in each case where the failure to do so would not result in a Material
Adverse Effect; and at all times maintain and preserve all property material to
the conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this
-------- -------
paragraph (b) shall prevent any Borrower or Restricted Subsidiary from
discontinuing the operation and maintenance of any of its properties no longer
deemed useful in the conduct of its business.
SECTION 5.02. Insurance. Maintain insurance and/or self insurance
----------
programs in force that adequately protect the Principal Properties and the
public liability exposures of the Borrowers, as may be required by law, and as
is customary with companies in the same or similar businesses or of the same
general financial net worth.
<PAGE>
37
SECTION 5.03. Obligations and Taxes. Pay and discharge promptly when
----------------------
due all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its properties, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any material part thereof; provided, however, that such
-------- -------
payment and discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as (a) the validity or amount thereof
shall be contested in good faith by appropriate proceedings and (b) the
applicable Borrower has made appropriate reserves therefor as required by GAAP.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
-----------------------------------
Borrowers, furnish to the Administrative Agent (with sufficient copies for each
Lender) for distribution to the Lenders:
(a) as soon as available and in any event within 120 days after
the end of each fiscal year, a copy of the reports filed by each of
JCPenney and Funding with the SEC on Form 10-K in respect of such
fiscal year, accompanied by JCPenney's annual report in respect of such
fiscal year or, if either of JCPenney or Funding is not required to
file such a report in respect of such fiscal year, the consolidated
balance sheets and related consolidated statements of income and cash
flows of JCPenney and its Subsidiaries, or of Funding and its
Subsidiaries, as the case may be, as of the close of such fiscal year,
all audited by KPMG Peat Marwick L.L.P., or other independent public
accountants of recognized national standing and accompanied by an
opinion of such accountants (which shall be in scope and substance
reasonably satisfactory to the Required Lenders) to the effect that
such consolidated financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its
Subsidiaries or of Funding and its Subsidiaries, as the case may be, in
accordance with GAAP;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarterly periods of each fiscal
year, a copy of the quarterly reports filed by each of JCPenney and
Funding with the SEC on Form 10-Q in respect of such quarterly period,
or if either of JCPenney or Funding is not required to file such a
report in respect of such quarterly period, the consolidated balance
sheets and related consolidated statements of income and cash flows of
JCPenney and its Subsidiaries, or of Funding and its Subsidiaries, as
the case may be, as of the close of such fiscal quarter, certified by
its chief financial officer, treasurer or controller as fairly
presenting the financial position, results of operations and cash flows
of JCPenney and its Subsidiaries or of Funding and its Subsidiaries, as
the case may be, in accordance with GAAP, subject to normal year-end
audit adjustments;
(c) concurrently with any delivery of financial statements by
JCPenney or Funding under (a) above (whether contained in a report
filed with the SEC or otherwise), a certificate of its chief financial
officer, president, treasurer or controller (i) stating that no Event
of Default or Default has occurred or, if such an Event of Default or
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto
and (ii) with respect to JCPenney, setting forth computations in
<PAGE>
38
reasonable detail demonstrating compliance with the covenant contained
in Section 6.02;
(d) promptly after the same become publicly available, copies of
all documents and reports that any Borrower may be required to file
with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, or with any Governmental Authority succeeding
to any of or all the functions of the SEC;
(e) promptly after the execution and delivery thereof by the
parties thereto, copies of all agreements and other instruments that
have the effect of amending, modifying or waiving any provision of a
Support Agreement; and
(f) promptly, from time to time, such other documents and
information regarding the operations, business affairs and financial
condition of any Borrower or Restricted Subsidiary, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the
-----------------------------
Administrative Agent prompt written notice of the following promptly after
becoming aware thereof:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against any Borrower or Restricted Subsidiary
which, if adversely determined, would result in a Material Adverse
Effect; and
(c) any development that has resulted in, or would result in, a
Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
------
applicable provisions of ERISA and (b) furnish to the Administrative Agent and
each Lender (i) as soon as possible, and in any event within 30 days after any
Responsible Officer of any Borrower or ERISA Affiliate either knows or has
reason to know that any Reportable Event has occurred that alone or together
with any other Reportable Events could reasonably be expected to result in
liability of the Borrowers and/or the Restricted Subsidiaries to the PBGC in an
aggregate amount exceeding $200,000,000, a statement of a Responsible Officer of
JCPenney setting forth details as to such Reportable Event and the action
proposed to be taken with respect thereto, together with a copy of the notice,
if any, of such Reportable Event given to the PBGC, (ii) promptly after receipt
thereof, a copy of any notice that any Borrower or ERISA Affiliate receives from
the PBGC relating to the intention of the PBGC to terminate any Plan or Plans
(other than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or
to appoint a trustee to administer any Plan or Plans and (iii) within 10 days
after the due date for filing with the PBGC pursuant to Section 412(n) of the
Code of a notice of failure to make a required installment or other payment with
respect to a Plan, a statement of a Responsible Officer of JCPenney setting
<PAGE>
39
forth details as to such failure and the action proposed to be taken with
respect thereto, together with a copy of such notice given to the PBGC. Any
failure to comply with applicable provisions of ERISA shall not be deemed to be
material, unless such failure or failures would result in a Material Adverse
Effect.
SECTION 5.07. Maintaining Records; Access to Properties and
---------------------------------------------
Inspections. Maintain all financial records in accordance with GAAP and permit
- ------------
any representatives designated by any Lender to (a) visit and inspect the
financial records and the Principal Properties of any Borrower or Restricted
Subsidiary during business hours upon reasonable notice, (b) make extracts from
and copies of such financial records, (c) discuss the affairs, finances and
condition of any Borrower or Restricted Subsidiary with the chief financial
officer, treasurer or any assistant treasurer of any Borrower or Restricted
Subsidiary and (d) discuss the affairs, finances and condition of any Borrower
or Restricted Subsidiary with such person's independent accountants in the
presence of any of the chief financial officer, treasurer or any assistant
treasurer of such person. No such inspection, discussion or other right granted
under this Section 5.07 and exercised by any Lender shall disrupt the normal and
ordinary conduct of business of any Borrower or Restricted Subsidiary, and all
costs and expenses incurred in connection therewith, shall, prior to the
occurrence and continuance of an Event of Default, be borne by the Lender
exercising such right.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for
----------------
the purposes set forth in the preamble to this Agreement.
SECTION 5.09. Pari Passu. Ensure that (a) the payment obligations of
-----------
any Borrower under this Agreement will at all times rank at least equally and
ratably in all respects with the claims of any other unsecured creditor of such
Borrower and (b) the proceeds of any Loan made to Funding will be used for the
purpose of making either (i) Investments of the type referred to in clause (v)
of Section 6.06(c) or (ii) loans to JCPenney constituting senior unsecured
indebtedness of JCPenney, and not for any other purpose.
SECTION 5.10. Support Agreements. Ensure that (a) each Support
-------------------
Agreement remains in full force and effect in accordance with its terms and (b)
no amendment or modification is made to any Support Agreement or any of the
terms thereof, and no waiver is given or agreed to be given by or on behalf of
Funding with respect to any of its rights under any Support Agreement, which
would have a Material Adverse Effect.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender and the
Administrative Agent, so long as this Agreement shall remain in effect or the
principal of or interest on any Loan, any Fees or any other expenses or amounts
payable under this Agreement shall be unpaid, unless the Required Lenders shall
otherwise consent in writing, as follows:
SECTION 6.01. Limitation on Liens--JCPenney. JCPenney will not, and
------------------------------
will not permit any Restricted Subsidiary to, issue, assume or guarantee any
notes, bonds, debentures or other similar evidences of indebtedness for money
borrowed (referred to in this Section 6.01 as "indebtedness") secured by any
Lien upon any Principal Property, or shares of capital stock (other than
Unrestricted Margin Stock) or evidences of indebtedness for money borrowed
issued by any Restricted Subsidiary and owned by JCPenney or any Restricted
Subsidiary, whether
<PAGE>
40
owned on the date hereof or thereafter acquired, without making effective
provision whereby the Loans made to JCPenney are secured by such Lien equally
and ratably with any and all other indebtedness thereby secured, so long as such
indebtedness shall be so secured; provided, however, that the foregoing
-------- -------
restriction shall not apply to indebtedness secured by any of the following:
(i) Liens on any property existing at the time of acquisition
thereof by JCPenney or any Restricted Subsidiary;
(ii) Liens on property of a corporation existing at the time
such corporation is merged into or consolidated with JCPenney or any
Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of such corporation (or a division
thereof) as an entirety or substantially as an entirety to JCPenney or
any Restricted Subsidiary, provided that such Lien as a result of such
--------
merger, consolidation, sale, lease or other disposition is not extended
to property owned by JCPenney or such Restricted Subsidiary immediately
prior thereto;
(iii) Liens on property of a corporation existing at the time
such corporation first becomes a Restricted Subsidiary;
(iv) Liens securing indebtedness of a Restricted Subsidiary to
JCPenney or to another Restricted Subsidiary;
(v) Liens on property to secure all or part of the cost of
acquiring, substantially repairing or altering, constructing,
developing or substantially improving such property, or to secure
indebtedness incurred to provide funds for any such purpose or for
reimbursement of funds previously expended for any such purpose,
provided that the commitment of the creditor to extend the credit
secured by any such Lien shall have been obtained not later than twelve
months after the later of (a) the completion of the acquisition,
substantial repair or alteration, construction, development or
substantial improvement of such property or (b) the placing in
operation of such property or of such property as so substantially
repaired or altered, constructed, developed or substantially improved;
(vi) Liens securing indebtedness payable on demand or not more
than one year after the date as of which the determination is made
(excluding any indebtedness renewable or extendable at the option of
the debtor for a period or periods ending more than one year after the
date as of which such determination is made), which indebtedness in
accordance with GAAP would be included among current liabilities;
(vii) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses (i) through (vi), inclusive;
provided, however, that the principal amount of indebtedness secured
-------- -------
thereby and not otherwise authorized by said clauses (i) through (vi),
inclusive, shall not exceed the principal amount of indebtedness, plus
any premium or fee payable in connection with any such
<PAGE>
41
extension, renewal or replacement, so secured at the time of such
extension, renewal or replacement;
(viii) Liens arising under workmen's compensation laws,
unemployment insurance laws and old age pensions or other social
security benefits or other similar laws;
(ix) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of
business;
(x) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(xi) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(xii) Liens incidental to the normal conduct of the business of
JCPenney and its Restricted Subsidiaries or the ownership of their
property and not securing Funded Indebtedness (including zoning
restrictions, easements, licenses, reservations, restrictions on the
use of real property or minor irregularities incident thereto and with
respect to leasehold interests, Liens that are incurred, created,
assumed or permitted to exist and arise by, through or under or are
asserted by a landlord or owner of the leased property, with or without
consent of the lessee) which do not in the aggregate materially impair
the value or use of the property used in the business of JCPenney and
its Restricted Subsidiaries taken as a whole, or the use of such
property for the purpose for which such property is held;
(xiii) Liens arising from capitalized lease obligations, such
Liens not to extend to any other property of JCPenney;
(xiv) Liens in respect of litigation or other similar
proceedings in an amount not to exceed $500,000,000 on an aggregate
basis (i) the validity of which is being currently contested on a
timely basis in good faith by appropriate proceedings (provided that
the enforcement of any Liens arising out of such proceedings shall be
stayed during such proceedings) and (ii) for which adequate reserves
shall have been established;
(xv) Liens in respect of leases or subleases granted to other
persons in the ordinary course of business and not materially
interfering with the conduct of business of JCPenney and its Restricted
Subsidiaries;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into
by JCPenney or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of JCPenney
and its Restricted Subsidiaries; or
<PAGE>
42
(xvii) Liens in favor of customs and revenue authorities arising
as a matter of law securing payment of customs duties in connection
with the importation of goods.
Notwithstanding the provisions of the immediately preceding sentence,
JCPenney or any Restricted Subsidiary may issue, assume or guarantee
indebtedness secured by Liens which would otherwise be subject to the
restrictions of this Section in an aggregate amount which, together with all
attributable debt (as defined in Section 5.09(b) of the Indenture) outstanding
pursuant to Section 5.09(b) of the Indenture, all Senior Funded Indebtedness
outstanding pursuant to the second sentence of Section 6.03(a), the capitalized
amount of all capitalized leases referred to in Section 6.05(j), and all
indebtedness outstanding pursuant to this sentence, does not exceed 5% of
Stockholders' Equity.
SECTION 6.02. Limitations on Senior Funded Indebtedness. JCPenney
------------------------------------------
will not, and will not permit any Restricted Subsidiary to, issue, assume or
guarantee any Senior Funded Indebtedness (otherwise than in connection with any
renewal, extension or refunding of Senior Funded Indebtedness which does not,
except for any premium or fee payable in connection with such renewal, extension
or refunding, increase the unpaid principal amount of Senior Funded Indebtedness
outstanding), or sell, transfer or otherwise dispose of any Senior Funded
Indebtedness of a Restricted Subsidiary, unless, after giving effect thereto and
to the retirement of any Senior Funded Indebtedness to be retired substantially
concurrently therewith, Net Tangible Assets shall be at least 200% of Senior
Funded Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.03. Limitations with Respect to Restricted Subsidiaries.
----------------------------------------------------
(a) JCPenney will not permit any Restricted Subsidiary to issue, assume or
guarantee any Senior Funded Indebtedness; provided, however, that the foregoing
-------- -------
restriction shall not apply to any of the following:
(i) Senior Funded Indebtedness secured by a Lien permitted
under the first sentence of Section 6.01;
(ii) Senior Funded Indebtedness of a corporation existing at
the time such corporation is merged into or consolidated with a
Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of such corporation (or a division
thereof) as an entirety or substantially as an entirety to a Restricted
Subsidiary;
(iii) Senior Funded Indebtedness of a corporation existing at
the time such corporation first becomes a Restricted Subsidiary:
(iv) Senior Funded Indebtedness of a Restricted Subsidiary to
or held by JCPenney or another Restricted Subsidiary; or
(v) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any
Senior Funded Indebtedness referred to in the foregoing clauses (i)
through (iv), inclusive; provided, however, that the principal amount
-------- -------
or the aggregate preference on involuntary liquidation, as the case may
be, of Senior Funded Indebtedness issued pursuant to such extension,
renewal or replacement and not otherwise
<PAGE>
43
authorized by said clauses (i) through (iv), inclusive, shall not
exceed the principal amount or the aggregate preference on involuntary
liquidation, as the case may be, of the Senior Funded Indebtedness so
extended, renewed or replaced, plus any premium or fee payable in
connection with any such extension, renewal or replacement.
Notwithstanding the provisions of the immediately preceding sentence,
any Restricted Subsidiary may issue, assume or guarantee Senior Funded
Indebtedness which would otherwise be subject to the restrictions of this
Section 6.03(a) in an aggregate amount which, together with all indebtedness
outstanding pursuant to the second sentence of Section 6.01, all attributable
debt (as defined in Section 5.09(b) of the Indenture) outstanding pursuant to
Section 5.09(b) of the Indenture and all Senior Funded Indebtedness of the
Restricted Subsidiaries outstanding pursuant to this sentence, does not exceed
5% of Stockholders' Equity.
(b) JCPenney will not, and will not permit any Restricted Subsidiary
to, (i) sell or transfer (except to JCPenney or a Restricted Subsidiary) any
Senior Funded Indebtedness of a Restricted Subsidiary, except Senior Funded
Indebtedness secured by a Lien permitted under the provisions of the first
sentence of Section 6.01 and except to carry out a transaction permitted by
Section 6.03(c) or (ii) sell or transfer (except, in each case, to the extent,
if any, required to qualify directors of a Restricted Subsidiary under
applicable law or to permit any person to maintain his proportionate interest in
a Restricted Subsidiary or except to effect dissolution of any such Restricted
Subsidiary or to carry out a transaction permitted by Section 6.03(c) or except
to JCPenney or a Restricted Subsidiary) any shares of common stock of a
Restricted Subsidiary, unless all the common stock of such Restricted Subsidiary
at the time owned by JCPenney and the Restricted Subsidiaries shall be sold or
transferred at the same time and unless thereafter Net Tangible Assets shall be
at least 200% of Senior Funded Indebtedness of JCPenney and the Restricted
Subsidiaries (eliminating intercompany items); provided that JCPenney and the
--------
Restricted Subsidiaries will be permitted to sell, transfer and otherwise
dispose of Unrestricted Margin Stock without regard to the foregoing
restrictions.
(c) JCPenney will not permit any Restricted Subsidiary to sell or
otherwise dispose of its assets substantially as an entirety or consolidate with
or merge into any other corporation, unless the corporation to which such assets
shall be sold or otherwise disposed of or which shall be formed by or result
from such consolidation or merger shall be JCPenney or any Restricted Subsidiary
or unless thereafter Net Tangible Assets shall be at least 200% of Senior Funded
Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items); provided that JCPenney and the Restricted Subsidiaries will
--------
be permitted to sell, transfer and otherwise dispose of Unrestricted Margin
Stock without regard to the foregoing restrictions.
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
--------------------------------------------
Acquisitions. (a) JCPenney shall not consolidate with or merge into any other
- -------------
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, unless:
(i) the corporation formed by such consolidation or into which
JCPenney is merged or the person which acquires by conveyance or
transfer the properties and assets of JCPenney substantially as an
entirety shall be a corporation organized and existing under the laws
of the United States of America or any State or the District of
Columbia, and shall expressly assume, by an instrument in writing
(delivered to the Lenders) the due and punctual payment of the
principal and interest, if any, on all the Loans and all other amounts
<PAGE>
44
payable by JCPenney under this Agreement and all the rights, interests
and other obligations of JCPenney under this Agreement;
(ii) immediately after giving effect to such transaction, (x)
the representations and warranties set forth in Article III shall be
true and correct in all material respects on the date of such
transaction with the same effect as if made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date and (y) no Event of Default or Default shall
have occurred and be continuing; and
(iii) JCPenney shall have delivered an Officer's Certificate
stating that such consolidation, merger, conveyance or transfer and
such written instrument comply with this Section 6.04(a);
provided that JCPenney and the Subsidiaries will be permitted to sell, transfer
--------
and otherwise dispose of Unrestricted Margin Stock without regard to the
foregoing restrictions.
(b) Funding shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, except that Funding may merge into JCPenney or a direct
or indirect wholly-owned Subsidiary of JCPenney subject to the satisfaction of
the following conditions:
(i) the corporation formed by such consolidation or into which
Funding is merged or the person which acquires by conveyance or
transfer the properties and assets of Funding substantially as an
entirety shall expressly assume, by an instrument in writing (delivered
to the Lenders) the due and punctual payment of the principal and
interest, if any, on all the Loans and all other amounts payable by
Funding under this Agreement and all the rights, interests and other
obligations of Funding under this Agreement;
(ii) immediately after giving effect to such transaction, (x)
the representations and warranties set forth in Article III shall be
true and correct in all material respects on the date of such
transaction with the same effect as if made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date and (y) no Event of Default or Default shall
have occurred and be continuing; and
(iii) Funding shall have delivered an Officer's Certificate
stating that such consolidation, merger, conveyance or transfer and
such written instrument comply with this Section 6.04(b).
SECTION 6.05. Limitations on Liens--Funding. Funding will not, and
------------------------------
will not permit any of its Subsidiaries to, create or assume any Lien upon any
of the property of Funding or any such Subsidiary, whether now owned or
hereafter acquired, in connection with the borrowing of money or the acquisition
or construction of property; provided, however, that nothing in this Section
-------- -------
6.05 shall prevent or be deemed to prohibit:
(a) Funding or any of its Subsidiaries from acquiring property
subject to a Lien existing thereon at the time of acquisition, and
assuming the same, or from creating a Lien on property being
constructed or acquired to secure a
<PAGE>
45
portion of the cost or purchase price thereof, provided, however, that
-------- -------
(i) any such Lien shall cover solely fixed assets or other physical
properties and (ii) such property is not or shall not thereby become
encumbered in an amount in excess of two-thirds of the lesser of the
cost and fair value thereof (as determined in good faith by the board
of directors of Funding);
(b) any Subsidiary of Funding from creating a Lien upon all or
any part of its property in favor of Funding or a wholly-owned
Subsidiary of Funding to secure indebtedness owed by such Subsidiary to
Funding or a wholly-owned Subsidiary;
(c) Liens existing on all or any part of the assets of a
Subsidiary of Funding at the time it shall become such a Subsidiary;
(d) Funding or any of its Subsidiaries from extending, renewing
or refunding any Lien permitted by the foregoing provisions of this
Section 6.05 upon the same property theretofore subject thereto in
connection with the extension, renewal or refunding of the indebtedness
secured thereby;
(e) Liens arising under workmen's compensation laws,
unemployment insurance laws and old age pensions or other social
security benefits or other similar laws;
(f) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of
business;
(g) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(h) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(i) Liens incidental to the normal conduct of the business of
Funding and its Subsidiaries or the ownership of their property and not
securing Funded Indebtedness (including zoning restrictions, easements,
licenses, reservations, restrictions on the use of real property or
minor irregularities incident thereto and with respect to leasehold
interests, Liens that are incurred, created, assumed or permitted to
exist and arise by, through or under or are asserted by a landlord or
owner of the leased property, with or without consent of the lessee)
which do not in the aggregate materially impair the value or use of the
property used in the business of Funding and its Subsidiaries taken as
a whole, or the use of such property for the purpose for which such
property is held;
(j) Liens arising from capitalized lease obligations, such Liens
not to extend to any other property of Funding;
<PAGE>
46
(k) Liens in respect of litigation or other similar proceedings
in an amount not to exceed $500,000,000 on an aggregate basis (i) the
validity of which is being currently contested on a timely basis in
good faith by appropriate proceedings (provided that the enforcement of
any Liens arising out of such proceedings shall be stayed during such
proceedings) and (ii) for which adequate reserves shall have been
established;
(l) Liens in respect of leases or subleases granted to other
persons in the ordinary course of business and not materially
interfering with the conduct of business of Funding and its
Subsidiaries;
(m) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into
by Funding or any of its Subsidiaries in the ordinary course of
business in accordance with the past practices of Funding and its
Subsidiaries; or
(n) Liens in favor of customs and revenue authorities arising as
a matter of law securing payment of customs duties in connection with
the importation of goods.
SECTION 6.06. Conduct of Funding's Business. (a) Funding will not,
------------------------------
and will not permit any Subsidiary of Funding to, engage in any business other
than dealing in Receivables and Penney Supplier Receivables, making Investments
as permitted by paragraph (c) below, financing the acquisition of Receivables
and Penney Supplier Receivables and making of such Investments, and any
activities incidental or related to the foregoing. Receivables at any time
acquired by Funding and its Subsidiaries from JCPenney and its Subsidiaries,
together with Receivables previously acquired from JCPenney and its Subsidiaries
and then owned by Funding and its Subsidiaries, shall be reasonably
representative of the then outstanding Receivables which have arisen in the
business of JCPenney and those Subsidiaries of JCPenney from which such
Receivables have been or are being acquired; provided, however, that Receivables
-------- -------
at any time acquired and owned by Funding and its Subsidiaries may exclude any
type or types of Receivables which are sold or assigned by JCPenney and its
Subsidiaries to one or more third parties if in the opinion of Funding's board
of directors such type or types of Receivables may be serviced more efficiently
or economically by any such third party than by JCPenney, Funding or any such
Subsidiary.
(b) Funding will not, and will not permit any of its subsidiaries to,
make any loan or advance to JCPenney or any Subsidiary of JCPenney (other than
Funding or a Subsidiary of Funding) except on a basis which in the opinion of
Funding's board of directors reasonably reflects sound credit practices at the
time of such loan or advance.
(c) Funding will not, and will not permit any of its subsidiaries to,
make any Investments, directly or indirectly, other than
(i) Investments in Receivables;
(ii) loans and advances to JCPenney and its Subsidiaries;
(iii) Investments in wholly-owned Subsidiaries of Funding or
Investments by any Subsidiary of Funding in Funding;
<PAGE>
47
(iv) Investments in Penney Supplier Receivables; and
(v) Investments in any direct and indirect obligations of the
United States of America or any agency thereof having a maturity not in
excess of ten years from the date of purchase; obligations having a
maturity not in excess of ten years from the date of purchase of any
county, municipality or state of the United States of America and
having any of the three highest ratings assigned by any nationally
recognized organization regularly engaged in rating the investment
quality of such obligations; open market commercial paper; bankers'
acceptances; certificates of deposit; and other obligations which, in
the opinion of Funding's board of directors, are similar in risk,
quality and maturity to any of the foregoing.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) (i) any representation or warranty made or deemed made
pursuant to this Agreement shall prove to have been false or misleading
in any respect, or (ii) any material representation, warranty,
statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with or
pursuant to this Agreement shall prove to have been false or misleading
in any respect; and only if, in both subsection (i) and subsection
---
(ii), such falsehood or misleading matter would result in a Material
Adverse Effect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise, and such default shall continue
unremedied for one Business Day;
(c) default shall be made in the payment of any interest on any
Loan or any Fee or any other amount (other than an amount referred to
in (b) above) due under this Agreement, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of five Business Days;
(d) default shall be made in the due observance or performance
by the Borrowers of any covenant, condition or agreement contained in
Section 5.01(a), 5.05 or 5.10 or in Article VI and such default shall
continue unremedied for a period of five Business Days;
(e) default shall be made in the due observance or performance
by any Borrower or Restricted Subsidiary of any covenant, condition or
agreement contained in this Agreement (other than those specified in
(b), (c) or (d) above) and such default shall continue unremedied for a
period of 30 days after notice thereof from the Administrative Agent or
any Lender to such Borrower or, if such default is able to be cured and
such Borrower is using its best efforts to cure such default, such
longer period as is reasonably required to cure such default;
<PAGE>
48
(f) any Borrower or Restricted Subsidiary shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
indebtedness for borrowed money in a principal amount in excess of
$50,000,000, when and as the same shall become due and payable (after
the expiration of any applicable grace period), and (unless such
indebtedness is already due and payable at the time of such default)
such default results in an acceleration of such indebtedness and in
either case is not cured within five Business Days thereafter or (ii)
fail to observe or perform any other term, covenant, condition or
agreement contained in any agreement or instrument evidencing or
governing any such indebtedness (other than to the extent arising
solely out of the violation by any Borrower or any Subsidiary of any
covenant in any way restricting any Borrower's or any Subsidiary's
right or ability to sell, pledge or otherwise dispose of Unrestricted
Margin Stock) if any failure referred to in this clause (ii) results in
an acceleration of such indebtedness that is not annulled or rescinded
within 15 days after the date of such acceleration;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of any Borrower or Material
Subsidiary, or of a substantial part of the property or assets of any
Borrower or Material Subsidiary, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for any Borrower or Material Subsidiary
or for a substantial part of the property or assets of any Borrower or
Material Subsidiary or (iii) the winding-up or liquidation of any
Borrower or Material Subsidiary; and such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(h) any Borrower or Material Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in
a timely and appropriate manner, any proceeding or the filing of any
petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for any Borrower or Material Subsidiary
or for a substantial part of the property or assets of any Borrower or
Material Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) admit in
writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $100,000,000 shall be rendered against
any Borrower, any Restricted Subsidiary or any combination of Borrowers
and Restricted Subsidiaries and the same shall remain undischarged for
a period of 30 consecutive Business Days during which execution shall
not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon
<PAGE>
49
assets or properties of any Borrower or Restricted Subsidiary to
enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrowers to the PBGC or to any Plan or Plans in an aggregate
amount exceeding $200,000,000 and, within 30 days after the reporting
of any such Reportable Event to the Administrative Agent or after the
receipt by the Administrative Agent of the statement required pursuant
to Section 5.06, the Administrative Agent shall have notified the
Borrowers in writing that (i) the Required Lenders have made a
determination that, on the basis of such Reportable Event or Reportable
Events or the failure to make a required payment, there are reasonable
grounds (A) for the termination of such Plan or Plans by the PBGC, (B)
for the appointment by the appropriate United States District Court of
a trustee to administer such Plan or Plans or (C) for the imposition of
a lien in favor of a Plan and (ii) as a result thereof an Event of
Default exists hereunder; or a trustee shall be appointed by a United
States District Court to administer any such Plan or Plans; or the PBGC
shall institute proceedings to terminate any Plan or Plans;
(k) Funding (or any permitted successor thereto under Section
6.04(b)) shall cease to be a direct or indirect wholly-owned subsidiary
of JCPenney (unless Funding or such permitted successor shall be merged
into JCPenney); or
(l) an Event of Default shall occur under the Tranche A Credit
Agreement.
then, and in every such event (other than an event described in paragraph (g)
or (h) above), and at any time thereafter during the continuance of such event,
the Administrative Agent, at the request of the Required Lenders, shall, by
notice to the Borrowers, take either or both of the following actions, at the
same or different times: (x) terminate forthwith the Commitments and (y) declare
the Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrowers accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers, anything contained
herein to the contrary notwithstanding; and in any event described in paragraph
(g) or (h) above, the Commitments shall automatically and immediately terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrowers
accrued hereunder, shall automatically and immediately become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrowers, anything contained herein to
the contrary notwithstanding.
ARTICLE VIII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
each Lender hereby appoints the Administrative Agent to act as its agent
hereunder. Each of the
<PAGE>
50
Lenders hereby irrevocably authorizes the Administrative Agent to take such
actions on behalf of such Lender and to exercise such powers as are specifically
delegated to the Administrative Agent by the terms and provisions hereof,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Loans and all other amounts due
to the Lenders hereunder, and promptly to distribute to each Lender its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrowers of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; and (c) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrowers
pursuant to this Agreement as received by the Administrative Agent.
The Administrative Agent and its directors, officers, employees and
agents shall not be liable as such for any action taken or omitted by any of
them, or be responsible for any statement, warranty or representation herein or
the contents of any document delivered in connection herewith, except in each
case to the extent of its or his own gross negligence or wilful misconduct in
connection therewith, or be required to ascertain or to make any inquiry
concerning the performance or observance by the Borrowers of any of the terms,
conditions, covenants or agreements contained in this Agreement. The
Administrative Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other instruments or agreements; provided, however, that the
-------- -------
Administrative Agent shall be responsible for its own due execution of this
Agreement and any other instrument or agreement relating to this Agreement. The
Administrative Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders (or, when expressly required hereby, all the Lenders) and,
except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Administrative Agent and its directors, officers, employees and
agents shall not have any responsibility to any Borrower on account of the
failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or any Borrower of any of its
respective obligations hereunder or in connection herewith. The Administrative
Agent may execute any and all of its duties hereunder by or through agents of
recognized standing or employees and shall be entitled to rely upon the advice
of legal counsel of recognized standing selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrowers. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor; provided, however,
-------- -------
that any such appointment shall be subject to the prior written consent of
JCPenney (which consent shall not be unreasonably withheld so long as such
<PAGE>
51
successor shall be (i) a bank with a rating of Aa2 or better from Moody's or a
rating of AA or better from S&P, or an Affiliate of any such bank, or (ii) any
Co-Agent). If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent; provided, however, that any such appointment shall be
-------- -------
subject to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). Upon the acceptance of any
appointment as Administrative Agent hereunder by a permitted successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations as
Administrative Agent hereunder. After an Administrative Agent's resignation
hereunder, the provisions of this Article and Section 9.05 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Administrative Agent.
The Borrowers shall have the right to replace the Administrative Agent
if it requests compensation under Section 2.19, but only in accordance with the
provisions of Section 2.20(b).
With respect to the Loans made by it hereunder, the Administrative
Agent (and any Lender appointed as a successor Administrative Agent) in its
individual capacity and not as Administrative Agent shall have the same rights
and powers as any other Lender and may exercise the same as though it were not
the Administrative Agent (or such successor Administrative Agent) and the
Administrative Agent and its Affiliates (and any such successor Administrative
Agent and its Affiliates) may accept deposits from, lend money to and generally
engage in any kind of business with any Borrower or Subsidiary or any Affiliate
of any Borrower as if the Administrative Agent (or such successor Administrative
Agent) were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent, on
demand, in the amount of its pro rata share (based on its Commitment hereunder)
of any expenses (other than expenses in connection with the negotiation,
preparation and closing of this Agreement) incurred for the benefit of the
Lenders by the Administrative Agent, including counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, which
shall not have been reimbursed by the Borrowers and (ii) to indemnify and hold
harmless the Administrative Agent and any of its directors, officers, employees
or agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as Administrative Agent or any of them in any way relating to or
arising out of this Agreement or the Transactions or any action taken or omitted
by it or any of them under this Agreement, to the extent the same shall not have
been reimbursed by the Borrowers; provided that no Lender shall be liable to the
--------
Administrative Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Administrative
Agent or any of its directors, officers, employees or agents.
<PAGE>
52
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender represents that
it has not relied upon Margin Stock owned by JCPenney or any Subsidiary in its
credit analysis or its decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
No Co-Agent shall have any duties or responsibilities hereunder in its
capacity as such.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopier, as follows:
(a) if to J.C. Penney, to it at J.C. Penney Company, Inc., 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of
Treasurer
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the
same address;
(b) if to Funding, to it at J.C. Penney Funding Corporation, 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of
President
Telephone: (972) 431-2011
Telecopy: (972) 431-2044 With a copy to: General Counsel - J.C.
Penney Company, Inc., at the same address;
(c) if to the Administrative Agent, to it at Credit Suisse,
Eleven Madison Avenue, New York, NY 10010, Attention of Sean Bernard
Telephone: (212) 325-9933
Telecopy: (212) 308-2753
(d) if to a Lender, to it at its address (or telecopy number) set
forth in the administrative questionnaire delivered by such Lender to
the Administrative Agent.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
<PAGE>
53
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans, regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by each of the Borrowers and the Administrative
Agent and when the Administrative Agent shall have received copies hereof which,
when taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrowers, the Administrative Agent
and each Lender and their respective successors and permitted assigns in
accordance with its terms, except that no Borrower shall have any right to
assign or delegate any of its respective rights or duties hereunder or any
interest herein without the prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of any Borrower, the Administrative
Agent or the Lenders that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and permitted assigns.
(b) Each Lender may assign to an Eligible Assignee, at the expense of
the assignor and/or the assignee, all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) pursuant to an Assignment and Acceptance
(the "Assignment Instrument"), substantially in the form of Exhibit E, executed
by such Eligible Assignee, such assigning Lender (and, in the case of an
Eligible Assignee that is not then a Lender or an Affiliate thereof, by the
Borrowers and the Administrative Agent) and delivered to the Administrative
Agent for its acceptance and recording in the Register; provided, however, that
-------- -------
(i) except in the case of an assignment by a Lender to an Affiliate of such
Lender which is a bank or bank holding company or to another Lender, the
Borrowers and the Administrative Agent must give their prior written consent to
such assignment (which consent in each case shall not be unreasonably withheld),
(ii) the amount of the Commitment of the assigning Lender subject to such
assignment (determined as of the date of such assignment) shall not be less than
$20,000,000 (or the remaining amount of the Commitment of such Lender), (iii)
other than the case of an assignment by a Lender of the remaining amount of the
Commitment of such Lender, no Lender shall make more than two assignments
(excluding assignments to an Affiliate of such Lender which is a bank or bank
holding company or to another Lender) under this Section 9.04(b) after the date
hereof and prior to the Maturity Date unless otherwise agreed by the Borrowers
in their sole discretion, (iv) the parties to each such assignment shall pay to
the Administrative Agent a processing and recordation fee of $3,500 (which fee
shall not in any event be an obligation of the Borrowers) and (v) as of the date
of such assignment, except with the prior written consent of JCPenney, (x) the
assignee shall not have any right, and shall have no knowledge that such
assignment would result in its having the right, to request compensation
pursuant to Section 2.13 or 2.19 after giving effect to such assignment in
excess of any compensation to which the assigning Lender would have been
entitled under such Sections and (y) the parties to such assignment shall have
no knowledge that such assignment (A) would cause it to be unlawful for any
party
<PAGE>
54
thereto to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan or (B)
would cause any Borrower to incur any liability under Section 2.15. Upon
acceptance and recording pursuant to paragraph (d) of this Section 9.04, from
and after the effective date specified in each Assignment Instrument, which
effective date shall be at least five days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment Instrument, shall have the rights and obligations
of, and shall for all purposes be, a Lender under this Agreement and (B) the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment Instrument, be released from its obligations under this
Agreement (and, in the case of an Assignment Instrument covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto (but, subject to Section
2.20, shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19
and 9.05, as well as to any Fees accrued for its account hereunder and not yet
paid)). Notwithstanding the foregoing, any Lender assigning any portion of its
rights and obligations under this Agreement may retain any Competitive Loans
made by it outstanding at such time, and in such case shall retain its rights
hereunder in respect of any Loans so retained until such Loans have been repaid
in full in accordance with this Agreement. No assignment may be made by any
Lender except in accordance with the provisions of this Section 9.04(b).
(c) By executing and delivering an Assignment Instrument, the assignee
thereunder shall be deemed to confirm to and agree with the other parties hereto
as follows: (i) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment Instrument; (ii) such assignee will independently and
without reliance upon the Administrative Agent, the assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (iii) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (iv) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall retain a copy of each Assignment
Instrument delivered to it and a register for the recordation of the name and
address of, and the Commitment of, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
manifest error and the Borrowers, the Administrative Agent and the Lenders may
treat each person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by any Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Each Lender may without the consent of the Borrowers or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
- -------- -------
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other
<PAGE>
55
entities shall not be entitled to the benefit of the provisions contained in
Sections 2.13, 2.15, 2.19 and 9.05 and (iv) the Borrowers, the Administrative
Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than any
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the
Loans, or extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans, that would affect the Lender in question and
its participants).
(f) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to any Borrower furnished to such Lender by
or on behalf of such Borrower; provided that, prior to any such disclosure of
--------
information designated by such Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree to preserve the confidentiality
of such confidential information in accordance with Section 9.15.
(g) Any Lender may at any time, without the consent of any other party
hereto, assign all or any portion of its rights under this Agreement and any
notes issued to it to a Federal Reserve Bank provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at
the request of the assigning Lender, promptly execute and deliver to the
assigning Lender a note with terms in accordance with this Agreement, in a form
reasonably acceptable to the Administrative Agent and the Borrower, evidencing
the Loans made to the Borrower by the assigning Lender hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree, jointly
--------------------
and severally, to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent in connection with the negotiation, preparation and closing
of this Agreement, including the reasonable fees and disbursements of Simpson
Thacher & Bartlett, special counsel for the Administrative Agent, and, only with
the written consent of the Borrowers prior to any incurrence, all reasonable
out-of-pocket expenses incurred by the Administrative Agent in connection with
any amendment, modification or waiver of this Agreement. The Borrowers agree,
jointly and severally, to pay all reasonable out-of-pocket costs and expenses of
the Administrative Agent and Lenders, as well as the allocated costs of in-house
counsel, in connection with the collection or enforcement of this Agreement.
(b) The Borrowers agree, jointly and severally, to indemnify the
Administrative Agent, CS First Boston Corporation, each Lender and each of their
respective directors, officers and employees (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees and expenses, incurred by or asserted against any Indemnitee
arising as a result of (i) any breach by any Borrower of any of its obligations
under this Agreement or any agreement or instrument contemplated hereby, (ii)
the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, if any Indemnitee
is at any time a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities
<PAGE>
56
or related expenses (x) arise in connection with any judgment rendered by a
court of competent jurisdiction in favor of any Borrower and against such
Indemnitee, (y) result from the gross negligence or wilful misconduct of such
Indemnitee (or, if such Indemnitee is a Lender or the Administrative Agent, any
of its directors, officers or employees) or (z) result from any disputes among
the Lenders and the Administrative Agent, or any of them, other than disputes
resulting from the fault of a Borrower.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement, or any investigation made by or on behalf of the
Administrative Agent or the Lender. All amounts due under this Section 9.05
shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing and any three Lenders representing at least
$50,000,000 in aggregate amount of the Commitments have requested the
Administrative Agent, in writing, in accordance with the provisions of Article
VII, to declare the Loans to be forthwith due and payable, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of any Borrower
against any of and all the obligations of such Borrower now or hereafter
existing under this Agreement held by such Lender (other than obligations
purchased after such Event of Default shall have become known to such Lender),
irrespective of whether or not such Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have. Any Lender
exercising its rights under this Section shall give notice thereof to JCPenney
concurrently with or prior to the exercise of such rights.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
---------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Administrative Agent or Lender in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Lenders and the Borrowers hereunder are cumulative and
are not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by any
Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Borrower in any case shall entitle such Borrower to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
-------- -------
no such agreement shall
<PAGE>
57
(i) decrease the principal amount of, or extend the maturity of or any scheduled
principal payment date or date for the payment of any interest on any Loan, or
waive or excuse any such payment or any part thereof, or decrease the rate of
interest on any Loan, without the prior written consent of each Lender affected
thereby, (ii) change the Commitment or decrease the Facility Fees of any Lender
without the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.16 or Section 9.03, the provisions of this Section or
the definition of the "Required Lenders", without the prior written consent of
each Lender; provided further that no such agreement shall amend, modify or
-------- -------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent. Each Lender
shall be bound by any waiver, amendment or modification authorized by this
Section, and any consent by any Lender pursuant to this Section shall bind any
subsequent assignee of such Lender.
SECTION 9.09. Interest and Charges. Notwithstanding any other
---------------------
provision in this Agreement, no Lender shall ever be entitled to receive,
collect or apply, as interest on any amount owing to such Lender under this
Agreement or in connection herewith, any amount in excess of the Maximum Amount.
If any Lender ever receives, collects or applies, as interest, any such excess,
such excess shall be deemed a partial repayment of principal and treated
hereunder as such; and if principal is paid in full, any remaining excess shall
be paid to the appropriate Borrower. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount, the
Borrowers and the Lenders shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of this
Agreement so that the interest rate is uniform throughout the entire period that
any amount is outstanding under or in connection with this Agreement; provided,
--------
however, that if any obligation owing to a Lender hereunder or in connection
- -------
herewith is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received by such Lender on such obligation for
its actual term exceeds the Maximum Amount with respect thereto, such Lender
shall refund to the appropriate Borrower the amount of such excess or credit the
amount of such excess against the total principal amount of all amounts owing to
such Lender hereunder or in connection herewith, and, in such event, such Lender
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Maximum Amount.
SECTION 9.10. Entire Agreement. This written Agreement together with
-----------------
the letter agreement with respect to payment of fees of even date herewith
represent the final agreement among the parties with respect to the subject
matter hereof and may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties. There are no unwritten oral
agreements among the parties with respect to the subject matter hereof.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
<PAGE>
58
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to the foregoing and to paragraph (b) below, nothing in this Agreement
shall affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party hereto
in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.15. Confidentiality. Notwithstanding anything contained in
----------------
this Agreement to the contrary, the Lenders and the Administrative Agent shall
hold in confidence all agreements, statements, reports and information that are
not in the public domain concerning the Borrowers and their Subsidiaries that
the Administrative Agent or any Lender receives pursuant to or in connection
with this Agreement. The Administrative Agent and each of the Lenders shall not
distribute any such confidential information to other persons except (a) to its
counsel, its Affiliates, its examiners, regulatory authorities and prospective
assignees of, or participants in, its interest herein and their respective
counsel (each of which shall be instructed to hold the same in confidence, and
in the case of any prospective assignee or prospective participant, shall
execute an agreement to such effect pursuant to Section 9.04(f) as a condition
to receiving a copy of this Agreement and becoming an assignee or participant
hereunder), (b) pursuant to legal process, (c) in connection with litigation
against or by the Lenders and/or the Administrative Agent arising in connection
with this Agreement or (d) with the prior written consent of the Borrowers. The
Administrative Agent and each of the Lenders shall give prior or contemporaneous
notice to the Borrowers of any disclosure by it of confidential information
pursuant to clause (b) or (c) above.
<PAGE>
59
SECTION 9.16. Liability of Borrowers. Except as expressly provided in
-----------------------
this Agreement, the obligations of each Borrower hereunder shall be several
obligations with respect to Loans made to it.
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Co-Agents and the
Administrative Agent have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
J. C. PENNEY COMPANY, INC.
By
------------------------------------------
Name: Robert B. Cavanaugh
Title: Vice President and Treasurer
J. C. PENNEY FUNDING CORPORATION
By
------------------------------------------
Name: Frank N. Napoli
Title: Vice President and Treasurer
CREDIT SUISSE, as Administrative Agent and as a
Lender
By
------------------------------------------
Name:
Title:
By
------------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS, as a Co-Agent and as a
Lender
By
------------------------------------------
Name:
Title:
BANK OF HAWAII
By
------------------------------------------
Name:
Title:
<PAGE>
60
THE BANK OF NEW YORK
By
------------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By
------------------------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By
------------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, as a Co-Agent and as a
Lender
By
------------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
------------------------------------------
Name:
Title:
BARCLAYS BANK PLC
By
------------------------------------------
Name:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By
------------------------------------------
Name:
Title:
<PAGE>
61
CANADIAN IMPERIAL BANK OF COMMERCE
By
------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as a Co-Agent and as a
Lender
By
------------------------------------------
Name:
Title:
CITIBANK, N.A., as a Co-Agent and as a Lender
By
------------------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By
------------------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By
------------------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By
------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
------------------------------------------
Name:
Title:
<PAGE>
62
THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------------------
Name:
Title:
FIRST SECURITY BANK
By
------------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By
------------------------------------------
Name:
Title:
FIRSTAR BANK MILWAUKEE, N.A.
By
------------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
------------------------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By
------------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By
------------------------------------------
Name:
Title:
<PAGE>
63
THE HONG KONG AND SHANGHAI BANKING CORPORATION
LIMITED
By
------------------------------------------
Name:
Title:
INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By
------------------------------------------
Name:
Title:
ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
By
------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, New
York Branch
By
------------------------------------------
Name:
Title:
MELLON BANK, N.A.
By
------------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Co-
Agent and as a Lender
By
------------------------------------------
Name:
Title:
NATIONAL AUSTRALIA BANK LIMITED A.C.N. 004044937
By
------------------------------------------
Name:
Title:
<PAGE>
64
NATIONSBANK OF TEXAS, N.A., as a Co-Agent and as a
Lender
By
------------------------------------------
Name:
Title:
THE NORTHERN TRUST COMPANY
By
------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By
------------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By
------------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
------------------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED, New York Branch
By
------------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED, Dallas Agency
By
------------------------------------------
Name:
Title:
<PAGE>
65
THE SUMITOMO BANK, LTD., Houston Agency
By
------------------------------------------
Name:
Title:
SUNBANK, NATIONAL ASSOCIATION
By
------------------------------------------
Name:
Title:
UMB BANK, N.A.
By
------------------------------------------
Name:
Title:
UNION BANK OF SWITZERLAND
By
------------------------------------------
Name:
Title:
UNITED STATES NATIONAL BANK OF OREGON
By
------------------------------------------
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By
------------------------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), N.A.
By
------------------------------------------
Name:
Title:
<PAGE>
66
THE YASUDA TRUST & BANKING CO., LTD.
By
------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention: [ ] [Date]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the 364-
Day Revolving Credit Agreement dated as of December 3, 1996 (as it may hereafter
be amended, modified, extended or restated from time to time, the "Credit
Agreement"), among J. C. Penney Company, Inc., J. C. Penney Funding Corporation,
the Lenders parties thereto and Credit Suisse, as Administrative Agent.
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Credit Agreement. The Borrower hereby gives you notice
pursuant to Section 2.03(a) of the Credit Agreement that it requests a
Competitive Borrowing under the Credit Agreement, and in that connection sets
forth below the terms on which Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
------------------------
(B) Principal Amount of Competitive
Borrowing /1/
------------------------
(C) Interest rate basis /2/
------------------------
(D) Interest Period and the last
day thereof /3/
------------------------
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted, except as otherwise provided in Section 4.01, that the conditions to
lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been
satisfied.
- ------------------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the Total Commitment on the
date of such Borrowing minus the outstanding aggregate principal amount on
such date of all Loans.
/2/ Eurodollar Loan, Fixed Rate Loan or CD Loan.
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
2
Very truly yours,
[Name of Borrower]
By: --------------------------------------------------
Title: [Responsible Officer] /4/
- ------------------------------
/4/ Chairman, vice chairman, president, chief financial officer, treasurer or
controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
To the Lenders parties to the
Credit Agreement referred to below
[Date]
Dear Sirs:
Reference is made to the 364-Day Revolving Credit Agreement dated as
of December 3, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among J. C. Penney Company,
Inc. ("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders
parties thereto and Credit Suisse, as Administrative Agent. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. [ ]/1/ made a Competitive Bid Request on [ ],
19[ ], pursuant to Section 2.03(a) of the Credit Agreement, and in that
connection you are invited to submit a Competitive Bid by [time], on [date]./2/
Your Competitive Bid must comply with Section 2.03(b) of the Credit Agreement
and the terms set forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
---------------------------
(B) Principal amount of
Competitive Borrowing
---------------------------
(C) Interest rate basis
---------------------------
(D) Interest Period and the last
date thereof
---------------------------
- --------------------
/1/ JCPenney or Funding.
/2/ The Competitive Bid must be received by the Agent: (i) in the case of
Eurodollar Loans or CD Loans, not later than 9:00 a.m., New York City time,
three Business Days before the proposed Competitive Borrowing, and (ii) in the
case of Fixed Rate Loans, not later than 9:00 a.m., New York City time, on the
day of a proposed Competitive Borrowing.
<PAGE>
2
Very truly yours,
CREDIT SUISSE,
as Administrative Agent
By:
-----------------------------------------
Title:
By:
-----------------------------------------
Title:
<PAGE>
EXHIBIT A-3
FORM OF COMPETITIVE BID
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [name of Lender], refers to the 364-Day Revolving
Credit Agreement dated as of December 3, 1996 (as it may hereafter be amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
J. C. Penney Company, Inc. ("JCPenney"), J. C. Penney Funding Corporation
("Funding"), the Lenders parties thereto and Credit Suisse, as Administrative
Agent. Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Credit Agreement. The undersigned hereby makes a
Competitive Bid pursuant to Section 2.03(b) of the Credit Agreement, in response
to the Competitive Bid Request made by [ ] /1/ on [ ], 19[ ], and
in that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount /2/ ------------------------
(B) Competitive Bid Rate[s] /3/ ------------------------
(C) Interest Period and the
last day thereof ------------------------
The undersigned hereby confirms that it will, subject only to the
conditions set forth in the Credit Agreement, extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of the
Credit Agreement.
- --------------------
/1/ JCPenney or Funding.
/2/ An integral multiple of $5,000,000 (unless equal to the requested
Competitive Borrowing) and not greater than the requested Competitive
Borrowing. Multiple bids will be accepted by the Administrative Agent.
/3/ One or more rates; i.e., LIBO Rate + or - ____%, in the case of Eurodollar
----
Loans, Adjusted CD Rate + or - ____%, in the case of CD Loans, or ____%, in
the case of Fixed Rate Loans.
<PAGE>
2
Very truly yours,
[NAME OF LENDER]
By:
-----------------------------------------------
Title:
<PAGE>
EXHIBIT A-4
FORM OF STANDBY BORROWING REQUEST
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the 364-Day
Revolving Credit Agreement dated as of December 3, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among J. C. Penney Company, Inc. ("JCPenney"), J. C. Penney Funding
Corporation ("Funding"), the Lenders parties thereto and Credit Suisse, as
Administrative Agent. Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Credit Agreement. The Borrower
hereby gives you notice pursuant to Section 2.04 of the Credit Agreement that it
requests a Standby Borrowing under the Credit Agreement, and in that connection
sets forth below the terms on which such Standby Borrowing is requested to be
made:
(A) Date of Standby Borrowing
(which is a Business Day) ------------------------
(B) Principal Amount of
Standby Borrowing /1/ ------------------------
(C) Interest rate basis /2/ ------------------------
(D) Interest period and the last
day thereof /3/ ------------------------
- --------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the remaining available
balance of the Total Commitment.
/2/ Eurodollar Loan, CD Loan or ABR Loan. Notice under Section 2.04 is
necessary to refinance a Standby Borrowing with a Eurodollar Borrowing or
CD Borrowing. In the absence of such a notice, unless the Borrowing is
repaid at the end of the applicable Interest Period, the Borrower shall be
deemed to have given notice of an election to refinance such Borrowing with
an ABR Borrowing.
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
2
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted, except as otherwise provided in Section 4.01, that the conditions to
lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been
satisfied; provided, however, that in the case of a refinancing of a Standby
-------- -------
Borrowing with a new Standby Borrowing that does not increase the outstanding
aggregate principal amount of the Loans of any Lender, the Borrower shall not be
subject to the satisfaction of any of the Section 4.01 conditions.
Very truly yours,
[Name of Borrower]
By:-----------------------------------------------
Title: [Responsible Officer]/4/
- --------------------
/4/ Chairman, vice chairman, president, chief financial officer, treasurer or
controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
EXHIBIT B
FORM OF GUARANTY
GUARANTY
--------
This Guaranty Agreement is executed as of this 3rd day of
December, 1996, by J. C. Penney Company, Inc., a Delaware corporation
("Guarantor"), in favor of J. C. Penney Funding Corporation, a
Delaware corporation ("Funding"), and the Lenders (as defined below).
RECITALS:
--------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day
and Five-Year Revolving Credit Agreements (collectively, the "Agreements"), each
dated as of December 3, 1996, among Guarantor, Funding, Credit Suisse, as
administrative agent for the Lenders, and certain other financial institutions
named in the Agreements (collectively, the "Lenders") in amounts not to exceed
One Billion Five Hundred Million Dollars ($1,500,000,000) for each such
Agreement; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding
under the Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises, Guarantor hereby
agrees as follows:
1. Subject to the terms and conditions of subordination set forth in
this Guaranty, Guarantor hereby unconditionally guarantees in favor of the
Lenders, the prompt payment when due of all interest, principal, and other
amounts owing under the Agreements (collectively, the "Guaranteed Debt"). This
is an unconditional guaranty of payment, and in the event of default by Funding
in the payment of interest, principal, or any other amounts payable under the
Guaranteed Debt, the Lenders may proceed directly against Guarantor to enforce
this Guaranty (including by the institution of legal proceedings) without first
proceeding against Funding.
<PAGE>
2
2. Guarantor acknowledges that it has received and will receive a
direct or indirect benefit from the making of this Guaranty and the creation of
the Guaranteed Debt.
3. (a) The Guaranteed Debt shall be subordinated and subject in
right of payment to the prior payment in full of any and all other indebtedness
for borrowed money incurred, created, assumed, or otherwise guaranteed by
Guarantor (collectively referred to as the Guarantor's "Senior Debt").
(b) In the event of (i) any dissolution or winding-up or total or
partial liquidation or reorganization of Guarantor, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership, or similar proceeding
relative to Guarantor, or (ii) any default in the payment of principal
(including any acceleration or required prepayments or amortization) of or
interest on any Senior Debt of Guarantor, then, subject to the provisions of
subsection (d) below, the Lenders shall not be entitled to receive any payment
under this Guaranty on account of the Guaranteed Debt unless and until all
Senior Debt shall have been paid in full or otherwise discharged.
(c) For purposes of determining the priority of payments between the
Senior Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or
any part thereof, is declared due and payable prior to its stated maturity, all
principal of and interest and any other amounts due on all Senior Debt
outstanding at the time of such declaration as to the Guaranteed Debt shall
first have been paid in full, before any payment is made by Guarantor upon the
Guaranteed Debt.
(d) In no event shall any Lender be required by this subordination to
refund any amounts paid to it pursuant to this Guaranty on account of the
Guaranteed Debt prior to the events specified in subsections (b) and (c) above,
and prior to such events the Lenders shall be entitled to be paid hereunder as
agreed and to collect any sums due such Lenders hereunder by any lawful means.
(e) The provisions of this Section are for the purpose of defining
the relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation
<PAGE>
3
of Guarantor, which is unconditional and absolute, to guarantee the prompt
payment when due of the Guaranteed Debt in accordance with the terms and
provisions thereof; nor shall anything herein prevent the Lenders from
exercising all remedies otherwise permitted by applicable law upon default
hereunder, subject to the rights, if any, under this Section of any Senior Debt
holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
as of the date first written above.
J. C. PENNEY COMPANY, INC., a Delaware
corporation, as Guarantor
By:
-----------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF CLOSING CERTIFICATE
Pursuant to Section 4.02(b) of the 364-Day Revolving Credit Agreement,
dated as of December 3, 1996 (the "Credit Agreement"; terms defined therein
----------------
being used herein as therein defined unless otherwise defined herein), among J.
C. Penney Company, Inc. ("JCPenney"), J.C. Penney Funding Corporation
("Funding"), the Lenders parties thereto and Credit Suisse, as Administrative
Agent, the undersigned _____________________ of [Name of Borrower] (the
"Certifying Borrower") hereby certifies as follows:
- --------------------
1. The representations and warranties of the Certifying Borrower
contained in Article III of the Credit Agreement are true and correct in
all material respects on and as of the date hereof with the same effect as
though made on and as of the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date;
2. No Default or Event of Default has occurred and is continuing on
the date hereof or after giving effect to any extensions of credit to be
made on the date hereof;
3. ____________________ is and at all times since ______________
19__, has been the duly elected and qualified Assistant Secretary of the
Certifying Borrower and the signature set forth on the signature line for
such officer below is such officer's true and genuine signature;
and the undersigned Assistant Secretary of the Certifying Borrower hereby
certifies as follows:
4. The Certifying Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware;
5. Attached hereto as Exhibit A is a complete and true copy of
resolutions duly adopted by the Board of Directors of the Certifying
Borrower on _________, 19__; such resolutions have not in any way been
amended, modified, revoked or rescinded and have been in full force and
effect since their adoption to and including the date hereof and are now in
full force and effect; such resolutions are the only corporate proceedings
of the Certifying Borrower now in force with respect to the Credit
Agreement;
6. Attached hereto as Exhibit B is a complete and true copy of the
by-laws of the Certifying Borrower as in effect at all times since
_________________, 19__ to and including the date hereof; and attached
hereto as Exhibit C is a true and complete copy of the certificate of
incorporation of the Certifying Borrower as in effect at all times since
___________________, 19__ to and including the date hereof;
<PAGE>
2
7. The following persons are now duly elected and qualified officers
of the Certifying Borrower holding the offices indicated next to their
respective names below, and the signatures appearing opposite their
respective names below are the true and genuine signatures of such officers
and the first such officer listed below is duly authorized to execute and
deliver on behalf of the Certifying Borrower the Credit Agreement and any
certificate or other document to be delivered by the Certifying Borrower
pursuant to the Credit Agreement:
Name Office Signature
---- ------ ---------
Vice President and Treasurer
--------------- ------------------------
Assistant Secretary
--------------- ------------------------
IN WITNESS WHEREOF, the undersigned have hereto set our names.
- ------------------------------------ --------------------------------------
Title: Vice President and Treasurer Title: Assistant Secretary
Date: December 3, 1996
<PAGE>
DRAFT
EXHIBIT D
[Name]
[Title]
[General Counsel]
December __, 1996
Each of the lenders named in the
Schedules referred to below
Re: Revolving Credit Agreements of
J. C. Penney Company, Inc. and
J. C. Penney Funding Corporation
--------------------------------
Dear Sirs:
As the General Counsel of J. C. Penney Company, Inc., a Delaware
corporation ("JCPenney"), and of J. C. Penney Funding Corporation, a Delaware
corporation ("Funding"; together with JCPenney, "Borrowers"), I have been asked
to render an opinion pursuant to Section 4.02(f) of each of those certain 364-
Day and Five-Year Revolving Credit Agreements dated as of December __, 1996 (the
"Agreements"), among the Borrowers, Credit Suisse (the "Administrative Agent"),
and the lenders listed in Schedule 2.01 of each of the Agreements ("Lenders").
In rendering the opinion set forth below, I have examined originals,
photostatic, or certified copies of the Agreements, the Guaranty of JCPenney
referred to in Section 4.02(a)(ii) of each Agreement (the "Guaranty"), the
respective corporate records and documents of the Borrowers, copies of public
documents, certificates of the officers or representatives of the Borrowers, and
such other instruments and documents, and have made such inquiries, as I have
deemed necessary as a basis for such opinion. In making such examinations, I
have assumed with your consent the genuineness of all signatures (other than the
signatures of the Borrowers) and the authenticity of all documents submitted to
me as originals, the conformity to original documents of all documents submitted
to me as certified or photostatic copies, and the authenticity of the originals
of such latter documents. As to questions of fact material to such opinion, to
the extent I deemed necessary, I have relied upon the representations and
warranties of the Borrowers made in the Agreements and upon certificates of the
officers of the Borrowers. Capitalized terms not otherwise defined in this
opinion letter have the meanings specified in the Agreements.
Based upon the foregoing, I am of the opinion that:
1. Each of the Borrowers has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where the failure to so qualify would have a Material Adverse
Effect. Each of the Borrowers has the requisite corporate power and authority
to own, pledge, and operate its properties and assets, to lease the property it
operates under lease, and to conduct its business as now conducted.
<PAGE>
Each of the lenders named in the Schedules
December __, 1996
Page 2
2. The execution, delivery, and performance by the Borrowers of the
Agreements, the Borrowings by the Borrowers under the Agreements and, in the
case of JCPenney, the execution, delivery and performance of the Guaranty (i)
are within the corporate power of each of the Borrowers; (ii) have been duly
authorized by each of the Borrowers by all necessary corporate action; (iii) are
not in contravention of JCPenney's Restated Certificate of Incorporation, as
amended, Funding's Certificate of Incorporation, as amended, or either of the
Borrower's by-laws; (iv) to the best of my knowledge do not violate any material
law, statute, rule, or regulation, or any material order of any Governmental
Authority, applicable to either of the Borrowers; (v) do not conflict with or
result in the breach of, or constitute a default under, the material indentures,
agreements, or other instruments of either of the Borrowers; (vi) do not result
in the creation or imposition of any Lien upon any of the property or assets of
either of the Borrowers; and (vii) do not require the consent or approval of, or
any filing with, any Governmental Authority or any other person party to those
agreements described above other than those that have been obtained or made or
where the failure to obtain such consent or approval would not result in a
Material Adverse Effect.
3. The Agreements and, in the case of JCPenney, the Guaranty have been
duly executed and delivered by each of the Borrowers and constitute the legal,
valid, and binding obligation of such Borrower, enforceable against such
Borrower in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
4. Neither Borrower is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "public-utility company" or a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
5. To the best of my knowledge after due inquiry, except as set forth in
Schedule 3.09 of each Agreement, no litigation by or before any Governmental
Authority is now pending or threatened against JCPenney or Funding (i) which
involves the Agreements or the borrowings under the Agreements or (ii) as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, result in a
Material Adverse Effect.
6. The Support Agreements have been duly executed and delivered by
JCPenney and, where applicable, Funding and, as of the Closing Date, are in full
force and effect in accordance with their terms.
7. No part of the proceeds of any Loan will be used for "purchasing" or
"carrying" (within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board) any Margin Stock in violation of the
applicable requirements of such Regulations.
The opinions expressed herein are limited to the laws of the State of
Delaware with respect to the opinions provided in paragraph 1 (except as to due
qualification as a foreign corporation and good standing under the laws of other
jurisdictions) and clauses (i), (ii), and (iii) of paragraph 2. The other
<PAGE>
Each of the lenders named in the Schedules
December __, 1996
Page 3
opinions expressed are limited to the laws of the State of New York and the laws
of the United States. I do not express any opinion herein concerning any laws
of any other jurisdictions. The opinion is furnished to you in connection with
the transactions contemplated by the Agreements, and may not be relied upon by
any other person, firm, or corporation for any purpose or by you in any other
context without my prior written consent.
Very truly yours,
[Name]
<PAGE>
Exhibit E
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the 364-Day Revolving Credit Agreement, dated as
of December 3, 1996 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among J. C. Penney Company, Inc. ("JCPenney"),
---------------- --------
J.C. Penney Funding Corporation ("Funding"; together with JCPenney, the
-------
"Borrowers"), the Lenders parties thereto and Credit Suisse, as administrative
- ----------
agent for the Lenders (in such capacity, the "Administrative Agent"). Unless
--------------------
otherwise defined herein, terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
The Assignor identified on Schedule l hereto (the "Assignor") and the
--------
Assignee identified on Schedule l hereto (the "Assignee") agree as follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
-----------------
the Credit Agreement with respect to those credit facilities contained in the
Credit Agreement as are set forth on Schedule 1 hereto (individually, an
"Assigned Facility"; collectively, the "Assigned Facilities"), in a principal
----------------- -------------------
amount for each Assigned Facility as set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant
thereto, other than that the Assignor has not created any adverse claim upon the
interest being assigned by it hereunder and that such interest is free and clear
of any such adverse claim and (b) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower, any Subsidiary or any other obligor or the performance or observance
by any Borrower, any Subsidiary or any other obligor of any of their respective
obligations under the Credit Agreement or any other instrument or document
furnished pursuant hereto or thereto.
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to Section 3.05 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
any other instrument or document furnished pursuant hereto or thereto; (d)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit Agreement
or any other instrument or document furnished pursuant hereto or thereto as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are incidental thereto; and (e) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to
be performed by it as a Lender including, if it is organized under the
<PAGE>
2
laws of a jurisdiction outside the United States, its obligation pursuant to
Section 2.19(e) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be the
Effective Date of Assignment described in Schedule 1 hereto (the "Effective
---------
Date"). Following the execution of this Assignment and Acceptance, it will be
- ----
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective as of the
Effective Date (which shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to the Effective Date
and to the Assignee for amounts which have accrued subsequent to the Effective
Date. The Assignor and the Assignee shall make all appropriate adjustments in
payments by the Administrative Agent for periods prior to the Effective Date or
with respect to the making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other instruments and documents delivered pursuant thereto and shall be bound by
the provisions thereof and (b) the Assignor shall, to the extent provided in
this Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule 1
to Assignment and Acceptance
Name of Assignor:
----------------------------------------------
Name of Assignee:
----------------------------------------------
Effective Date of Assignment:
----------------------------------
Credit Principal
Facility Assigned Amount Assigned Commitment Percentage Assigned/1/
- ----------------- --------------- ---------------------------------
$____________ __._________%
[Name of Assignee] [Name of Assignor]
By: By:
--------------------------------- ---------------------------------
Title: Title:
Accepted: Consented To:/2/
CREDIT SUISSE, as Administrative Agent J.C. PENNEY COMPANY, INC.
By: By:
--------------------------------- ---------------------------------
Title: Title:
By: By:
--------------------------------- ---------------------------------
Title:
J. C. PENNEY FUNDING CORPORATION
By:
---------------------------------
Title:
- --------------------
/1/ Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all
Lenders.
/2/ Include when the Borrowers' consent is required. See Section 9.04(b) of the
Credit Agreement.
<PAGE>
SCHEDULE 2.01
<TABLE>
<CAPTION>
================================================================================
BANKS COMMITMENTS
- --------------------------------------------------------------------------------
<S> <C>
Credit Suisse $ 87,500,000
- --------------------------------------------------------------------------------
Bank of America Illinois $ 62,500,000
- --------------------------------------------------------------------------------
Bank of Hawaii $ 15,000,000
- --------------------------------------------------------------------------------
The Bank of New York $ 50,000,000
- --------------------------------------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd. $ 50,000,000
- --------------------------------------------------------------------------------
Bank One, Texas, N.A. $ 15,000,000
- --------------------------------------------------------------------------------
Bankers Trust Company $ 62,500,000
- --------------------------------------------------------------------------------
Banque Nationale De Paris $ 28,750,000
- --------------------------------------------------------------------------------
Barclays Bank PLC $ 15,000,000
- --------------------------------------------------------------------------------
Caisse Nationale de Credit Agricole $ 15,000,000
- --------------------------------------------------------------------------------
Canadian Imperial Bank of Commerce $ 50,000,000
- --------------------------------------------------------------------------------
The Chase Manhattan Bank $ 62,500,000
- --------------------------------------------------------------------------------
Citibank, N.A. $ 62,500,000
- --------------------------------------------------------------------------------
Compagnie Financiere de CIC et de $ 15,000,000
l'Union Europeenne
- --------------------------------------------------------------------------------
CoreStates Bank, N.A. $ 50,000,000
- --------------------------------------------------------------------------------
The Dai-Ichi Kangyo Bank, Ltd. $ 28,750,000
- --------------------------------------------------------------------------------
The First National Bank of Boston $ 28,750,000
- --------------------------------------------------------------------------------
The First National Bank of Chicago $ 28,750,000
- --------------------------------------------------------------------------------
First Security Bank $ 7,500,000
- --------------------------------------------------------------------------------
First Union National Bank of North $ 28,750,000
Carolina
- --------------------------------------------------------------------------------
Firstar Bank Milwaukee, N.A. $ 8,750,000
- --------------------------------------------------------------------------------
Fleet National Bank $ 50,000,000
- --------------------------------------------------------------------------------
The Fuji Bank, Limited $ 28,750,000
- --------------------------------------------------------------------------------
Hibernia National Bank $ 7,500,000
- --------------------------------------------------------------------------------
The Hong-Kong Shanghai Banking $ 15,000,000
Corporation Limited
- --------------------------------------------------------------------------------
Industrial Bank of Japan Trust Company $ 15,000,000
- --------------------------------------------------------------------------------
Istituto Bancario San Paolo di Torino $ 15,000,000
S.P.A.
- --------------------------------------------------------------------------------
The Long-Term Credit Bank of Japan, $ 15,000,000
Limited
- --------------------------------------------------------------------------------
Mellon Bank, N.A. $ 28,750,000
- --------------------------------------------------------------------------------
<PAGE>
2
================================================================================
BANKS COMMITMENTS
- --------------------------------------------------------------------------------
<S> <C>
Morgan Guaranty Trust Company of New York $ 75,000,000
- --------------------------------------------------------------------------------
National Australia Bank Limited $ 28,750,000
- --------------------------------------------------------------------------------
NationsBank of Texas, N.A. $ 62,500,000
- --------------------------------------------------------------------------------
The Northern Trust Company $ 15,000,000
- --------------------------------------------------------------------------------
Norwest Bank Minnesota, National Association $ 15,000,000
- --------------------------------------------------------------------------------
PNC Bank, National Association $ 50,000,000
- --------------------------------------------------------------------------------
Royal Bank of Canada $ 50,000,000
- --------------------------------------------------------------------------------
The Sakura Bank, Limited $ 28,750,000
- --------------------------------------------------------------------------------
The Sanwa Bank, Limited $ 15,000,000
- --------------------------------------------------------------------------------
The Sumitomo Bank, Ltd. $ 15,000,000
- --------------------------------------------------------------------------------
Sunbank, National Association $ 28,750,000
- --------------------------------------------------------------------------------
UMB Bank, N.A. $ 10,000,000
- --------------------------------------------------------------------------------
Union Bank of Switzerland $ 50,000,000
- --------------------------------------------------------------------------------
United States National Bank of Oregon $ 15,000,000
- --------------------------------------------------------------------------------
Wachovia Bank of Georgia, N.A. $ 50,000,000
- --------------------------------------------------------------------------------
Wells Fargo Bank (Texas), N.A. $ 28,750,000
- --------------------------------------------------------------------------------
The Yasuda Trust & Banking Co., Ltd. $ 15,000,000
================================================================================
TOTAL $1,500,000,000
================================================================================
</TABLE>
<PAGE>
SCHEDULE 3.08
RESTRICTED SUBSIDIARIES
-----------------------
J.C. Penney Life Insurance Company
J.C. Penney Properties, Inc.
Thrift Drug, Inc.
<PAGE>
EXHIBIT 4(g)
EXECUTION COPY
================================================================================
J. C. PENNEY COMPANY, INC.
J. C. PENNEY FUNDING CORPORATION
--------------------
$1,500,000,000
FIVE-YEAR REVOLVING CREDIT AGREEMENT
Dated as of December 3, 1996
--------------------
BANK OF AMERICA ILLINOIS, BANKERS TRUST COMPANY,
THE CHASE MANHATTAN BANK, CITIBANK, N.A.,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
AND NATIONSBANK OF TEXAS, N.A., as Co-Agents
and
CREDIT SUISSE,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C>
I. DEFINITIONS ........................................................ 1
1.01. Defined Terms........................................... 1
-------------
1.02. Terms Generally......................................... 15
---------------
II. THE CREDITS........................................................ 15
2.01. Commitments............................................. 15
-----------
2.02. Loans................................................... 15
-----
2.03. Competitive Bid Procedure............................... 17
-------------------------
2.04. Standby Borrowing Procedure............................. 19
---------------------------
2.05. Refinancings............................................ 20
------------
2.06. Fees.................................................... 20
----
2.07. Repayment of Loans; Evidence of the Borrowers'
----------------------------------------------
Obligations........................................... 20
-----------
2.08. Interest on Loans....................................... 21
-----------------
2.09. Default Interest........................................ 22
----------------
2.10. Alternate Rate of Interest.............................. 22
--------------------------
2.11. Termination and Reduction of Commitments................ 22
----------------------------------------
2.12. Prepayment.............................................. 23
----------
2.13. Reserve Requirements; Change in Circumstances........... 23
---------------------------------------------
2.14. Change in Legality...................................... 24
------------------
2.15. Indemnity............................................... 25
---------
2.16. Pro Rata Treatment...................................... 26
------------------
2.17. Sharing of Setoffs...................................... 26
------------------
2.18. Payments................................................ 27
--------
2.19. Taxes................................................... 27
-----
2.20. Mitigation; Duties of Lenders and Administrative Agent.. 29
------------------------------------------------------
III. REPRESENTATIONS AND WARRANTIES.................................... 31
3.01. Organization; Powers.................................... 31
--------------------
3.02. Authorization........................................... 32
-------------
3.03. Enforceability.......................................... 32
--------------
3.04. Governmental Approvals.................................. 32
----------------------
3.05. Financial Statements.................................... 32
--------------------
3.06. No Material Adverse Change.............................. 32
--------------------------
3.07. Title to Properties; Possession Under Leases............ 33
--------------------------------------------
3.08. Restricted Subsidiaries................................. 33
-----------------------
3.09. Litigation; Compliance with Laws........................ 33
--------------------------------
3.10. Agreements.............................................. 33
----------
</TABLE>
<PAGE>
Contents, p. 2
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C>
3.11. Federal Reserve Regulations............................. 33
---------------------------
3.12. Investment Company Act; Public Utility Holding
----------------------------------------------
Company Act........................................... 34
-----------
3.13. Use of Proceeds......................................... 34
---------------
3.14. Tax Returns............................................. 34
-----------
3.15. No Material Misstatements............................... 34
-------------------------
3.16. Employee Benefit Plans.................................. 34
----------------------
3.17. Support Agreements...................................... 34
------------------
IV. CONDITIONS OF LENDING............................................. 35
4.01. All Borrowings.......................................... 35
--------------
4.02. First Borrowing......................................... 35
---------------
V. AFFIRMATIVE COVENANTS............................................. 36
5.01. Existence; Businesses and Properties.................... 36
------------------------------------
5.02. Insurance............................................... 36
---------
5.03. Obligations and Taxes................................... 37
---------------------
5.04. Financial Statements, Reports, etc...................... 37
----------------------------------
5.05. Litigation and Other Notices............................ 38
----------------------------
5.06. ERISA................................................... 38
-----
5.07. Maintaining Records; Access to Properties
-----------------------------------------
and Inspections....................................... 39
---------------
5.08. Use of Proceeds......................................... 39
---------------
5.09. Pari Passu.............................................. 39
----------
5.10. Support Agreements...................................... 39
------------------
VI. NEGATIVE COVENANTS................................................ 39
6.01. Limitation on Liens--JCPenney........................... 39
-----------------------------
6.02. Limitations on Senior Funded Indebtedness............... 42
-----------------------------------------
6.03. Limitations with Respect to Restricted Subsidiaries..... 42
---------------------------------------------------
6.04. Mergers, Consolidations, Sales of Assets and
--------------------------------------------
Acquisitions.......................................... 43
------------
6.05. Limitations on Liens--Funding........................... 44
-----------------------------
6.06. Conduct of Funding's Business........................... 46
-----------------------------
VII. EVENTS OF DEFAULT................................................. 47
VIII. THE ADMINISTRATIVE AGENT.......................................... 49
IX. MISCELLANEOUS...................................................... 52
9.01. Notices................................................. 52
-------
9.02. Survival of Agreement................................... 53
---------------------
9.03. Binding Effect.......................................... 53
--------------
9.04. Successors and Assigns.................................. 53
----------------------
9.05. Expenses; Indemnity..................................... 55
-------------------
9.06. Right of Setoff......................................... 56
---------------
9.07. Applicable Law.......................................... 56
--------------
</TABLE>
<PAGE>
Contents, p. 3
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<S> <C>
9.08. Waivers; Amendment...................................... 56
------------------
9.09. Interest and Charges.................................... 57
--------------------
9.10. Entire Agreement........................................ 57
----------------
9.11. Severability............................................ 57
------------
9.12. Counterparts............................................ 58
------------
9.13. Headings................................................ 58
--------
9.14. Jurisdiction; Consent to Service of Process............. 58
-------------------------------------------
9.15. Confidentiality......................................... 58
---------------
9.16. Liability of Borrowers.................................. 59
----------------------
</TABLE>
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Standby Borrowing Request
Exhibit B Form of Guaranty
Exhibit C Form of Closing Certificate
Exhibit D Form of Opinion
Exhibit E Form of Assignment and Acceptance
Schedule 2.01 Commitments
Schedule 3.06 Disclosure
Schedule 3.08 Restricted Subsidiaries
Schedule 3.09 Material Litigation
<PAGE>
FIVE-YEAR REVOLVING CREDIT AGREEMENT dated as of
December 3, 1996 (the "Agreement"), among J. C. PENNEY COMPANY,
INC., a Delaware corporation ("JCPenney"), J. C. PENNEY FUNDING
CORPORATION, a Delaware corporation ("Funding"), the lenders
listed in Schedule 2.01 (as of any date, together with any
permitted assigns hereunder on such date, the "Lenders"), BANK
OF AMERICA ILLINOIS, BANKERS TRUST COMPANY, THE CHASE MANHATTAN
BANK, CITIBANK, N.A., MORGAN GUARANTY TRUST COMPANY OF NEW YORK
and NATIONSBANK OF TEXAS, N.A., as co-agents for the Lenders
(in such capacity, the "Co-Agents"), and CREDIT SUISSE, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
The Borrowers (as herein defined) have requested the Lenders to extend
credit to the Borrowers in order to enable them to borrow on a standby revolving
credit basis on and after the Closing Date (as herein defined) and at any time
and from time to time prior to the Maturity Date (as herein defined) an
aggregate principal amount not in excess of $1,500,000,000 at any time
outstanding. The Borrowers have also requested the Lenders to provide a
procedure pursuant to which the Borrowers may invite the Lenders to bid on an
uncommitted basis on borrowings by the Borrowers scheduled to mature on or prior
to the Maturity Date. The proceeds of such borrowings are to be used (i) to
finance the purchase by Acquisition Co. (as herein defined) of common stock of
Eckerd (as herein defined) pursuant to the Tender Offer (as herein defined),
(ii) to finance the purchase by JCPenney of shares of its own common stock
pursuant to the Share Repurchase (as herein defined), (iii) to finance the
repayment of certain outstanding indebtedness of Eckerd, (iv) to pay fees and
expenses relating to the foregoing transactions and (v) for general corporate
purposes, including, without limitation, working capital requirements, liquidity
and the repayment of maturing commercial paper and other indebtedness of the
Borrowers. The Lenders will extend such credit to the Borrowers on the terms
and subject to the conditions herein set forth.
Accordingly, the Borrowers, the Lenders, the Co-Agents and the
Administrative Agent agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
-------------
"ABR Loan" shall mean any Standby Loan bearing interest at a rate
--------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquisition Co." shall mean Omega Acquisition Corporation, a Delaware
---------------
corporation, a wholly owned Subsidiary of JCPenney.
<PAGE>
2
"Additional Costs" shall mean, with respect to any Lender, any
----------------
increased costs or reduction in amounts received or receivable or reduction in
return on capital incurred or suffered by such Lender and in respect of which
such Lender is entitled to request compensation in accordance with Section 2.13.
"Adjusted CD Rate" shall mean, with respect to any CD Borrowing
----------------
requested by any Borrower for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%) equal to the sum of (a)
a rate per annum equal to the product of (i) the Fixed CD Rate in effect for
such Interest Period and (ii) Statutory Reserves, plus (b) the Assessment Rate.
For purposes hereof, the term "Fixed CD Rate" shall mean the arithmetic average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the prevailing rates
per annum bid at or about 10:00 a.m., New York City time, to the Administrative
Agent on the first Business Day of the Interest Period applicable to such CD
Borrowing by three New York City negotiable certificate of deposit dealers of
recognized standing selected by the Administrative Agent for the purchase at
face value of negotiable certificates of deposit of major United States money
center banks in a principal amount approximately equal to (x) in the case of a
Standby Borrowing, the Administrative Agent's portion of such CD Borrowing and
(y) in the case of a Competitive Borrowing, the product of (1) the aggregate
principal amount of such CD Borrowing as specified in the related Competitive
Bid Request and (2) the percentage which the Administrative Agent's Commitment
represents of the Total Commitment, and with a maturity comparable to such
Interest Period.
"Administrative Fees" shall have the meaning assigned to such term in
-------------------
Section 2.06(b).
"Affiliate" shall mean, when used with respect to a specified person,
---------
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Alternate Base Rate" shall mean, for any day, a rate per annum
-------------------
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 0.50%. For purposes hereof, "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the rates quoted to the
Administrative Agent on such day for such transactions by three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate shall be effective on the date such
change is announced publicly.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the office or branch of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan in the administrative questionnaire
delivered by such Lender to the Administrative Agent or such other office or
branch of such Lender (or of an Affiliate of such Lender) as such
<PAGE>
3
Lender may from time to time, in accordance with the terms of this Agreement,
specify to the Administrative Agent and the Borrowers as the office or branch by
which its Loans of such Type are to be made and maintained.
"Applicable Rate" shall mean on any date, with respect to each Standby
---------------
Loan and with respect to the Facility Fee, as the case may be, the applicable
per annum percentage, based upon the ratings applicable on such date to the
Index Debt, set forth below:
<TABLE>
<CAPTION>
===================================================================================================
Eurodollar CD Facility
Standby Standby ABR Fee
Loans Loans Loans Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level I
- -------
At least A+ by S&P OR at least A1 by Moody's 0.135% 0.260% 0% 0.065%
- ---------------------------------------------------------------------------------------------------
Level II
- --------
At least A by S&P OR at least A2 by Moody's
AND 0.155% 0.280% 0% 0.070%
Level I does not apply
- ---------------------------------------------------------------------------------------------------
Level III
- ---------
At least A- by S&P OR at least A3 by Moody's
AND 0.170% 0.295% 0% 0.080%
neither Level I nor Level II applies
- ---------------------------------------------------------------------------------------------------
Level IV
- --------
At least BBB+ by S&P OR at least Baa1 by Moody's
AND 0.200% 0.325% 0% 0.100%
neither Level I, Level II nor Level III applies
- ---------------------------------------------------------------------------------------------------
Level V
- -------
At least BBB- by S&P OR at least Baa3 by Moody's
AND
neither Level I, Level II, Level III nor Level IV 0.375% 0.500% 0% 0.175%
applies
- ---------------------------------------------------------------------------------------------------
Level VI
- --------
Lower than BBB- by S&P
AND 0.500% 0.625% 0% 0.250%
Lower than Baa3 by Moody's
===================================================================================================
</TABLE>
For purposes of this definition, (i) except as otherwise provided in
the next succeeding paragraph, the applicable Level shall be determined by
reference to the higher of the two ratings then in effect with respect to the
Index Debt, (ii) if a rating for the Index Debt shall not be available from each
rating agency (other than because (a) such rating agency shall no longer be in
the business of rating corporate debt obligations or (b) of any other reason
outside the control of JCPenney and Funding), the Applicable Rate shall be
determined by reference to Level VI and (iii) if any rating established by
Moody's or S&P shall be changed (other than as a
<PAGE>
4
result of a change in the rating system of either Moody's or S&P), such change
shall be effective as of the date on which such change is first publicly
announced by the rating agency making such change.
Notwithstanding anything to the contrary in this definition, in the
event that, at any time, the Numerical Equivalents of the ratings established
for the Index Debt shall differ by more than 1, the rating established by each
rating agency shall be deemed to be the rating set forth below opposite the
Numerical Equivalent corresponding to the Average Numerical Equivalent of the
two ratings. As used herein, (a) "Numerical Equivalent" shall mean, with
respect to any rating set forth below, the number set forth opposite such rating
and (b) "Average Numerical Equivalent" shall mean, at any time, the sum of the
respective Numerical Equivalents of the two ratings then in effect divided by 2,
----------
and rounded down, if necessary, to the nearest whole number. In the event that
any rating lower than the ratings set forth below shall apply, an appropriate
Numerical Equivalent shall be assigned to such rating.
<TABLE>
<CAPTION>
===============================
S&P Moody's Numerical
Rating Rating Equivalent
-------------------------------
<S> <C> <C>
AAA Aaa 1
-------------------------------
AA+ Aa1 2
-------------------------------
AA Aa2 3
-------------------------------
AA- Aa3 4
-------------------------------
A+ A1 5
-------------------------------
A A2 6
-------------------------------
A- A3 7
-------------------------------
BBB+ Baa1 8
-------------------------------
BBB Baa2 9
===============================
</TABLE>
In the event that, on the date hereof, the rating of the Index Debt by
either rating agency shall have been announced as being on "CreditWatch" or
otherwise under review (a "Reviewed Rating"), the Applicable Rate shall be
determined by reference to Level III until each such Reviewed Rating is either
confirmed or changed, and thereafter shall be determined in accordance with the
other provisions of this definition.
If the rating system of either Moody's or S&P shall change prior to
the Maturity Date, or if either such rating agency shall cease to be in the
business of rating corporate debt obligations or shall no longer have in effect
a rating for any reason outside the control of JCPenney and Funding, the
Borrowers and the Lenders shall negotiate in good faith to amend the references
to specific ratings in this definition to reflect such changed rating system or
the absence of such a rating. Pending agreement on any such amendment, (i) if
the rating system of one such rating agency shall remain unchanged, or if a
rating shall be available from one such rating agency, the Applicable Rate shall
be determined by reference to the rating established by such rating agency, and
(ii) if no rating for the Index Debt shall be available from either rating
agency then (A) for 60 days, the Applicable Rate shall be determined by
reference to the rating or ratings most recently available, (B) after 60 days,
the Applicable Rate shall be determined by
<PAGE>
5
reference to Level V (or Level VI if the Applicable Rate shall have been
determined by reference to Level V or Level VI under clause (A) above) and (C)
after 180 days, the Applicable Rate shall be determined by reference to Level
VI.
"Assessment Rate" shall mean for any date the then current net annual
---------------
assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%)
actually employed by Morgan Guaranty Trust Company of New York in determining
amounts payable by Morgan Guaranty Trust Company of New York to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at Morgan
Guaranty Trust Company of New York's domestic offices.
"Board" shall mean the Board of Governors of the Federal Reserve
-----
System of the United States.
"Borrowers" shall mean JCPenney and Funding.
---------
"Borrowing" shall mean any Loan or group of Loans of a single Type
---------
made by the Lenders (or, in the case of a Competitive Borrowing, by the Lender
or Lenders whose Competitive Bids have been accepted pursuant to Section 2.03)
to the same Borrower, which Loans (except in the case of ABR Loans) have the
same borrowing date and the same Interest Period.
"Business Day" shall mean any day (other than a day which is a
------------
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
-------- -------
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CD Borrowing" shall mean a Borrowing comprised of CD Loans.
------------
"CD Competitive Loan" shall mean any Competitive Loan bearing interest
-------------------
at a rate determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"CD Loan" shall mean any CD Competitive Loan or CD Standby Loan.
-------
"CD Standby Loan" shall mean any Standby Loan bearing interest at a
---------------
rate determined by reference to the Adjusted CD Rate in accordance with the
provisions of Article II.
"Closing Date" shall mean the date on which the conditions precedent
------------
specified in Section 4.02 shall have been satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
----
be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the commitment
----------
of such Lender hereunder as set forth as of the date hereof in Schedule 2.01
hereto and, thereafter, in the Register (or as otherwise determined by the
parties hereto in the event of manifest error in the Register), as such Lender's
Commitment may be permanently terminated or reduced from time to time pursuant
to Section 2.11. The Commitment of each Lender shall automatically and
<PAGE>
6
permanently terminate on the Maturity Date if not terminated earlier pursuant to
the terms hereof.
"Competitive Bid" shall mean an offer by a Lender to make a Competitive
---------------
Loan pursuant to Section 2.03.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
--------------------
Lender pursuant to Section 2.03(b), (a) in the case of a Eurodollar Competitive
Loan or a CD Competitive Loan, the Competitive Margin, and (b) in the case of a
Fixed Rate Loan, the fixed rate of interest offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to Section
-----------------------
2.03 in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a
---------------------
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03 by the Borrower requesting such Borrowing.
"Competitive Loan" shall mean a Loan from a Lender to a Borrower
----------------
pursuant to the bidding procedure described in Section 2.03. Each Competitive
Loan shall be a Eurodollar Competitive Loan, a CD Competitive Loan or a Fixed
Rate Loan.
"Competitive Margin" shall mean, as to any Eurodollar Competitive Loan
------------------
or CD Competitive Loan, the margin (expressed as a percentage rate per annum in
the form of a decimal to no more than four decimal places) to be added to or
subtracted from the LIBO Rate or the Adjusted CD Rate, as applicable, in order
to determine the interest rate applicable to such Eurodollar Competitive Loan or
CD Competitive Loan, as specified in the Competitive Bid relating to such
Eurodollar Competitive Loan or CD Competitive Loan.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"dollars" or "$" shall mean lawful money of the United States of
--------------
America.
"Eckerd" shall mean Eckerd Corporation, a Delaware corporation.
------
"Eligible Assignee" shall mean (a) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having total assets in
excess of $1,000,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, provided that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is described in this clause; and (c) the central bank of any
country which is a member of the Organization for Economic Cooperation and
Development.
<PAGE>
7
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as the same may be amended from time to time, and the rules and regulations
promulgated thereunder, as from time to time in effect.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) that is a member of a group of which any Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
--------------------
Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan bearing
---------------------------
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan or
---------------
Eurodollar Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing interest
-----------------------
at a rate determined by reference to the LIBO Rate in accordance with the
provisions of Article II.
"Events of Default" shall have the meaning assigned to such term in
-----------------
Article VII.
"Facility Fee" shall have the meaning assigned to such term in Section
------------
2.06(a).
"Facility Fee Rate" shall mean the applicable per annum rate determined
-----------------
pursuant to the definition of "Applicable Rate".
"Fees" shall mean the Facility Fees and the Administrative Fees.
----
"Fixed Rate Borrowing" shall mean a Competitive Borrowing comprised of
--------------------
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a
---------------
fixed percentage rate per annum (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making such Loan in its
related Competitive Bid.
"Funded Indebtedness" of any corporation shall mean, at any date for
-------------------
the determination thereof, without duplication, the outstanding aggregate
principal amount of (a) all indebtedness created, incurred or assumed by such
corporation (including, in the case of any Borrower, the Loans made to such
Borrower) which by its terms is not payable on demand and which matures by its
terms, or which by its terms such corporation has the right at its option to
renew or extend to a date, more than one year after the date of determination,
whether outstanding on the date hereof or thereafter created, incurred or
assumed (including the current portion of any indebtedness which shall
constitute Funded Indebtedness at the time of its incurrence), and which is (i)
for money borrowed or (ii) evidenced by a note or similar instrument given in
connection with the acquisition of any business, properties or assets, including
securities, (b) any indebtedness of others of the kinds described in the
preceding clause (a) for the payment of which such corporation is responsible or
liable as guarantor or otherwise and (c) amendments, renewals and refundings of
any such indebtedness; provided, however, that such term shall not include any
-------- -------
obligations under leases or any guarantees of obligations of
<PAGE>
8
others under leases. It is understood that for the purposes of this definition
the term "principal" when used at any date with respect to any indebtedness
issued at a discount shall mean the amount of principal of such indebtedness
that could be declared due and payable on that date upon the occurrence of one
or more events permitting the acceleration of such indebtedness pursuant to the
terms of such indebtedness.
"GAAP" shall mean United States generally accepted accounting
----
principles, applied on a consistent basis.
"Governmental Authority" shall mean any court or governmental agency,
----------------------
authority, instrumentality or regulatory body, in each case whether Federal,
state, local or foreign.
"Indenture" shall mean the Indenture dated as of April 1, 1994, between
---------
JCPenney and Bank of America National Trust and Savings Association, as trustee.
"Index Debt" shall mean JCPenney's senior unsecured, non credit-
----------
enhanced, publicly held long-term indebtedness.
"Interest Payment Date" shall mean (a) with respect to any Loan other
---------------------
than an ABR Loan, the last day of the Interest Period applicable thereto and, in
the case of a Eurodollar Loan with an Interest Period of more than three months'
duration or a CD Loan or Fixed Rate Loan with an Interest Period of more than 90
days' duration, each day that would have been an Interest Payment Date for such
Loan had successive Interest Periods of three months' duration or 90 days'
duration, as the case may be, been applicable to such Loan and, in addition, the
date of any refinancing or conversion of such Loan with or to a Loan of a
different Type and (b) with respect to any ABR Loan, the last Business Day of
each March, June, September and December and the Maturity Date.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing that is
---------------
a Standby Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3, 6 or, subject to availability from each Lender,
12 months thereafter, as the Borrower requesting such Borrowing may elect, (b)
as to any CD Borrowing that is a Standby Borrowing, the period commencing on the
date of such Borrowing or on the last day of the immediately preceding Interest
Period applicable to such Borrowing, as the case may be, and ending 30, 60, 90,
180 or, subject to availability from each Lender, 360 days thereafter, as the
Borrower requesting such Borrowing may elect, (c) as to any Eurodollar Borrowing
that is a Competitive Borrowing, the period commencing on the date of such
Borrowing and ending on the date specified in the Competitive Bids in which the
offers to make the Eurodollar Competitive Loans comprising such Borrowing were
extended (which date shall be (A) the numerically corresponding day (or, if
there is no numerically corresponding day, the last day) in the calendar month
that is 1, 2, 3, 6, 9 or 12 months after the date of such Borrowing or (B) such
other date as shall be specified in such Competitive Bids) and (d) as to any CD
Competitive Borrowing or Fixed Rate Borrowing, the period specified in the
Competitive Bids in which the offers to make the CD Competitive Loans or Fixed
Rate Loans comprising such Borrowing were extended, commencing on the date of
such Borrowing (which period shall be a period of 30, 60, 90, 180 or 360 days'
duration or such other duration as shall be specified in such Competitive Bids);
provided, however, that (x) if any Interest Period would
- -------- -------
<PAGE>
9
end on a day other than a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless, in the case of Eurodollar Loans
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day,
(y) no Interest Period may be selected that ends later than the Maturity Date
then in effect and (z) the Interest Period for any CD Loan made in lieu of, or
resulting from the conversion of, a Eurodollar Loan pursuant to Section 2.10 or
2.14 shall be determined in accordance with the provisions of such Section.
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"Investment" means, with respect to each of Funding and its
----------
Subsidiaries only, any acquisition of any of the capital stock of any
corporation, or any acquisition of indebtedness of, or any capital contribution,
loan or advance to, or any guarantee of an obligation of, any person, except (i)
any loan or advance made in connection with the lease, purchase or construction
of office space for Funding or any of its Subsidiaries or the purchase of
materials, supplies, services or equipment for the offices of Funding or any of
its Subsidiaries and (ii) any guarantee or endorsement made in the ordinary
course of business in connection with the deposit of items for collection or any
guarantee of an obligation of an agent or an employee of Funding or any of its
Subsidiaries that is required to meet applicable legal requirements.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
---------
any Interest Period, the rate per annum determined by the Administrative Agent
at approximately 11:00 a.m. (London time) on the date which is two Business Days
prior to the beginning of such Interest Period by reference to the British
Bankers' Association Interest Settlement Rates for deposits in Dollars (as set
forth by any service selected by the Administrative Agent which has been
nominated by the British Bankers' Association as an authorized information
vendor for the purpose of displaying such rates) for a period equal to such
Interest Period (rounded, if necessary, upward to the nearest whole multiple of
1/16th of 1%); provided that, to the extent that an interest rate is not
--------
ascertainable pursuant to the foregoing provisions of this definition, the "LIBO
Rate" shall be the interest rate per annum determined by the Administrative
Agent to be the average (rounded, if necessary, upward to the nearest whole
multiple of 1/16th of 1% per annum, if such average is not such a multiple) of
the rates per annum at which deposits in Dollars are offered for such Interest
Period to major banks in the London interbank market in London, England by the
LIBO Reference Lenders at approximately 11:00 a.m. (London time) on the date
which is two Business Days prior to the beginning of such Interest Period. If
any of the LIBO Reference Lenders shall be unable or shall otherwise fail to
supply such rates to the Administrative Agent upon its request, the rate of
interest shall be determined on the basis of the quotations of the remaining
LIBO Reference Lenders or LIBO Reference Lender. Each determination by the
Administrative Agent or the LIBO Reference Lenders pursuant to this definition
shall be conclusive absent manifest error.
"LIBO Reference Lenders" shall mean Credit Suisse, Morgan Guaranty
----------------------
Trust Company of New York and The First National Bank of Chicago, or such other
or additional Lenders as the Borrowers, the Administrative Agent and the
Required Lenders shall designate in writing as "LIBO Reference Lenders".
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge or security interest in or on such asset.
"Loan" shall mean a Competitive Loan or a Standby Loan, whether made as
----
a Eurodollar Loan, a CD Loan, a Fixed Rate Loan or an ABR Loan, as permitted
hereby.
<PAGE>
10
"Margin Stock" shall have the meaning given such term under Regulation
------------
U.
"Material Adverse Effect" shall mean (a) a materially adverse effect on
-----------------------
the business, assets or financial condition of (i) JCPenney and the Restricted
Subsidiaries, taken as a whole, or (ii) Funding and its Subsidiaries, taken as a
whole, (b) a material impairment of the ability of any Borrower to perform any
of its obligations under this Agreement or (c) a material impairment of the
rights of or benefits available to the Lenders under this Agreement (other than
any such impairment of rights or benefits that is primarily attributable to (x)
action taken by or against one or more Lenders (excluding any action against one
or more Lenders taken by any Borrower or Restricted Subsidiary) or (y)
circumstances that are unrelated to any Borrower).
"Material Subsidiary" shall mean, at any date of determination, any
-------------------
Restricted Subsidiary then having more than 1% of the consolidated assets of
JCPenney and its Subsidiaries.
"Maturity Date" shall mean December 3, 2001.
-------------
"Maximum Amount" shall mean, with respect to any amount owing to any
--------------
Lender under this Agreement or in connection herewith, the maximum amount of
interest that such Lender is permitted to charge under applicable law on such
amount.
"Merger" shall mean either (a) the merger of Eckerd with and into
------
Acquisition Co., with Acquisition Co. being the surviving corporation of such
merger or (b) the merger of Acquisition Co. with and into Eckerd, with Eckerd
being the surviving corporation of such merger, with the form of such merger
being determined as provided in the Merger Agreement.
"Merger Agreement" shall mean the Amended and Restated Agreement and
----------------
Plan of Merger, dated as of November 2, 1996, among JCPenney, Acquisition Co.
and Eckerd.
"Moody's" shall mean Moody's Investors Service, Inc. and any successor
-------
thereto that is a nationally recognized rating agency.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"Net Tangible Assets" means the aggregate amount at which the assets of
-------------------
JCPenney and all Restricted Subsidiaries are reflected, in accordance with GAAP
as in effect on the date hereof, on the asset side of the consolidated balance
sheet, as at the close of a monthly accounting period (selected by JCPenney)
ending within the 65 days next preceding the date of determination, of JCPenney
and the Restricted Subsidiaries (after deducting all valuation and qualifying
reserves relating to said assets), except any of the following described items
that may be included among said assets:
(a) trademarks, patents, goodwill and similar intangibles;
(b) investments in and advances to Non-Restricted Subsidiaries;
and
<PAGE>
11
(c) capital lease property rights,
after deducting from such amount current liabilities (other than deferred tax
effects) as reflected, in accordance with GAAP as in effect on the date hereof,
on such balance sheet.
"Non-Restricted Subsidiary" shall mean any Subsidiary other than the
-------------------------
Restricted Subsidiaries.
"Officer's Certificate" of any corporation shall mean a certificate
---------------------
signed by a Responsible Officer of such corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"Penney Supplier" means any person that supplies goods or services to
---------------
JCPenney or any Subsidiary.
"Penney Supplier Receivables" means the obligations of Penney Suppliers
---------------------------
for the payment of money for goods or services sold by JCPenney or any
Subsidiary to Penney Suppliers for use in goods or services to be supplied to
JCPenney or any Subsidiary.
"person" shall mean any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
Governmental Authority.
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
----
subject to the provisions of Title IV of ERISA or Section 412 of the Code that
is maintained for employees of any Borrower or ERISA Affiliate.
"Prime Rate" means the rate of interest publicly announced by Credit
----------
Suisse from time to time as its prime rate in effect at its principal office in
New York City.
"Principal Property" means all real property and tangible personal
------------------
property owned by JCPenney or a Restricted Subsidiary constituting a part of any
store, warehouse or distribution center located within one of the 50 states of
the United States or the District of Columbia, exclusive of motor vehicles,
mobile materials-handling equipment and other rolling stock, cash registers and
other point of sale recording devices and related equipment, and data processing
and other office equipment; provided, however, that such term shall not include
-------- -------
any such property constituting a part of any such store, warehouse or
distribution center unless the net book value of all real property (including
leasehold improvements) and store fixtures constituting a part of such store,
warehouse or distribution center exceeds .25% of Stockholders' Equity.
"Receivables" means the obligations of customers for the payment of
-----------
money arising under agreements between such customers and JCPenney or any
Subsidiary.
"Register" shall have the meaning assigned to such term in Section
--------
9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
<PAGE>
12
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
----------------
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate which is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the
Code).
"Required Lenders" shall mean, at any time, (a) for the purposes of
----------------
terminating the Commitments pursuant to clause (x) of Article VII, Lenders
having Commitments representing at least 66-2/3% of the Total Commitment, (b)
for purposes of acceleration pursuant to clause (y) of Article VII, Lenders
holding Loans representing at least 66-2/3% of the aggregate principal amount of
the Loans outstanding and (c) for all other purposes, Lenders having Commitments
representing greater than 50% of the Total Commitment or, if the Commitments
shall have been terminated, Lenders holding Loans representing greater than 50%
of the aggregate principal amount of the Loans outstanding.
"Responsible Officer" of any corporation shall mean the chairman, vice
-------------------
chairman, president, chief financial officer, treasurer or controller of such
corporation or any executive or senior vice president of such corporation.
"Restricted Margin Stock" shall mean Margin Stock owned by JCPenney or
-----------------------
any Restricted Subsidiary which represents not more than 33-1/3% of the
aggregate value (determined in accordance with Regulation U), on a consolidated
basis, of the assets of JCPenney and the Subsidiaries (other than any shares of
Margin Stock) that are subject to the provisions of Article VI (including
Section 6.01).
"Restricted Subsidiary" means any Subsidiary of JCPenney (other than
---------------------
Funding) which JCPenney shall, by an Officer's Certificate of JCPenney, have
designated as a Restricted Subsidiary and the designation of which as a
Restricted Subsidiary shall not have been cancelled by an Officer's Certificate
of JCPenney; provided, however, that neither the designation of a Subsidiary as
-------- -------
a Restricted Subsidiary nor the cancellation of such designation shall be
operative if the immediate effect of such designation or cancellation shall be
to make Net Tangible Assets less than 200% of the Senior Funded Indebtedness of
JCPenney and the Restricted Subsidiaries on a pro forma basis (eliminating
intercompany items); and provided, further, that any Officer's Certificate
-------- -------
designating a Subsidiary as a Restricted Subsidiary or cancelling such
designation shall set forth the Net Tangible Assets and Senior Funded
Indebtedness of JCPenney and its Restricted Subsidiaries on a pro forma basis
(eliminating intercompany items) and show compliance with the first proviso of
this paragraph. Any such designation or cancellation of such designation may be
made more than once with respect to any Subsidiary.
"S&P" shall mean Standard & Poor's Ratings Services and any successor
---
thereto that is a nationally recognized rating agency.
"SEC" shall mean the Securities and Exchange Commission.
---
<PAGE>
13
"Senior Funded Indebtedness" of JCPenney shall mean any Funded
--------------------------
Indebtedness of JCPenney unless in any instrument or instruments evidencing or
securing such Funded Indebtedness or pursuant to which the same is outstanding,
or in any amendment, renewal, extension or refunding of such Funded
Indebtedness, it is provided that such Funded Indebtedness is subordinate in
right of payment to the Loans (a) in the event of any dissolution or winding-up
or total or partial liquidation or reorganization of JCPenney, whether voluntary
or involuntary, or any bankruptcy, insolvency, receivership or similar
proceedings relative to JCPenney and (b) in the event of any default in the
payment of principal (including any required prepayments or amortization) of or
interest on any Loans of JCPenney. "Senior Funded Indebtedness" of any
Restricted Subsidiary means any Funded Indebtedness of such Restricted
Subsidiary and the aggregate preference on involuntary liquidation of any class
of stock of such Restricted Subsidiary ranking, either as to payment of
dividends or distribution of assets, prior to any other class of stock of such
Restricted Subsidiary.
"Share Repurchase" shall mean the purchase by JCPenney of up to
----------------
15,000,000 shares of its own common stock.
"Standby Borrowing" shall mean a Borrowing consisting of simultaneous
-----------------
Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
-------------------------
Section 2.04 in the form of Exhibit A-4.
"Standby Loans" shall mean the revolving loans made by the Lenders to
-------------
the Borrowers pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar
Standby Loan, a CD Standby Loan or an ABR Loan.
"Standby Margin" shall mean, with respect to any Standby Loan, the
--------------
applicable per annum rate determined pursuant to the definition of "Applicable
Rate".
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the actual reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to the applicable
Interest Period. Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"Stockholders' Equity" means the sum, as at the close of a monthly
--------------------
accounting period (selected by JCPenney) ending within the 65 days next
preceding the date of determination, of (a) the aggregate of capital, capital
stock, capital surplus, capital in excess of par value of stock, reinvested
earnings, earned surplus and net income retained for use in the business
(however the foregoing may be designated), after deducting the cost of shares of
capital stock of JCPenney held in its treasury, of JCPenney and its consolidated
Subsidiaries, determined in accordance with GAAP, plus (b) the amount reflected
in such determination as deferred tax effects.
"Subsidiary" means (a) any corporation of which JCPenney, directly or
----------
indirectly, owns more than 50% of the outstanding stock which at the time shall
have by the
<PAGE>
14
terms thereof ordinary voting power to elect directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency, or (b) any such corporation of which such
percentage of shares of outstanding stock of the character described in the
foregoing clause (a) shall at the time be owned, directly or indirectly, (i) by
JCPenney and one or more Subsidiaries as defined in the foregoing clause (a) or
(ii) by one or more such Subsidiaries.
"Support Agreements" shall mean (a) the Amended and Restated
------------------
Receivables Agreement dated as of January 29, 1980, between JCPenney and Funding
(formerly J. C. Penney Financial Corporation), as amended by Amendment No. 1
thereto dated as of January 25, 1983, (b) the Loan Agreement dated as of January
28, 1986, between JCPenney and Funding, as amended by Amendment No. 1 thereto
dated as of December 26, 1986 and by Amendment No. 2 thereto dated as of
November 22, 1996, in each case as amended or modified from time to time in
compliance with Section 5.10 and (c) the subordinated Guaranty of the
obligations of Funding dated as of December 3, 1996, executed by JCPenney in
favor of the Lenders and attached hereto as Exhibit B.
"Taxes" shall mean, with respect to any Lender or the Administrative
-----
Agent, any and all U.S. Federal income taxes after application of any relevant
treaty or convention and all interest and penalties with respect thereto,
attributable to any payment made by any Borrower hereunder to such Lender or the
Administrative Agent, as the case may be.
"Tender Offer" shall mean the offer by Acquisition Co. to purchase
------------
50.1% of the common stock of Eckerd.
"Tender Offer Materials" shall mean the Offer and Schedule 14D-1 dated
----------------------
November 7, 1996 filed by Acquisition Co. with the SEC in connection with the
Tender Offer, together with all exhibits thereto.
"Total Commitment" shall mean at any time the aggregate amount of the
----------------
Lenders' Commitments, as in effect at such time.
"Tranche B Credit Agreement" shall mean the $1,500,000,000 364-Day
--------------------------
Revolving Credit Agreement dated as of December 3, 1996 among the Borrowers, the
financial institutions named therein as lenders (which include certain of the
Lenders), Bank of America Illinois, Bankers Trust Company, The Chase Manhattan
Bank, Citibank, N.A., Morgan Guaranty Trust Company of New York and NationsBank
of Texas, N.A., as co-agents, and Credit Suisse, as administrative agent, as
such agreement may be amended from time to time.
"Transactions" shall mean the collective reference to (a) the
------------
consummation of the Tender Offer, the Share Repurchase and the Merger and (b)
the execution, delivery and performance by each Borrower of this Agreement, the
borrowings hereunder and the use of proceeds thereof.
"Type", when used in respect of any Loan or Borrowing, shall refer to
----
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, "Rate" shall include the
LIBO Rate, the Adjusted CD Rate, and the Alternate Base Rate and, in the case of
any Fixed Rate Loan, the fixed percentage rate per annum specified by the Lender
making such Loan in its related Competitive Bid.
<PAGE>
15
"Unrestricted Margin Stock" shall mean any Margin Stock owned by
-------------------------
JCPenney or any Subsidiary which is not Restricted Margin Stock.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
----------------
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. In the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding". Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided, however, that, for purposes of determining
-------- -------
compliance with any covenant set forth in Article VI, such terms shall be
construed in accordance with GAAP as in effect on the date of this Agreement
applied on a basis consistent with the application used in preparing JCPenney's
audited consolidated financial statements referred to in Section 3.05.
ARTICLE II. THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions and
------------
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, to make Standby Loans to the Borrowers at any
time and from time to time on and after the Closing Date and until the earlier
of the Maturity Date and the termination of the Commitment of such Lender, in an
aggregate principal amount at any time outstanding not to exceed such Lender's
Commitment, subject, however, to the conditions that (a) at no time shall the
outstanding aggregate principal amount of all Loans made by all Lenders exceed
the Total Commitment and (b) at all times the outstanding aggregate principal
amount of all Standby Loans made by each Lender to a Borrower shall equal the
product of (i) the percentage which its Commitment represents of the Total
Commitment times (ii) the outstanding aggregate principal amount of all Standby
Loans made to such Borrower pursuant to Section 2.04. Subject to Section
2.03(h), any Lender may at its discretion make Competitive Loans in an aggregate
principal amount up to the amount of the Total Commitment of the Lenders
hereunder. Each Lender's Commitment as of the date hereof is set forth opposite
its respective name in Schedule 2.01 and, after the date hereof, each Lender's
Commitment shall be set forth opposite its respective name in the Register.
Such Commitments may be terminated, reduced or extended from time to time
pursuant to Section 2.11.
Within the foregoing limits, the Borrowers may borrow, pay or prepay
and reborrow hereunder, on and after the Closing Date and prior to the Maturity
Date, subject to the terms, conditions and limitations set forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of
------
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their Commitments; provided, however, that the failure of any Lender to make any
-------- -------
Standby Loan shall not by itself relieve any other Lender of its obligation to
lend hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to make any Loan required to be
made by such other Lender). Each Competitive Loan shall be
<PAGE>
16
made in accordance with the procedures set forth in Section 2.03. The Standby
Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $5,000,000 and not less than $25,000,000 (or, if less, an aggregate
principal amount equal to the Total Commitment on the date of such Borrowing
minus the outstanding aggregate principal amount on such date of all Competitive
Loans) and (ii) in the case of Standby Loans, in an aggregate principal amount
which is an integral multiple of $5,000,000 and not less than $25,000,000 (or an
aggregate principal amount equal to the remaining available balance of the Total
Commitment).
(b) Subject to Sections 2.10 and 2.14, each Competitive Borrowing
shall be comprised entirely of Eurodollar Competitive Loans, CD Competitive
Loans or Fixed Rate Loans, and each Standby Borrowing shall be comprised
entirely of Eurodollar Standby Loans, CD Standby Loans or ABR Loans, as the
Borrower requesting such Competitive Borrowing or Standby Borrowing may specify
pursuant to Section 2.03 or 2.04, as the case may be.
(c) Subject to Section 2.05, each Lender shall make each Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in New York, New York,
not later than 12:00 noon, New York City time (11:00 a.m., New York City time,
in the case of a Eurodollar Loan), and the Administrative Agent shall by 2:00
p.m., New York City time, transfer by wire the amounts so received in accordance
with the instructions of the relevant Borrower or, if a Borrowing shall not
occur on such date because any condition precedent herein specified shall not
have been met, return the amounts so received to the respective Lenders.
Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids
therefor are accepted pursuant to Section 2.03 in the amounts so accepted and
Standby Loans shall be made by the Lenders pro rata in accordance with Section
2.16. Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make available to
the Administrative Agent such Lender's portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to it on the date of such Borrowing in accordance with this paragraph (c) and
may, in reliance upon such assumption, make a corresponding amount available on
such date to the Borrower requesting such Borrowing. If and to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and such Borrower severally agree to pay or repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of such Borrower, the interest rate applicable at the time to
the Loans comprising such Borrowing and (ii) in the case of such Lender, the
Federal Funds Effective Rate; provided, however, that such Borrower shall not in
-------- -------
any event have any liability in respect of such repayment under Section 2.15.
If such Lender shall pay to the Administrative Agent such corresponding amount,
such amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, no Borrower
shall be entitled to request any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.
(e) The Loans of each Type made by each Lender shall be made through
and maintained at such Lender's Applicable Lending Office for Loans of such
Type. Any Lender may change its Applicable Lending Office for any Type of Loans
without the prior written consent of JCPenney so long as (i) such Lender shall
have no knowledge that such change
<PAGE>
17
would cause it to be unlawful for such Lender to make or maintain any Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
any Eurodollar Loan and (ii) such Lender shall not be entitled to recoupment,
reimbursement or indemnification in accordance with the terms and conditions of
Sections 2.13 and 2.15 to the extent that such Lender shall have had knowledge
at the time of such change in Applicable Lending Office that such entitlement
would arise as a result of such change.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
--------------------------
Competitive Bids, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Competitive Bid Request in the form of
Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case
of a Eurodollar Borrowing or a CD Borrowing, not later than 11:00 a.m., New York
City time, four Business Days before a proposed Competitive Borrowing and (ii)
in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before a proposed Competitive Borrowing. No ABR Loan
shall be requested in, or made pursuant to, a Competitive Bid Request. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit A-1 shall be rejected and the Administrative Agent shall promptly notify
the appropriate Borrower of such rejection by telecopier. Such request shall in
each case refer to this Agreement and specify (x) that the Borrowing then being
requested is to be a Eurodollar Borrowing, a CD Borrowing or a Fixed Rate
Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and
the aggregate principal amount thereof (which shall be, subject to the third
sentence of Section 2.02(a), in a minimum principal amount of $25,000,000 and in
an integral multiple of $5,000,000 and (z) the Interest Period with respect
thereto (which may not end after the Maturity Date). Promptly after its receipt
of a Competitive Bid Request that is not rejected as aforesaid, the
Administrative Agent shall invite by telecopier (in the form set forth in
Exhibit A-2 hereto) the Lenders to bid, on the terms and conditions of this
Agreement, to make Competitive Loans pursuant to the Competitive Bid Request.
(b) The Administrative Agent may, in its sole discretion, make one or
more Competitive Bids to the appropriate Borrower responsive to such Borrower's
Competitive Bid Request. Each Competitive Bid by the Administrative Agent must
be submitted to the Borrower via telecopier, in the form of Exhibit A-3 hereto,
(i) in the case of a Eurodollar Borrowing or CD Borrowing, not later than 8:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 8:30
a.m., New York City time, on the day of a proposed Competitive Borrowing. Each
Lender may, in its sole discretion, make one or more Competitive Bids to the
appropriate Borrower responsive to such Borrower's Competitive Bid Request.
Each Competitive Bid by a Lender must be received by the Administrative Agent
via telecopier, in the form of Exhibit A-3 hereto, (i) in the case of a
Eurodollar Borrowing or CD Borrowing, not later than 9:00 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 9:00 a.m., New York City
time, on the day of a proposed Competitive Borrowing. Multiple bids will be
accepted by the Administrative Agent. Competitive Bids that do not conform
substantially to the format of Exhibit A-3 may be rejected by the Administrative
Agent after conferring with, and upon the instruction of, the Borrower
requesting such Competitive Bids, and the Administrative Agent shall notify the
Lender making such nonconforming bid of such rejection as soon as practicable.
Each Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in an integral multiple of $5,000,000 (unless such
principal amount shall equal the entire principal amount of the Competitive
Borrowing requested by such Borrower) and which may equal such entire principal
amount) of the Competitive Loan or Loans that the Lender is willing to make to
the
<PAGE>
18
Borrower requesting such Competitive Bid, (y) the Competitive Bid Rate or Rates
at which the Lender is prepared to make the Competitive Loan or Loans and (z)
the Interest Period and the last day thereof. If any Lender shall elect not to
make a Competitive Bid, such Lender shall so notify the Administrative Agent via
telecopier (A) in the case of a Eurodollar Borrowing or a CD Borrowing, not
later than 9:00 a.m., New York City time, three Business Days before a proposed
Competitive Borrowing and (B) in the case of a Fixed Rate Borrowing, not later
than 9:00 a.m., New York City time, on the day of a proposed Competitive
Borrowing; provided, however, that failure by any Lender to give such notice
-------- -------
shall not cause such Lender to be obligated to make any Competitive Loan as part
of such Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant
to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall notify the appropriate Borrower by
telecopier not later than (i) in the case of a Eurodollar Borrowing or a CD
Borrowing, 10:00 a.m., New York City time, three Business Days before the
proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing,
10:00 a.m., New York City time, on the day of the proposed Competitive Borrowing
of all the Competitive Bids made, the Competitive Bid Rate and the principal
amount of each Competitive Loan in respect of which a Competitive Bid was made
and the identity of the Lender that made each bid. The Administrative Agent
shall send a copy of all Competitive Bids to such Borrower for its records as
soon as practicable after completion of the bidding process set forth in this
Section 2.03.
(d) The appropriate Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d) and paragraph (h) below,
accept or reject any Competitive Bid referred to in paragraph (c) above. Such
Borrower shall notify the Administrative Agent by telecopier not later than (i)
in the case of a Eurodollar Borrowing or a CD Borrowing, 11:30 a.m., New York
City time, three Business Days before the proposed Competitive Borrowing and
(ii) in the case of a Fixed Rate Borrowing, not later than 11:30 a.m., New York
City time, on the day of the proposed Competitive Borrowing whether and to what
extent it has decided to accept or reject any or all of the bids referred to in
paragraph (c) above; provided, however, that (v) the failure by such Borrower to
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give such notice shall be deemed to be a rejection of all the bids referred to
in paragraph (c) above, (w) such Borrower shall not accept a bid made at a
particular Competitive Bid Rate if it has decided to reject a bid made at a
lower Competitive Bid Rate, (x) the aggregate amount of the Competitive Bids
accepted by such Borrower shall not exceed the principal amount specified in the
related Competitive Bid Request, (y) if such Borrower shall accept a bid or bids
made at a particular Competitive Bid Rate but the amount of such bid or bids
shall cause the total amount of bids to be accepted by such Borrower to exceed
the amount specified in the related Competitive Bid Request, then such Borrower
shall accept a portion of such bid or bids in an amount equal to the amount
specified in the related Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (z) except pursuant to clause (y) above, no bid shall be accepted
for a Competitive Loan unless the principal amount of such Competitive Loan is
in an integral multiple of $5,000,000 or is equal to the entire principal amount
of the Competitive Borrowing being requested by such Borrower; provided further,
-------- -------
however, that if a Competitive Loan must be in an amount less than $5,000,000
- -------
because of the provisions of clause (y) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (y) the amounts shall be rounded to
integral multiples
<PAGE>
19
of $1,000,000 in a manner which shall be in the discretion of such Borrower. A
notice given pursuant to this paragraph (d) by the appropriate Borrower shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each bidding Lender
whether or not its Competitive Bid has been accepted (and if so, in what amount
and at what Competitive Bid Rate) by telecopier sent by the Administrative
Agent, and each successful bidder will thereupon become bound, subject to the
other applicable conditions hereof, to make the Competitive Loan in respect of
which its bid has been accepted.
(f) The Borrowers shall not make more than 10 Competitive Bid Requests
during any 30-day period.
(g) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
(h) At no time shall the outstanding aggregate principal amount of all
Competitive Loans made by all Lenders exceed the Total Commitment in effect at
such time.
(i) The Administrative Agent shall hold in confidence each Competitive
Bid received by the Administrative Agent until such Competitive Bid has been
disclosed to the appropriate Borrower pursuant to paragraph (d) above.
SECTION 2.04. Standby Borrowing Procedure. In order to request a
----------------------------
Standby Borrowing, a Borrower shall hand deliver or telecopy a Standby Borrowing
Request in the form of Exhibit A-4 to the Administrative Agent (a) in the case
of a Standby Borrowing that is a Eurodollar Borrowing, not later than 11:00
a.m., New York City time, three Business Days before a proposed borrowing, (b)
in the case of a Standby Borrowing that is a CD Borrowing, not later than 11:00
a.m., New York City time, two Business Days before a proposed borrowing, and (c)
in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time,
on the day of a proposed borrowing. A Borrower shall be deemed to have given a
Standby Borrowing Request if it (i) notifies an officer of the Administrative
Agent identified in Section 9.01 by telephone of the content of such Standby
Borrowing Request not later than the relevant time set forth above for delivery
thereof and (ii) delivers such Standby Borrowing Request to the Administrative
Agent as soon as practicable; provided, however, that a Borrower shall not have
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any right to receive the proceeds of a Standby Borrowing unless the
Administrative Agent has received the related written Standby Borrowing Request.
Such notice shall be irrevocable and shall in each case specify (i) whether the
Borrowing then being requested is to be a Eurodollar Borrowing, a CD Borrowing
or an ABR Borrowing; (ii) the date of such Standby Borrowing (which shall be a
Business Day) and the amount thereof; and (iii) except in the case of ABR
Borrowings, the Interest Period with respect thereto. If no election as to the
Type of Standby Borrowing is specified in any such notice, then the requested
Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect
to any Standby Borrowing comprised of Eurodollar Loans or CD Loans is specified
in any such notice, then the Borrower requesting such Borrowing shall be deemed
to have selected an Interest Period of one month's duration, in the case of a
Eurodollar Borrowing, or 30 days' duration, in the case of a CD Borrowing. If a
Borrower shall not have given notice in accordance with this Section 2.04 of its
election to refinance a Standby Borrowing of such Borrower comprised of
Eurodollar Loans or CD Loans prior to the end of the Interest Period in effect
for such Borrowing, then such Borrower shall (unless such Borrowing is repaid at
the end of such Interest Period) be deemed to have given notice of an election
to refinance such Borrowing with an ABR Borrowing. The Administrative
<PAGE>
20
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.04 and of each Lender's portion of the requested Borrowing.
SECTION 2.05. Refinancings. Any Borrower may refinance all or any
-------------
part of any Borrowing of such Borrower with a Borrowing of the same or a
different Type made pursuant to Section 2.03 or Section 2.04, subject to the
conditions and limitations set forth herein and elsewhere in this Agreement,
including refinancings of Competitive Borrowings with Standby Borrowings and
Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid in accordance with Section 2.07 with
the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to the appropriate Borrower pursuant to Section
2.02(c); provided, however, that (i) if the principal amount extended by a
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Lender in a refinancing is greater than the principal amount extended by such
Lender in the Borrowing being refinanced, then such Lender shall pay such
difference to the Administrative Agent for distribution to the Lenders described
in (ii) below, (ii) if the principal amount extended by a Lender in the
Borrowing being refinanced is greater than the principal amount being extended
by such Lender in the refinancing, the Administrative Agent shall return the
difference to such Lender out of amounts received pursuant to (i) above and
(iii) to the extent any Lender fails to pay to the Administrative Agent amounts
due from it pursuant to (i) above, any Loan or portion thereof being refinanced
shall not be deemed repaid in accordance with Section 2.07 and shall be payable
by the Borrower to which such Loan was made; provided, however, that such
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Borrower shall not have any liability under Section 2.15 in respect of any of
its payment obligations under this clause (iii).
SECTION 2.06. Fees. (a) The Borrowers agree, jointly and severally,
-----
to pay to each Lender, through the Administrative Agent, a facility fee (a
"Facility Fee") at a rate per annum equal to the Facility Fee Rate from time to
------------
time in effect on the amount of the Commitment of such Lender, whether used or
unused, from time to time in effect during the period for which such payment is
made. All Facility Fees shall be payable quarterly on the last Business Day of
each March, June, September and December and on the Maturity Date or such
earlier date on which the Commitment of the relevant Lender shall terminate as
provided herein, commencing on the first of such dates to occur after the date
hereof. All Facility Fees shall be computed in arrears on the basis of the
actual number of days elapsed in a year of 360 days. The Facility Fee due to
each Lender shall commence to accrue on the date hereof (or, if later, the date
on which such Lender became a Lender) and shall cease to accrue on the earlier
of the Maturity Date and the termination of the Commitment of such Lender as
provided herein.
(b) The Borrowers agree, jointly and severally, to pay to the
Administrative Agent from time to time, for its own account, agent and
administrative fees (the "Administrative Fees") at such times and in such
-------------------
amounts as have been previously agreed upon in writing between the Borrowers and
the Administrative Agent.
(c) All Fees shall be paid on the dates due in immediately available
funds. Once paid, none of the Fees shall be refundable, except in the event of
manifest error.
SECTION 2.07. Repayment of Loans; Evidence of the Borrowers'
----------------------------------------------
Obligations. Subject to Section 4.01, the outstanding principal balance of each
- ------------
Competitive Loan and Standby Loan made by any Lender shall be payable (i) except
in the case of ABR Loans, on the last day of the Interest Period applicable to
such Loan and (ii) on the Maturity Date. Each Competitive
<PAGE>
21
Loan and each Standby Loan shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.08. With
respect to each Lender, the entries made in the accounts maintained by the
Administrative Agent and such Lender shall be prima facie evidence of the
existence and amounts of the monetary obligations payable by any Borrower to
such Lender in respect of the Loans made by such Lender to such Borrower;
provided that the failure to maintain any such accounts or any error therein
- --------
shall not affect the obligations of the Borrowers hereunder.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
------------------
Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) at a rate per annum on any date of determination equal to (i) in the case
of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect
for such Borrowing plus the Standby Margin for such date, and (ii) in the case
of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Loan plus the Competitive Margin offered by the Lender making
such Loan and accepted by the Borrower requesting such Loan pursuant to Section
2.03. The LIBO Rate for each Interest Period shall be determined by the
Administrative Agent (in consultation, if applicable, with the LIBO Reference
Lenders), and such determination shall be conclusive absent manifest error. The
Administrative Agent shall promptly advise the Borrowers and each Lender of such
determination.
(b) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, or,
when the Alternate Base Rate is determined by reference to the Federal Funds
Effective Rate, computed on the basis of the actual number of days elapsed over
a year of 360 days) at a rate per annum equal to the Alternate Base Rate. The
Alternate Base Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error. The Administrative
Agent shall promptly advise the Borrowers and each Lender of such determination.
(c) Subject to the provisions of Section 2.09, the Loans comprising
each CD Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 360 days) at a rate per annum on any date
of determination equal to (i) in the case of each CD Standby Loan, the Adjusted
CD Rate for the Interest Period in effect for such Borrowing plus the Standby
Margin for such date and (ii) in the case of each CD Competitive Loan, the
Adjusted CD Rate for the Interest Period in effect for such Borrowing plus the
Competitive Margin offered by the Lender making such Loan and accepted by the
Borrower requesting such Borrowing pursuant to Section 2.03, provided, however,
-------- -------
that any CD Loan made pursuant to Section 2.10 or 2.14 shall bear interest
(computed as described in this paragraph) at a rate per annum on any date of
determination equal to the Adjusted CD Rate for the Interest Period applicable
to such CD Loan plus the Standby Margin for such date.
(d) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
requesting the applicable Fixed Rate Borrowing pursuant to Section 2.03.
(e) Interest on each Borrowing shall be payable on each applicable
Interest Payment Date.
<PAGE>
22
SECTION 2.09. Default Interest. If any Borrower shall default in the
-----------------
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, such Borrower shall on demand from time to time from the
Administrative Agent pay interest, to the extent permitted by applicable law, on
such defaulted amount from the date on which the Administrative Agent first
notifies such Borrower that it will be required to pay interest pursuant to this
Section on such defaulted amount up to (but not including) the date of actual
payment (after as well as before judgment) at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be) equal to the Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
---------------------------
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Required Lenders shall have
determined and communicated to the Administrative Agent that dollar deposits in
the principal amounts of the Eurodollar Loans comprising such Borrowing are not
generally available in the London interbank market, or that the rates at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to any Lender of making or maintaining its Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for ascertaining the LIBO
Rate, the Administrative Agent shall, as soon as practicable thereafter, give
written notice of such determination to the Borrowers and the Lenders. In the
event of any such determination, until the Administrative Agent shall have
advised the Borrowers and the Lenders that the circumstances giving rise to such
notice no longer exist, (i) any request by any Borrower for a Eurodollar
Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be
denied by the Administrative Agent and (ii) any request by any Borrower for a
Eurodollar Borrowing pursuant to Section 2.04 shall be deemed to be a request
for, as applicable, (A) an ABR Borrowing or a CD Borrowing or (B) a refinancing
of an ABR Borrowing or a CD Borrowing, as the case may be, with an ABR Borrowing
or a CD Borrowing, in each case as such Borrower shall elect by notice to the
Administrative Agent not later than 11:00 a.m., New York City time, one Business
Day before such refinancing, comprised of ABR Loans or of CD Loans having an
Interest Period as close as possible to the Interest Period requested by such
Borrower in connection with such Eurodollar Borrowing, provided, that in the
--------
absence of such election such Borrower shall be deemed to have requested an ABR
Borrowing. The parties hereto shall have the same rights and obligations in
respect of a deemed request for a CD Borrowing or an ABR Borrowing pursuant to
this Section and the CD Loans and ABR Loans made pursuant thereto, and the
Commitments shall be utilized by such CD Loans and such ABR Loans, as if such
Borrowing were a Standby Borrowing requested, and such Loans were Standby Loans
made, pursuant to Section 2.04.
SECTION 2.11. Termination and Reduction of Commitments. (a) Any
-----------------------------------------
Commitment that has not been terminated prior to the Maturity Date shall be
automatically terminated on the Maturity Date.
(b) Except as provided in Section 2.20 hereof, upon at least 5
Business Days' prior irrevocable written notice to the Administrative Agent,
JCPenney may at any time in whole permanently terminate, or from time to time in
part permanently reduce, the Total Commitment; provided, however, that each
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partial reduction of the Total Commitment shall be in an integral multiple of
$5,000,000 and in a minimum principal amount of $25,000,000 or, if less, the
Total Commitment then in effect.
<PAGE>
23
(c) Except as provided in Section 2.20, each reduction in the Total
Commitment hereunder shall be made ratably among the Lenders in accordance with
their respective Commitments. Subject to Section 9.09, the Borrowers shall pay
to the Administrative Agent for the account of the Lenders, on the date of each
termination or reduction, the Facility Fees accrued through the date of such
termination or reduction.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the right at
-----------
any time and from time to time to prepay any Standby Borrowing of such Borrower,
in whole or in part, subject to the requirements of Section 2.15 but otherwise
without premium or penalty, upon giving written notice (or telephone notice
promptly confirmed by written notice) to the Administrative Agent before 10:00
a.m., New York City time, one Business Day prior to such prepayment; provided,
--------
however, that each partial prepayment shall be in an amount which is an integral
- -------
multiple of $5,000,000 and not less than $25,000,000. Competitive Borrowings
may not be prepaid without the prior written consent of the relevant Lender.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate principal
amount of the Standby Loans outstanding will not exceed the Total Commitment
after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the Borrower giving such notice to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to Section
2.15 but otherwise without premium or penalty. All prepayments under this
Section 2.12 (other than prepayments of ABR Loans) shall be accompanied by
accrued interest on the principal amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. Subject
----------------------------------------------
to the procedures and limitations of Section 2.20:
(a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof (whether or not having the
force of law) shall change the basis of taxation of payments to any Lender of
the principal of or interest on any Eurodollar Loan, CD Loan or Fixed Rate Loan
made by such Lender or any Fees or other amounts payable hereunder (other than
changes in respect of taxes imposed on such Lender by the jurisdiction in which
such Lender is organized, has its principal office or maintains its Applicable
Lending Office for such Loan or by any political subdivision or taxing authority
in any such jurisdiction), or shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by such Lender, or shall impose on such
Lender or the London interbank market any other condition affecting this
Agreement or any Eurodollar Loan, CD Loan or Fixed Rate Loan made by such
Lender, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Eurodollar Loan, CD Loan or Fixed Rate
Loan or to reduce the amount of any sum received or receivable by such Lender
hereunder (whether of principal, interest or otherwise) by an amount deemed by
such Lender in its reasonable judgment to be material, then such additional
amount or amounts as will compensate such Lender for such additional costs
incurred or reduction suffered will be paid to such Lender in accordance with
Section 2.20 (i) if such additional costs or reduction shall relate
<PAGE>
24
to a particular Loan, by the Borrower to which such Loan was made and (ii)
otherwise, by JCPenney. Notwithstanding the foregoing, no Lender shall be
entitled to request compensation under this paragraph with respect to any Loan
if it shall have been aware that the change giving rise to such request had been
adopted or enacted at the earlier of the time at which the Lender became a party
to this Agreement or, with respect to a Competitive Loan, the time of submission
of the Competitive Bid pursuant to which such Competitive Loan shall have been
made.
(b) If the adoption after the date hereof of any law, rule, regulation
or guideline regarding capital adequacy, or any change after the date hereof in
any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or any Applicable Lending Office of such Lender) with any request or
directive regarding capital adequacy (whether or not having the force of law)
made or issued after the date hereof by any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital as a consequence of this Agreement or the Loans made by
such Lender pursuant hereto to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender in its reasonable judgment to be material, then subject to Section
2.20 hereof, from time to time such additional amount or amounts as will
compensate such Lender for any such reduction suffered will be paid to such
Lender in accordance with Section 2.20 (i) if such reduction shall relate to a
particular Loan, by the Borrower to which such Loan was made and (ii) otherwise,
by JCPenney.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
-------------------
provision herein, if any change after the date hereof in any law or regulation
or in the interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrowers and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by
such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request by any Borrower for a Standby Borrowing comprised
of Eurodollar Loans shall, as to such Lender only, be deemed a request
for an ABR Loan or a CD Loan, as such Borrower shall elect by notice to
the Administrative Agent not later than 11:00 a.m., New York City time,
one Business Day before such Borrowing, having an Interest Period (in
the case of a CD Loan) as close as possible to the Interest Period
applicable to such Eurodollar Loans unless such declaration shall be
subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans or to CD Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans or, if
JCPenney shall so notify the Administrative Agent on the date of such
conversion and the Administrative Agent shall have determined that the
Adjusted CD Rate can be determined for the Interest Period in question,
to CD Loans as of the effective date of such notice as provided in
paragraph (b) below.
<PAGE>
25
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans or CD Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans. The parties hereto shall have the same
rights and obligations in respect of a deemed request for a CD Loan pursuant to
clause (i) above and any CD Loan made pursuant to paragraph (a) above, and the
Commitments shall be utilized by any such CD Loan, as if such CD Loan were a
Standby Loan requested and made pursuant to Section 2.04.
(b) For purposes of this Section 2.14, a notice to the Borrowers by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrowers (in which case any CD Loan resulting from the conversion of such
Eurodollar Loan pursuant to clause (ii) of paragraph (a) above shall have an
Interest Period as close as possible to the Interest Period applicable to such
Eurodollar Loan).
SECTION 2.15. Indemnity. Each Borrower agrees to indemnify the
----------
Administrative Agent and each Lender against any reasonable out-of-pocket loss
or expense which the Administrative Agent and/or such Lender may sustain or
incur as a consequence of (a) any failure by such Borrower to fulfill on the
date of any borrowing hereunder the applicable conditions set forth in Article
IV, (b) any failure by such Borrower to borrow or to refinance or continue any
Loan hereunder after irrevocable notice of such borrowing, refinancing or
continuation has been given pursuant to Section 2.03 or 2.04, (c) any payment,
prepayment or conversion of a Eurodollar Loan, CD Loan or Fixed Rate Loan made
to such Borrower that is required by any other provision of this Agreement or
otherwise made or deemed made on a date other than the last day of the Interest
Period applicable thereto or (d) any default in payment or prepayment of the
principal amount of any Eurodollar Loan, CD Loan or Fixed Rate Loan made to such
Borrower or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, whether by scheduled maturity, acceleration,
irrevocable notice of prepayment or otherwise), after the expiration of the
applicable grace period, including, in each such case, any reasonable out-of-
pocket loss or expense sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such Loan or any part
thereof as a Eurodollar Loan, CD Loan or Fixed Rate Loan. Such loss or
reasonable expense shall include an amount equal to the excess, if any, as
reasonably determined by the Administrative Agent and/or such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid, converted or not
borrowed (based on the LIBO Rate or Adjusted CD Rate or, in the case of a Fixed
Rate Loan, the fixed rate of interest applicable thereto) for the period from
the date of such payment, prepayment or failure to borrow to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the date of such
failure) over (ii) the amount of interest (as reasonably determined in good
faith by the Administrative Agent and/or such Lender) that would be realized by
the Administrative Agent and/or such Lender in reemploying the funds so paid,
prepaid or not borrowed for such period or Interest Period, as the case may be;
provided, however, that with respect to any Eurodollar Loan or CD Loan for which
- -------- -------
the corresponding LIBO Rate or Adjusted CD Rate, as the case may be, is
available for the period or Interest Period in question, the amount of interest
realized in reemploying such funds shall be computed at such LIBO Rate or
Adjusted CD Rate, as the case may be, at the time of the applicable payment,
prepayment or failure to borrow. In order to exercise its rights under this
Section, the Administrative Agent and/or a Lender shall deliver to the
appropriate Borrower a certificate
<PAGE>
26
setting forth any amount or amounts which the Administrative Agent and/or such
Lender is entitled to receive pursuant to this Section. Such Borrower shall
have a 30-Business Day period following the receipt of such certificate (if such
Borrower in good faith disagrees with the assertion that any payment under such
section is due or with the amount shown as due on such certificate and so
notifies the Administrative Agent and/or such Lender of such disagreement within
10 Business Days following receipt of such certificate) to negotiate with the
Administrative Agent and/or such Lender, which negotiations shall be conducted
by the respective parties in good faith, and to agree upon another amount that
will adequately compensate the Administrative Agent and/or such Lender, it being
expressly understood that if such Borrower does not provide the required notice
of its disagreement as provided above, such Borrower shall pay the amount shown
as due on the certificate on the tenth Business Day following receipt thereof
and further if such Borrower does provide such required notice, and negotiations
are entered into but do not result in agreement by such Borrower and the
Administrative Agent and/or such Lender within the 30-Business Day period, then
such Borrower shall pay the amount shown as due on the certificate on the last
day of such period.
SECTION 2.16. Pro Rata Treatment. Except as required under Sections
-------------------
2.14 and 2.20(b), each Standby Borrowing, each payment or prepayment of
principal of any Standby Borrowing, each payment of interest on the Standby
Loans, each payment of the Facility Fees, each reduction of the Commitments and
each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be
allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their outstanding Standby
Loans). Each payment of principal of any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective principal amounts of their outstanding
Competitive Loans comprising such Borrowing. Each payment of interest on any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective amounts of
accrued and unpaid interest on their outstanding Competitive Loans comprising
such Borrowing. For purposes of determining the available Commitments of the
Lenders at any time, each outstanding Competitive Borrowing shall be deemed to
utilize the Commitments of each of the Lenders pro rata in accordance with their
respective Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it
-------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against any Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or interest arising from, or in
lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
obtain payment (voluntary or involuntary) in respect of any Standby Loan or
Loans as a result of which the unpaid principal portion of its Standby Loans
shall be proportionately less than the unpaid principal portion of the Standby
Loans of any other Lender, it shall be deemed simultaneously to have purchased
from such other Lender at face value, and shall promptly pay to such other
Lender the purchase price for, a participation in the Standby Loans of such
other Lender, so that the aggregate unpaid principal amount of the Standby Loans
and participations in the Standby Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Standby Loans then
outstanding as the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to the principal
amount of all Standby Loans outstanding prior to such exercise of banker's lien,
setoff
<PAGE>
27
or counterclaim or other event; provided, however, that, if any such purchase or
-------- -------
purchases or adjustments shall be made pursuant to this Section 2.17 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that,
subject to Section 9.06, any Lender holding a participation in a Standby Loan
deemed to have been so purchased may exercise any and all rights of banker's
lien, setoff or counterclaim with respect to any and all moneys owing by any
Borrowers to such Lender by reason thereof as fully as if such Lender had made a
Standby Loan directly to the Borrower in the amount of such participation.
SECTION 2.18. Payments. (a) Each Borrower shall make each payment
---------
(including principal of or interest on any Borrowing or any Fees or other
amounts) required to be made by it hereunder not later than 12:00 (noon), New
York City time (11:00 a.m., New York City time, in the case of any payment to be
made to the Administrative Agent), on the date when due in dollars to the
Administrative Agent, in each case in immediately available funds.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) If any Borrower shall be required by reason
------
of any change occurring after the date of this Agreement in applicable law or
regulation or tax treaty or in the interpretation or administration thereof by
any Governmental Authority charged with the interpretation or administration
thereof (whether or not having force of law) (a "Change of Law") to deduct any
Taxes from or in respect of any sum payable by it hereunder to any Lender or to
the Administrative Agent, then except as otherwise provided in this Section 2.19
and subject to Section 2.20, (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.19) such
Lender or the Administrative Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Borrower shall make such deductions and (iii) such Borrower shall pay the
full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrowers agree, jointly and severally, to pay
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as "Other Taxes") other than any Other
Taxes imposed upon any assignment or participation of a Lender's rights,
interests and obligations hereunder; provided, however, that the amount the
-------- -------
Borrowers shall be required to pay to a particular Lender in respect of Other
Taxes shall not exceed 1% of the aggregate amount of the Loans or, if
applicable, the Commitment of such Lender on which such Other Taxes are imposed
and provided further, however, that if a Lender is actually aware of the
---------------- -------
application of any Other Tax to any such payment, execution, delivery or
registration, such Lender shall promptly notify the Borrowers of such Other Tax
and the Borrowers shall thereafter have the benefit of the provisions of Section
2.20(b).
<PAGE>
28
(c) Within 30 days after the date of any payment of Taxes withheld by
any Borrower in respect of any payment to any Lender or the Administrative
Agent, such Borrower will furnish to the Administrative Agent, at its address
referred to in Section 9.01, the original or a certified copy of a receipt
evidencing payment thereof or, if such a receipt is not available, a certificate
of the treasurer or any assistant treasurer of such Borrower setting forth the
amount of such payment and the date on which such payment was made.
(d) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(e) On the date hereof (or, in the case of an entity that becomes a
Lender after the date hereof, on the date such entity becomes a Lender) and
thereafter as required by applicable law, each Lender that is organized under
the laws of a jurisdiction outside the United States shall deliver to JCPenney
and the Administrative Agent such certificates, documents or other evidence, and
any amendments or supplements to such certificates, documents or other evidence,
as required by the Code or Treasury Regulations issued pursuant thereto,
including Internal Revenue Service Form 1001 or Form 4224 and any other
certificate or statement of exemption required by Treasury Regulation Section
1.1441-1, 1.1441-2, 1.441-4(a) or 1.1441-6(c) or any similar or successor
provision, properly completed and duly executed by such Lender (or the
Administrative Agent) establishing that payments made under this Agreement to
such Lender (or to the Administrative Agent) are (i) not subject to withholding
under the Code because such payments are effectively connected with the conduct
by such Lender (or the Administrative Agent) of a trade or business in the
United States or (ii) totally exempt from United States tax under a provision of
an applicable tax treaty. Unless JCPenney and the Administrative Agent have
received forms or other documents satisfactory to them indicating that payments
hereunder are not subject to Taxes or are subject to such Taxes at a rate
reduced by an applicable tax treaty, the appropriate Borrower shall withhold
Taxes from such payments at the applicable statutory rate in the case of
payments to or for any Lender (or to the Administrative Agent) organized under
the laws of a jurisdiction outside the United States.
(f) The Borrowers shall not be required to pay any additional amounts
to any Lender (or to the Administrative Agent) pursuant to paragraph (a) above
if the obligation to pay such additional amounts would not have arisen but for a
failure by such Lender (or the Administrative Agent) to comply with the
provisions of paragraph (e) above unless such failure results from a change
occurring after the date of this Agreement in applicable law or regulation or
tax treaty or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(whether or not having force of law).
(g) The Borrowers shall not be liable under this Section 2.19 to any
Lender or to the Administrative Agent that has changed the location of its
principal office or any of its Applicable Lending Offices after the date (the
"Relevant Date") on which it first becomes a party to this Agreement (a "Change
in Location") for any Taxes that would have not been imposed but for a Change of
Law enacted, promulgated or effective before the Relevant Date, but only to the
extent such Taxes exceed the amount the Borrowers were required to pay such
Lender or the Administrative Agent pursuant to this Section 2.19 immediately
prior to such Change in Location.
(h) If any Lender or the Administrative Agent shall become aware that
it is entitled to receive a refund in respect of Taxes indemnified and paid by
the Borrower, such
<PAGE>
29
Lender or the Administrative Agent shall promptly notify the Borrowers of the
availability of such refund and shall, within 30 days after receipt of a request
by JCPenney, apply for such refund at JCPenney's expense. If any Lender or the
Administrative Agent receives a refund in respect of any Taxes for which such
Lender or the Administrative Agent has received payment from any Borrower
hereunder, it shall within 30 days after receipt thereof repay the lesser of
such refund and the amount paid by the Borrowers with respect to such Taxes to
the appropriate Borrower, in each case net of all reasonable out-of-pocket
expenses of such Lender or the Administrative Agent and with interest received
by such Lender or the Administrative Agent from the relevant taxing authority
attributable to such refund; provided, however, that such Borrower, upon the
-------- -------
request of such Lender or the Administrative Agent, agrees to return such refund
(plus interest, penalties or other charges) to such Lender or the Administrative
Agent in the event such Lender or the Administrative Agent is required to repay
such refund to any Governmental Authority.
(i) Each Lender and the Administrative Agent severally (but not
jointly) represents and warrants to the Borrowers that, as of the date such
person becomes a party to this Agreement, payments made by the Borrowers to such
Lender or to the Administrative Agent in connection with the Agreement are
effectively connected with the conduct by such Lender or the Administrative
Agent of a trade or business in the United States.
SECTION 2.20. Mitigation; Duties of Lenders and Administrative Agent.
-------------------------------------------------------
(a) If, with respect to any Lender or the Administrative Agent, an event or
circumstance occurs that would entitle such Lender or the Administrative Agent
to exercise any of the rights or benefits afforded by Section 2.13 or 2.19(a),
such Lender or the Administrative Agent, promptly upon becoming aware of the
same, shall take all steps as may be reasonably available (including, as may be
applicable, designating a different Applicable Lending Office, making the
affected Type of Loan through an Affiliate, or furnishing the proper
certificates under any applicable tax laws, tax treaties, conventions, and
governmental regulations to the extent that such certificates are legally
available to such Lender or to the Administrative Agent) to eliminate or
mitigate the effects of any event resulting in the ability of such Lender or the
Administrative Agent to exercise rights under any of such Sections; provided,
--------
however, that, no Lender or the Administrative Agent shall be under any
- -------
obligation to take any step that, in its reasonable judgment, would (i) result
in its incurring Additional Costs or taxes in performing its obligations
hereunder unless the Borrowers have expressly agreed to reimburse it therefor or
(ii) be materially disadvantageous to such Lender or to the Administrative
Agent. Within 60 days after the occurrence of any event giving rise to any
rights or benefits provided by Sections 2.13 and 2.19(a) in favor of any Lender
or the Administrative Agent, such Lender or the Administrative Agent (i) will
notify the Borrowers of such event or circumstance and (ii) provide the
Borrowers with a certificate setting forth in reasonable detail (x) the event or
circumstance giving rise to any benefit under Sections 2.13 and 2.19(a), (y) the
effective date of, and the time period during which, compensation for any
Additional Costs or Taxes are being claimed and (z) the determination of amount
or amounts claimed thereby and detailed calculations with respect thereto;
provided, however, that if such Lender or the Administrative Agent does not give
- -------- -------
the Borrowers such notice and certificate within the 60-day period set forth in
this sentence, the Borrowers shall be required to indemnify such Lender or the
Administrative Agent only for such Additional Costs and Taxes as are
attributable to the period from and after the first date as of which such notice
and certificate have been received by the Borrowers. Such Lender or the
Administrative Agent shall notify the Borrowers of any change in circumstances
with respect to the event specified in the above-described notice and
certificate as promptly as practicable after such Lender or the Administrative
Agent obtains knowledge thereof. Such certificate shall be
<PAGE>
30
conclusive absent manifest error. Notwithstanding the foregoing, no Lender or
Administrative Agent shall deliver the notice and certificate described in this
paragraph (a) to the Borrowers in respect of any Additional Costs or Taxes
unless it is then the general policy of such Lender or the Administrative Agent
to pursue similar rights and remedies in similar circumstances under comparable
provisions of other credit agreements.
(b) With respect to Sections 2.13 and 2.19, the Borrowers shall have
the right, should any Lender request any compensation or indemnity thereunder,
to (i) unless an Event of Default shall have occurred and be continuing, (A)
promptly terminate such Lender's Commitment by irrevocable written notice of
such termination to such Lender and the Administrative Agent without the
necessity of complying with Sections 2.11(b) and (c) hereof, (B) reduce the
Total Commitments by the amount of such Lender's Commitment, and (C) pay or
prepay in immediately available funds all Loans made by such Lender hereunder,
together with accrued and unpaid interest thereon and all other amounts owed to
such Lender hereunder, including under Section 2.15 in connection with any such
prepayment or (ii) require such Lender to assign its Commitment and Loans,
without recourse to or representation or warranty by such Lender, to another
Lender or assignee acceptable to the Borrowers and with the consent of the
Administrative Agent, which consent shall not be unreasonably withheld;
provided, however, that (x) such assignment shall not conflict with any statute,
- -------- -------
law, rule, regulation, order or decree of any Governmental Authority and (y) the
assigning Lender shall have received from the Borrowers and/or such assignee
full payment in immediately available funds of the principal of and interest
accrued to the date of such payment on the Loans made by it hereunder to the
extent that such Loans are subject to such assignment and all other amounts owed
to it hereunder. The Borrowers shall have the right, should the Administrative
Agent request any compensation or indemnity under such Sections, to require the
Administrative Agent to assign its rights and obligations hereunder to a
successor Administrative Agent with the consent of the Required Lenders, which
consent shall not be unreasonably withheld.
(c) With respect to Sections 2.13 or 2.19 (i) other than with respect
to Section 2.19(b), no Lender or Administrative Agent shall be entitled to
exercise any right or benefit afforded thereby and no Borrower shall be
obligated to reimburse any Lender or the Administrative Agent pursuant to such
Sections unless (x) such Lender or the Administrative Agent has delivered to the
Borrowers in accordance with Section 9.01 the notice and the certificate
described in Section 2.20(a) hereof and (y) the affected Borrower has had a 30-
Business Day period following the receipt of such notice and certificate (if
such Borrower in good faith disagrees with the assertion that any payment under
such Sections is due or with the amount shown as due on such certificate and so
notifies the Lender or the Administrative Agent of such disagreement within 10
Business Days following receipt of the notice and certificate) to negotiate with
the requesting Lender or the Administrative Agent, which negotiations shall be
conducted by the respective parties in good faith, and to agree upon another
amount that will adequately compensate such Lender or the Administrative Agent,
it being expressly understood that if such Borrower does not provide the
required notice of its disagreement as provided above, such Borrower shall pay
the amount shown as due on the certificate on the tenth Business Day following
receipt thereof and further if such Borrower does provide such required notice,
and negotiations are entered into but do not result in agreement by such
Borrower and such Lender or the Administrative Agent within the 30-Business Day
period, then such Borrower shall pay the amount shown as due on the certificate
on the last day of such period, but in either event not earlier than the date as
of which the relevant Additional Costs or Taxes are incurred, (ii) other than
with respect to Other Taxes, unless the appropriate notice and certificate are
delivered to the Borrowers within the 60-day period described in Section
2.20(a), the Borrowers
<PAGE>
31
shall be liable only for Additional Costs, Taxes or amounts required to be paid
which are attributable to the period from and after the date such notice and
certificate have been received by the Borrowers, (iii) the Borrowers' liability
for any amounts incurred as a result of any change in Applicable Lending Office
shall be limited as set forth in Section 2.02(e), (iv) in no event shall the
Borrowers be liable for any taxes (other than Other Taxes) that would not have
been imposed but for a connection between such Lender or the Administrative
Agent (other than by reason of the activities contemplated by this Agreement)
and the relevant taxing jurisdiction, (v) each Lender or the Administrative
Agent shall in good faith allocate all Additional Costs, Taxes, and payments
required to be made fairly among all its commitments and credit extensions
(whether or not it seeks compensation from all affected borrowers), (vi) no
Lender or Administrative Agent shall be entitled to exercise any right or
benefit afforded hereby or receive any payment otherwise due under Sections 2.13
or 2.19 (including without limitation, any repayment by a Borrower of any refund
of Taxes pursuant to Section 2.19(h)) which arises from any gross negligence,
fraud or wilful misconduct of any Lender or the Administrative Agent, or the
failure of such Lender or the Administrative Agent to comply with the terms of
this Agreement, (vii) if a Lender or the Administrative Agent shall have
recouped any amount or received any offsetting tax benefit (other than a refund
of Taxes as described in Section 2.19(h)) or reserve or capital benefits
theretofore paid to it by such Borrower, such Lender or the Administrative Agent
shall promptly pay to such Borrower an amount equal to the amount of the
recoupment received by such Lender or the Administrative Agent reduced by any
reasonable out-of-pocket expenses of such Lender or the Administrative Agent
attributable to such recoupment, as determined in good faith by such Lender or
the Administrative Agent, and (viii) the liability of either Borrower to any
Lender or the Administrative Agent with respect to any taxes shall be reduced to
the extent that such Lender or the Administrative Agent receives an offsetting
tax benefit (or could have received such a benefit by taking reasonable measures
to receive it); provided, however, that there shall not be any reductions
-------- -------
pursuant to this clause (viii) with respect to any tax benefit (x) the existence
of which such Lender or the Administrative Agent is unaware, (y) the claiming of
which would result in any cost or tax to such Lender or the Administrative Agent
(unless such Borrower shall have agreed to pay its reasonably allocable portion
of such cost or tax) and (z) unless such Borrower shall agree to indemnify the
Lender or the Administrative Agent to the extent any tax benefit taken into
account under this clause (viii) is thereafter lost or becomes unavailable.
(d) In addition to their obligations under Section 2.19 hereof, each
of the Lenders and the Administrative Agent hereby agrees to execute and
deliver, and to make any required filings of, all certificates, agreements,
documents, reports, statements and other instruments as are reasonably necessary
to effectuate the purposes of this Section 2.20 and Sections 2.13 and 2.19. The
Borrowers agree, jointly and severally, to pay all filing fees incurred by any
Lender or the Administrative Agent in performing its obligations under this
Section 2.20.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrowers and the
---------------------
Restricted Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be
<PAGE>
32
conducted, (c) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Effect, and (d) in the case of each Borrower, has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each other agreement or instrument
contemplated hereby to which it is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The Transactions (a) have been duly
--------------
authorized by all requisite corporate and, if required, stockholder action and
(b) will not (i) violate (A) any applicable provision of law, statute, material
rule or material regulation, or of the certificate or articles of incorporation
or other constitutive documents or by-laws of JCPenney, Funding or any
Restricted Subsidiary, (B) any applicable material order of any Governmental
Authority or (C) any material provision of any indenture, agreement or other
instrument to which JCPenney, Funding or any Restricted Subsidiary is a party or
by which any of them or any of their property is or may be bound, (ii) be in
conflict with, result in a breach of or constitute (alone or with notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, in each case in any material respect, or (iii) result in the
creation or imposition of any Lien upon or with respect to any property or
assets now owned or hereafter acquired by JCPenney, Funding or any Restricted
Subsidiary.
SECTION 3.03. Enforceability. This Agreement has been duly executed
---------------
and delivered by each Borrower and constitutes a legal, valid and binding
obligation of such Borrower enforceable against such Borrower in accordance with
its terms, except as enforceability may be limited by (a) any applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws relating to or affecting creditors' rights generally and (b)
general principles of equity.
SECTION 3.04. Governmental Approvals. No action, consent or approval
-----------------------
of, registration or filing with, or any other action by, any Governmental
Authority is or will be required in connection with the Transactions, except (a)
such as have been made or obtained and are in full force and effect or as to
which the failure to be made or obtained and in full force and effect would not
result in a Material Adverse Effect and (b) such periodic and current reports,
if any, as (i) are required to disclose the Transactions and (ii) will be filed
with the SEC on a timely basis.
SECTION 3.05. Financial Statements. Each of JCPenney and Funding has
---------------------
heretofore furnished to the Lenders its consolidated balance sheets and related
consolidated statements of income and cash flows (a) as of and for the fiscal
year ended January 27, 1996, audited by and accompanied by the opinion of KPMG
Peat Marwick L.L.P., independent public accountants, and (b) as of and for the
fiscal quarter and the portion of the fiscal year ended July 27, 1996, as filed
by JCPenney or Funding, as the case may be, with the SEC on Form 10-Q in respect
of such fiscal quarter. Such financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its Subsidiaries,
or of Funding and its Subsidiaries, as the case may be, in accordance with GAAP,
subject, in the case of the financial statements referred to in clause (b)
above, to normal year-end audit adjustments.
SECTION 3.06. No Material Adverse Change. Except as set forth on
---------------------------
Schedule 3.06, as of the date hereof, there has been no material adverse change
in the business, assets, operations or financial condition of JCPenney, Funding
or JCPenney and the Restricted Subsidiaries taken as a whole since January 27,
1996.
<PAGE>
33
SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each
---------------------------------------------
of the Borrowers and the Restricted Subsidiaries has good and marketable title
to all its Principal Properties, except for minor defects in title and other
restrictions that do not interfere with its ability to conduct its business as
currently conducted or to utilize such Principal Properties for their intended
purposes. All the Principal Properties are free and clear of Liens, other than
Liens expressly permitted by Section 6.01.
(b) Each of the Borrowers and the Restricted Subsidiaries has valid
leasehold interests in all the material properties that it purports to hold
under lease, except for restrictions that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes. Each of the Borrowers and the Restricted Subsidiaries
has complied with all material obligations under all material leases to which it
is a party and all such leases are in full force and effect, except in each case
for provisions of such leases that are being contested in good faith in the
ordinary course of the Borrower's business. Each of the Borrowers and the
Restricted Subsidiaries enjoys peaceful and undisturbed possession under all
such material leases.
SECTION 3.08. Restricted Subsidiaries. Schedule 3.08 sets forth as of
------------------------
the date hereof a list of all the Restricted Subsidiaries and the percentage
ownership interest of JCPenney therein. JCPenney owns, free and clear of all
Liens, all the issued and outstanding shares of the capital stock of Funding,
and all such outstanding shares are validly issued, fully paid and
nonassessable.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set
---------------------------------
forth in Schedule 3.09 or as subsequently disclosed in writing to the Lenders,
there are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority now pending or, to the knowledge of any
Borrower, threatened against or affecting JCPenney or Funding or any Restricted
Subsidiary or any business, property or rights of any such person (i) which
involve this Agreement or the borrowings hereunder or (ii) as to which there is
a reasonable possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would result in a Material Adverse Effect.
SECTION 3.10. Agreements. (a) None of the Borrowers or the
-----------
Restricted Subsidiaries is a party to any agreement or instrument or subject to
any corporate restriction that has resulted or would result in a Material
Adverse Effect.
(b) None of the Borrowers or the Restricted Subsidiaries is in default
in any manner under any provision of any indenture or other agreement or
instrument evidencing indebtedness for money borrowed, or any other material
agreement or instrument to which it is a party or by which it or any of its
material properties or material assets are bound, where such default would
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) None of the Borrowers
----------------------------
or the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
<PAGE>
34
(b) No part of the proceeds of any Loan will be used, whether directly
or indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, in each case in violation of the applicable
requirements of the Regulations of the Board (including Regulation G, U or X),
or (ii) for any other purpose which entails a violation of, or which is
inconsistent with, the provisions of the Regulations of the Board (including
Regulation G, U or X).
SECTION 3.12. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. None of the Borrowers is (a) an "investment company" as defined in, or
- ----
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds of
----------------
the Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrowers and the Restricted
------------
Subsidiaries has filed or caused to be filed all Federal, state and local tax
returns required to have been filed by it and has paid or caused to be paid all
taxes shown to be due and payable on such returns or on any assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the appropriate Borrower or Restricted Subsidiary
shall have set aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. No information, report,
--------------------------
financial statement, exhibit or schedule furnished by or on behalf of any
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or included herein or delivered pursuant hereto
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading.
SECTION 3.16. Employee Benefit Plans. During the immediately
----------------------
preceding six-year period with respect to the Plans, there were no: (a)
violations known to the Borrowers of ERISA, or (b) Reportable Events (other than
a Reportable Event for which the PBGC has waived the 30-day notice requirement
of Section 4043(a) of ERISA), that would, individually or in the aggregate,
result in a Material Adverse Effect. The present value of all benefit
liabilities under each Plan (based on the assumptions used to fund such Plan)
does not exceed the value of the assets of such Plan. None of the Borrowers or
the ERISA Affiliates has made contributions to any Multiemployer Plan within the
past five years, and such contributions are not now being made or expected to be
required.
SECTION 3.17. Support Agreements. The Support Agreements have been
-------------------
duly executed and delivered by JCPenney and, where applicable, Funding and, as
of the date hereof, are in full force and effect in accordance with their terms.
A complete and correct copy of each Support Agreement as in effect on the date
hereof has previously been furnished to each Lender and to the Administrative
Agent.
<PAGE>
35
ARTICLE IV. CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are subject to
the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. Subject to the provisions of the last
---------------
sentence of this Section 4.01, on the date of each Borrowing:
(a) The Administrative Agent shall have received such notice of
such Borrowing as is required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in Article III
hereof (except, in the case of all Borrowings hereunder, the
representation set forth in Section 3.06) shall be true and correct in
all material respects on and as of the date of such Borrowing with the
same effect as though made on and as of such date, except to the extent
such representations and warranties expressly relate to an earlier
date.
(c) At the time of and immediately after such Borrowing, no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing (other than any new Borrowing described in the last sentence of
this Section 4.01) shall be deemed to constitute a representation and warranty
by the Borrowers on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01. Notwithstanding the other
provisions of this Section 4.01, the refinancing of any Borrowing with a new
Borrowing that does not increase the outstanding aggregate principal amount of
the Loans of any Lender shall not be subject to the satisfaction of any of the
foregoing conditions.
SECTION 4.02. First Borrowing. The obligation of each Lender to make
----------------
its initial Loan is subject to the satisfaction of the following conditions:
(a) The Administrative Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of each
Borrower and each Lender and (ii) the subordinated Guaranty of
JCPenney, substantially in the form of Exhibit B, executed and
delivered by a duly authorized officer of JCPenney.
(b) The Administrative Agent shall have received a Closing
Certificate of each Borrower, substantially in the form of Exhibit C,
with appropriate insertions and attachments.
(c) Acquisition Co. shall have acquired at least 50.1% of the
outstanding common stock of Eckerd in accordance with the Tender Offer
Materials concurrently with the making of the initial Loans. The
Tender Offer Materials shall not have been waived, amended,
supplemented or otherwise modified in any material respect (other than
to the extent necessary to extend the expiration date of the Tender
Offer) without the prior written consent of the Required Lenders.
<PAGE>
36
(d) All governmental and third party approvals (including
approvals under the Hart-Scott-Rodino Antitrust Improvements Act of
1976) the absence of which would have a Material Adverse Effect shall
have been obtained and be in full force and effect, and all applicable
waiting periods shall have expired without any action being taken by
any competent authority which has restrained, prevented or otherwise
imposed materially adverse conditions on the Transactions.
(e) The Lenders shall have received the upfront fees previously
agreed by the Borrowers to be paid to the Lenders.
(f) The Administrative Agent shall have received an executed
opinion of counsel to the Borrowers, dated the date hereof,
substantially in the form of Exhibit D.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrowers covenant and agree with each Lender that, so long as this
Agreement shall remain in effect or the principal of or interest on any Loan,
any Fees or any other expenses or amounts payable under this Agreement shall be
unpaid, unless the Required Lenders shall otherwise consent in writing, each of
the Borrowers will, and will cause each of the Restricted Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause
-------------------------------------
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as would not cause a Default under Section
6.04 or otherwise cause an Event of Default under this Agreement.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations and orders
of any Governmental Authority, whether now in effect or hereafter enacted;
except in each case where the failure to do so would not result in a Material
Adverse Effect; and at all times maintain and preserve all property material to
the conduct of its business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this
-------- -------
paragraph (b) shall prevent any Borrower or Restricted Subsidiary from
discontinuing the operation and maintenance of any of its properties no longer
deemed useful in the conduct of its business.
SECTION 5.02. Insurance. Maintain insurance and/or self insurance
----------
programs in force that adequately protect the Principal Properties and the
public liability exposures of the Borrowers, as may be required by law, and as
is customary with companies in the same or similar businesses or of the same
general financial net worth.
<PAGE>
37
SECTION 5.03. Obligations and Taxes. Pay and discharge promptly when
----------------------
due all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its properties, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any material part thereof; provided, however, that such
-------- -------
payment and discharge shall not be required with respect to any such tax,
assessment, charge, levy or claim so long as (a) the validity or amount thereof
shall be contested in good faith by appropriate proceedings and (b) the
applicable Borrower has made appropriate reserves therefor as required by GAAP.
SECTION 5.04. Financial Statements, Reports, etc. In the case of the
-----------------------------------
Borrowers, furnish to the Administrative Agent (with sufficient copies for each
Lender) for distribution to the Lenders:
(a) as soon as available and in any event within 120 days after
the end of each fiscal year, a copy of the reports filed by each of
JCPenney and Funding with the SEC on Form 10-K in respect of such
fiscal year, accompanied by JCPenney's annual report in respect of such
fiscal year or, if either of JCPenney or Funding is not required to
file such a report in respect of such fiscal year, the consolidated
balance sheets and related consolidated statements of income and cash
flows of JCPenney and its Subsidiaries, or of Funding and its
Subsidiaries, as the case may be, as of the close of such fiscal year,
all audited by KPMG Peat Marwick L.L.P., or other independent public
accountants of recognized national standing and accompanied by an
opinion of such accountants (which shall be in scope and substance
reasonably satisfactory to the Required Lenders) to the effect that
such consolidated financial statements fairly present the financial
position, results of operations and cash flows of JCPenney and its
Subsidiaries or of Funding and its Subsidiaries, as the case may be, in
accordance with GAAP;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarterly periods of each fiscal
year, a copy of the quarterly reports filed by each of JCPenney and
Funding with the SEC on Form 10-Q in respect of such quarterly period,
or if either of JCPenney or Funding is not required to file such a
report in respect of such quarterly period, the consolidated balance
sheets and related consolidated statements of income and cash flows of
JCPenney and its Subsidiaries, or of Funding and its Subsidiaries, as
the case may be, as of the close of such fiscal quarter, certified by
its chief financial officer, treasurer or controller as fairly
presenting the financial position, results of operations and cash flows
of JCPenney and its Subsidiaries or of Funding and its Subsidiaries, as
the case may be, in accordance with GAAP, subject to normal year-end
audit adjustments;
(c) concurrently with any delivery of financial statements by
JCPenney or Funding under (a) above (whether contained in a report
filed with the SEC or otherwise), a certificate of its chief financial
officer, president, treasurer or controller (i) stating that no Event
of Default or Default has occurred or, if such an Event of Default or
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto
and (ii) with respect to JCPenney, setting forth computations in
<PAGE>
38
reasonable detail demonstrating compliance with the covenant contained
in Section 6.02;
(d) promptly after the same become publicly available, copies of
all documents and reports that any Borrower may be required to file
with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, or with any Governmental Authority succeeding
to any of or all the functions of the SEC;
(e) promptly after the execution and delivery thereof by the
parties thereto, copies of all agreements and other instruments that
have the effect of amending, modifying or waiving any provision of a
Support Agreement; and
(f) promptly, from time to time, such other documents and
information regarding the operations, business affairs and financial
condition of any Borrower or Restricted Subsidiary, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the
-----------------------------
Administrative Agent prompt written notice of the following promptly after
becoming aware thereof:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against any Borrower or Restricted Subsidiary
which, if adversely determined, would result in a Material Adverse
Effect; and
(c) any development that has resulted in, or would result in, a
Material Adverse Effect.
SECTION 5.06. ERISA. (a) Comply in all material respects with the
------
applicable provisions of ERISA and (b) furnish to the Administrative Agent and
each Lender (i) as soon as possible, and in any event within 30 days after any
Responsible Officer of any Borrower or ERISA Affiliate either knows or has
reason to know that any Reportable Event has occurred that alone or together
with any other Reportable Events could reasonably be expected to result in
liability of the Borrowers and/or the Restricted Subsidiaries to the PBGC in an
aggregate amount exceeding $200,000,000, a statement of a Responsible Officer of
JCPenney setting forth details as to such Reportable Event and the action
proposed to be taken with respect thereto, together with a copy of the notice,
if any, of such Reportable Event given to the PBGC, (ii) promptly after receipt
thereof, a copy of any notice that any Borrower or ERISA Affiliate receives from
the PBGC relating to the intention of the PBGC to terminate any Plan or Plans
(other than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or
to appoint a trustee to administer any Plan or Plans and (iii) within 10 days
after the due date for filing with the PBGC pursuant to Section 412(n) of the
Code of a notice of failure to make a required installment or other payment with
respect to a Plan, a statement of a Responsible Officer of JCPenney setting
<PAGE>
39
forth details as to such failure and the action proposed to be taken with
respect thereto, together with a copy of such notice given to the PBGC. Any
failure to comply with applicable provisions of ERISA shall not be deemed to be
material, unless such failure or failures would result in a Material Adverse
Effect.
SECTION 5.07. Maintaining Records; Access to Properties and
---------------------------------------------
Inspections. Maintain all financial records in accordance with GAAP and permit
- ------------
any representatives designated by any Lender to (a) visit and inspect the
financial records and the Principal Properties of any Borrower or Restricted
Subsidiary during business hours upon reasonable notice, (b) make extracts from
and copies of such financial records, (c) discuss the affairs, finances and
condition of any Borrower or Restricted Subsidiary with the chief financial
officer, treasurer or any assistant treasurer of any Borrower or Restricted
Subsidiary and (d) discuss the affairs, finances and condition of any Borrower
or Restricted Subsidiary with such person's independent accountants in the
presence of any of the chief financial officer, treasurer or any assistant
treasurer of such person. No such inspection, discussion or other right granted
under this Section 5.07 and exercised by any Lender shall disrupt the normal and
ordinary conduct of business of any Borrower or Restricted Subsidiary, and all
costs and expenses incurred in connection therewith, shall, prior to the
occurrence and continuance of an Event of Default, be borne by the Lender
exercising such right.
SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans only for
----------------
the purposes set forth in the preamble to this Agreement.
SECTION 5.09. Pari Passu. Ensure that (a) the payment obligations of
-----------
any Borrower under this Agreement will at all times rank at least equally and
ratably in all respects with the claims of any other unsecured creditor of such
Borrower and (b) the proceeds of any Loan made to Funding will be used for the
purpose of making either (i) Investments of the type referred to in clause (v)
of Section 6.06(c) or (ii) loans to JCPenney constituting senior unsecured
indebtedness of JCPenney, and not for any other purpose.
SECTION 5.10. Support Agreements. Ensure that (a) each Support
-------------------
Agreement remains in full force and effect in accordance with its terms and (b)
no amendment or modification is made to any Support Agreement or any of the
terms thereof, and no waiver is given or agreed to be given by or on behalf of
Funding with respect to any of its rights under any Support Agreement, which
would have a Material Adverse Effect.
ARTICLE VI. NEGATIVE COVENANTS
Each Borrower covenants and agrees with each Lender and the
Administrative Agent, so long as this Agreement shall remain in effect or the
principal of or interest on any Loan, any Fees or any other expenses or amounts
payable under this Agreement shall be unpaid, unless the Required Lenders shall
otherwise consent in writing, as follows:
SECTION 6.01. Limitation on Liens--JCPenney. JCPenney will not, and
------------------------------
will not permit any Restricted Subsidiary to, issue, assume or guarantee any
notes, bonds, debentures or other similar evidences of indebtedness for money
borrowed (referred to in this Section 6.01 as "indebtedness") secured by any
Lien upon any Principal Property, or shares of capital stock (other than
Unrestricted Margin Stock) or evidences of indebtedness for money borrowed
issued by any Restricted Subsidiary and owned by JCPenney or any Restricted
Subsidiary, whether
<PAGE>
40
owned on the date hereof or thereafter acquired, without making effective
provision whereby the Loans made to JCPenney are secured by such Lien equally
and ratably with any and all other indebtedness thereby secured, so long as such
indebtedness shall be so secured; provided, however, that the foregoing
-------- -------
restriction shall not apply to indebtedness secured by any of the following:
(i) Liens on any property existing at the time of acquisition
thereof by JCPenney or any Restricted Subsidiary;
(ii) Liens on property of a corporation existing at the time
such corporation is merged into or consolidated with JCPenney or any
Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of such corporation (or a division
thereof) as an entirety or substantially as an entirety to JCPenney or
any Restricted Subsidiary, provided that such Lien as a result of such
--------
merger, consolidation, sale, lease or other disposition is not extended
to property owned by JCPenney or such Restricted Subsidiary immediately
prior thereto;
(iii) Liens on property of a corporation existing at the time
such corporation first becomes a Restricted Subsidiary;
(iv) Liens securing indebtedness of a Restricted Subsidiary to
JCPenney or to another Restricted Subsidiary;
(v) Liens on property to secure all or part of the cost of
acquiring, substantially repairing or altering, constructing,
developing or substantially improving such property, or to secure
indebtedness incurred to provide funds for any such purpose or for
reimbursement of funds previously expended for any such purpose,
provided that the commitment of the creditor to extend the credit
secured by any such Lien shall have been obtained not later than twelve
months after the later of (a) the completion of the acquisition,
substantial repair or alteration, construction, development or
substantial improvement of such property or (b) the placing in
operation of such property or of such property as so substantially
repaired or altered, constructed, developed or substantially improved;
(vi) Liens securing indebtedness payable on demand or not more
than one year after the date as of which the determination is made
(excluding any indebtedness renewable or extendable at the option of
the debtor for a period or periods ending more than one year after the
date as of which such determination is made), which indebtedness in
accordance with GAAP would be included among current liabilities;
(vii) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses (i) through (vi), inclusive;
provided, however, that the principal amount of indebtedness secured
-------- -------
thereby and not otherwise authorized by said clauses (i) through (vi),
inclusive, shall not exceed the principal amount of indebtedness, plus
any premium or fee payable in connection with any such
<PAGE>
41
extension, renewal or replacement, so secured at the time of such
extension, renewal or replacement;
(viii) Liens arising under workmen's compensation laws,
unemployment insurance laws and old age pensions or other social
security benefits or other similar laws;
(ix) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of
business;
(x) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(xi) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(xii) Liens incidental to the normal conduct of the business of
JCPenney and its Restricted Subsidiaries or the ownership of their
property and not securing Funded Indebtedness (including zoning
restrictions, easements, licenses, reservations, restrictions on the
use of real property or minor irregularities incident thereto and with
respect to leasehold interests, Liens that are incurred, created,
assumed or permitted to exist and arise by, through or under or are
asserted by a landlord or owner of the leased property, with or without
consent of the lessee) which do not in the aggregate materially impair
the value or use of the property used in the business of JCPenney and
its Restricted Subsidiaries taken as a whole, or the use of such
property for the purpose for which such property is held;
(xiii) Liens arising from capitalized lease obligations, such
Liens not to extend to any other property of JCPenney;
(xiv) Liens in respect of litigation or other similar
proceedings in an amount not to exceed $500,000,000 on an aggregate
basis (i) the validity of which is being currently contested on a
timely basis in good faith by appropriate proceedings (provided that
the enforcement of any Liens arising out of such proceedings shall be
stayed during such proceedings) and (ii) for which adequate reserves
shall have been established;
(xv) Liens in respect of leases or subleases granted to other
persons in the ordinary course of business and not materially
interfering with the conduct of business of JCPenney and its Restricted
Subsidiaries;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into
by JCPenney or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of JCPenney
and its Restricted Subsidiaries; or
<PAGE>
42
(xvii) Liens in favor of customs and revenue authorities arising
as a matter of law securing payment of customs duties in connection
with the importation of goods.
Notwithstanding the provisions of the immediately preceding sentence,
JCPenney or any Restricted Subsidiary may issue, assume or guarantee
indebtedness secured by Liens which would otherwise be subject to the
restrictions of this Section in an aggregate amount which, together with all
attributable debt (as defined in Section 5.09(b) of the Indenture) outstanding
pursuant to Section 5.09(b) of the Indenture, all Senior Funded Indebtedness
outstanding pursuant to the second sentence of Section 6.03(a), the capitalized
amount of all capitalized leases referred to in Section 6.05(j), and all
indebtedness outstanding pursuant to this sentence, does not exceed 5% of
Stockholders' Equity.
SECTION 6.02. Limitations on Senior Funded Indebtedness. JCPenney
------------------------------------------
will not, and will not permit any Restricted Subsidiary to, issue, assume or
guarantee any Senior Funded Indebtedness (otherwise than in connection with any
renewal, extension or refunding of Senior Funded Indebtedness which does not,
except for any premium or fee payable in connection with such renewal, extension
or refunding, increase the unpaid principal amount of Senior Funded Indebtedness
outstanding), or sell, transfer or otherwise dispose of any Senior Funded
Indebtedness of a Restricted Subsidiary, unless, after giving effect thereto and
to the retirement of any Senior Funded Indebtedness to be retired substantially
concurrently therewith, Net Tangible Assets shall be at least 200% of Senior
Funded Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items).
SECTION 6.03. Limitations with Respect to Restricted Subsidiaries.
----------------------------------------------------
(a) JCPenney will not permit any Restricted Subsidiary to issue, assume or
guarantee any Senior Funded Indebtedness; provided, however, that the foregoing
-------- -------
restriction shall not apply to any of the following:
(i) Senior Funded Indebtedness secured by a Lien permitted under
the first sentence of Section 6.01;
(ii) Senior Funded Indebtedness of a corporation existing at the
time such corporation is merged into or consolidated with a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) as an entirety
or substantially as an entirety to a Restricted Subsidiary;
(iii) Senior Funded Indebtedness of a corporation existing at
the time such corporation first becomes a Restricted Subsidiary:
(iv) Senior Funded Indebtedness of a Restricted Subsidiary to or
held by JCPenney or another Restricted Subsidiary; or
(v) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any
Senior Funded Indebtedness referred to in the foregoing clauses (i)
through (iv), inclusive; provided, however, that the principal amount
-------- -------
or the aggregate preference on involuntary liquidation, as the case may
be, of Senior Funded Indebtedness issued pursuant to such extension,
renewal or replacement and not otherwise
<PAGE>
43
authorized by said clauses (i) through (iv), inclusive, shall not
exceed the principal amount or the aggregate preference on involuntary
liquidation, as the case may be, of the Senior Funded Indebtedness so
extended, renewed or replaced, plus any premium or fee payable in
connection with any such extension, renewal or replacement.
Notwithstanding the provisions of the immediately preceding sentence,
any Restricted Subsidiary may issue, assume or guarantee Senior Funded
Indebtedness which would otherwise be subject to the restrictions of this
Section 6.03(a) in an aggregate amount which, together with all indebtedness
outstanding pursuant to the second sentence of Section 6.01, all attributable
debt (as defined in Section 5.09(b) of the Indenture) outstanding pursuant to
Section 5.09(b) of the Indenture and all Senior Funded Indebtedness of the
Restricted Subsidiaries outstanding pursuant to this sentence, does not exceed
5% of Stockholders' Equity.
(b) JCPenney will not, and will not permit any Restricted Subsidiary
to, (i) sell or transfer (except to JCPenney or a Restricted Subsidiary) any
Senior Funded Indebtedness of a Restricted Subsidiary, except Senior Funded
Indebtedness secured by a Lien permitted under the provisions of the first
sentence of Section 6.01 and except to carry out a transaction permitted by
Section 6.03(c) or (ii) sell or transfer (except, in each case, to the extent,
if any, required to qualify directors of a Restricted Subsidiary under
applicable law or to permit any person to maintain his proportionate interest in
a Restricted Subsidiary or except to effect dissolution of any such Restricted
Subsidiary or to carry out a transaction permitted by Section 6.03(c) or except
to JCPenney or a Restricted Subsidiary) any shares of common stock of a
Restricted Subsidiary, unless all the common stock of such Restricted Subsidiary
at the time owned by JCPenney and the Restricted Subsidiaries shall be sold or
transferred at the same time and unless thereafter Net Tangible Assets shall be
at least 200% of Senior Funded Indebtedness of JCPenney and the Restricted
Subsidiaries (eliminating intercompany items); provided that JCPenney and the
--------
Restricted Subsidiaries will be permitted to sell, transfer and otherwise
dispose of Unrestricted Margin Stock without regard to the foregoing
restrictions.
(c) JCPenney will not permit any Restricted Subsidiary to sell or
otherwise dispose of its assets substantially as an entirety or consolidate with
or merge into any other corporation, unless the corporation to which such assets
shall be sold or otherwise disposed of or which shall be formed by or result
from such consolidation or merger shall be JCPenney or any Restricted Subsidiary
or unless thereafter Net Tangible Assets shall be at least 200% of Senior Funded
Indebtedness of JCPenney and the Restricted Subsidiaries (eliminating
intercompany items); provided that JCPenney and the Restricted Subsidiaries will
--------
be permitted to sell, transfer and otherwise dispose of Unrestricted Margin
Stock without regard to the foregoing restrictions.
SECTION 6.04. Mergers, Consolidations, Sales of Assets and
--------------------------------------------
Acquisitions. (a) JCPenney shall not consolidate with or merge into any other
- -------------
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, unless:
(i) the corporation formed by such consolidation or into which
JCPenney is merged or the person which acquires by conveyance or
transfer the properties and assets of JCPenney substantially as an
entirety shall be a corporation organized and existing under the laws
of the United States of America or any State or the District of
Columbia, and shall expressly assume, by an instrument in writing
(delivered to the Lenders) the due and punctual payment of the
principal and interest, if any, on all the Loans and all other amounts
<PAGE>
44
payable by JCPenney under this Agreement and all the rights, interests
and other obligations of JCPenney under this Agreement;
(ii) immediately after giving effect to such transaction, (x)
the representations and warranties set forth in Article III shall be
true and correct in all material respects on the date of such
transaction with the same effect as if made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date and (y) no Event of Default or Default shall
have occurred and be continuing; and
(iii) JCPenney shall have delivered an Officer's Certificate
stating that such consolidation, merger, conveyance or transfer and
such written instrument comply with this Section 6.04(a);
provided that JCPenney and the Subsidiaries will be permitted to sell, transfer
--------
and otherwise dispose of Unrestricted Margin Stock without regard to the
foregoing restrictions.
(b) Funding shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any person, except that Funding may merge into JCPenney or a direct
or indirect wholly-owned Subsidiary of JCPenney subject to the satisfaction of
the following conditions:
(i) the corporation formed by such consolidation or into which
Funding is merged or the person which acquires by conveyance or
transfer the properties and assets of Funding substantially as an
entirety shall expressly assume, by an instrument in writing (delivered
to the Lenders) the due and punctual payment of the principal and
interest, if any, on all the Loans and all other amounts payable by
Funding under this Agreement and all the rights, interests and other
obligations of Funding under this Agreement;
(ii) immediately after giving effect to such transaction, (x)
the representations and warranties set forth in Article III shall be
true and correct in all material respects on the date of such
transaction with the same effect as if made on and as of such date,
except to the extent such representations and warranties expressly
relate to an earlier date and (y) no Event of Default or Default shall
have occurred and be continuing; and
(iii) Funding shall have delivered an Officer's Certificate
stating that such consolidation, merger, conveyance or transfer and
such written instrument comply with this Section 6.04(b).
SECTION 6.05. Limitations on Liens--Funding. Funding will not, and
------------------------------
will not permit any of its Subsidiaries to, create or assume any Lien upon any
of the property of Funding or any such Subsidiary, whether now owned or
hereafter acquired, in connection with the borrowing of money or the acquisition
or construction of property; provided, however, that nothing in this Section
-------- -------
6.05 shall prevent or be deemed to prohibit:
(a) Funding or any of its Subsidiaries from acquiring property
subject to a Lien existing thereon at the time of acquisition, and
assuming the same, or from creating a Lien on property being
constructed or acquired to secure a
<PAGE>
45
portion of the cost or purchase price thereof, provided, however, that
-------- -------
(i) any such Lien shall cover solely fixed assets or other physical
properties and (ii) such property is not or shall not thereby become
encumbered in an amount in excess of two-thirds of the lesser of the
cost and fair value thereof (as determined in good faith by the board
of directors of Funding);
(b) any Subsidiary of Funding from creating a Lien upon all or
any part of its property in favor of Funding or a wholly-owned
Subsidiary of Funding to secure indebtedness owed by such Subsidiary to
Funding or a wholly-owned Subsidiary;
(c) Liens existing on all or any part of the assets of a
Subsidiary of Funding at the time it shall become such a Subsidiary;
(d) Funding or any of its Subsidiaries from extending, renewing
or refunding any Lien permitted by the foregoing provisions of this
Section 6.05 upon the same property theretofore subject thereto in
connection with the extension, renewal or refunding of the indebtedness
secured thereby;
(e) Liens arising under workmen's compensation laws,
unemployment insurance laws and old age pensions or other social
security benefits or other similar laws;
(f) Liens securing the performance of bids, tenders, leases,
contracts, statutory obligations, surety and appeal bonds, and other
obligations of like nature, incurred in the ordinary course of
business;
(g) Liens imposed by law, such as carriers', warehouseman's,
mechanics', materialmen's and vendors' liens, incurred in good faith in
the ordinary course of business with respect to obligations not then
delinquent, or that are being contested in good faith by appropriate
proceedings for which adequate reserves have been established;
(h) Liens for taxes to the extent nonpayment thereof shall be
permitted by Section 5.03 hereof;
(i) Liens incidental to the normal conduct of the business of
Funding and its Subsidiaries or the ownership of their property and not
securing Funded Indebtedness (including zoning restrictions, easements,
licenses, reservations, restrictions on the use of real property or
minor irregularities incident thereto and with respect to leasehold
interests, Liens that are incurred, created, assumed or permitted to
exist and arise by, through or under or are asserted by a landlord or
owner of the leased property, with or without consent of the lessee)
which do not in the aggregate materially impair the value or use of the
property used in the business of Funding and its Subsidiaries taken as
a whole, or the use of such property for the purpose for which such
property is held;
(j) Liens arising from capitalized lease obligations, such Liens
not to extend to any other property of Funding;
<PAGE>
46
(k) Liens in respect of litigation or other similar proceedings
in an amount not to exceed $500,000,000 on an aggregate basis (i) the
validity of which is being currently contested on a timely basis in
good faith by appropriate proceedings (provided that the enforcement of
any Liens arising out of such proceedings shall be stayed during such
proceedings) and (ii) for which adequate reserves shall have been
established;
(l) Liens in respect of leases or subleases granted to other
persons in the ordinary course of business and not materially
interfering with the conduct of business of Funding and its
Subsidiaries;
(m) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into
by Funding or any of its Subsidiaries in the ordinary course of
business in accordance with the past practices of Funding and its
Subsidiaries; or
(n) Liens in favor of customs and revenue authorities arising as
a matter of law securing payment of customs duties in connection with
the importation of goods.
SECTION 6.06. Conduct of Funding's Business. (a) Funding will not,
------------------------------
and will not permit any Subsidiary of Funding to, engage in any business other
than dealing in Receivables and Penney Supplier Receivables, making Investments
as permitted by paragraph (c) below, financing the acquisition of Receivables
and Penney Supplier Receivables and making of such Investments, and any
activities incidental or related to the foregoing. Receivables at any time
acquired by Funding and its Subsidiaries from JCPenney and its Subsidiaries,
together with Receivables previously acquired from JCPenney and its Subsidiaries
and then owned by Funding and its Subsidiaries, shall be reasonably
representative of the then outstanding Receivables which have arisen in the
business of JCPenney and those Subsidiaries of JCPenney from which such
Receivables have been or are being acquired; provided, however, that Receivables
-------- -------
at any time acquired and owned by Funding and its Subsidiaries may exclude any
type or types of Receivables which are sold or assigned by JCPenney and its
Subsidiaries to one or more third parties if in the opinion of Funding's board
of directors such type or types of Receivables may be serviced more efficiently
or economically by any such third party than by JCPenney, Funding or any such
Subsidiary.
(b) Funding will not, and will not permit any of its subsidiaries to,
make any loan or advance to JCPenney or any Subsidiary of JCPenney (other than
Funding or a Subsidiary of Funding) except on a basis which in the opinion of
Funding's board of directors reasonably reflects sound credit practices at the
time of such loan or advance.
(c) Funding will not, and will not permit any of its subsidiaries to,
make any Investments, directly or indirectly, other than
(i) Investments in Receivables;
(ii) loans and advances to JCPenney and its Subsidiaries;
(iii) Investments in wholly-owned Subsidiaries of Funding or
Investments by any Subsidiary of Funding in Funding;
<PAGE>
47
(iv) Investments in Penney Supplier Receivables; and
(v) Investments in any direct and indirect obligations of the
United States of America or any agency thereof having a maturity not in
excess of ten years from the date of purchase; obligations having a
maturity not in excess of ten years from the date of purchase of any
county, municipality or state of the United States of America and
having any of the three highest ratings assigned by any nationally
recognized organization regularly engaged in rating the investment
quality of such obligations; open market commercial paper; bankers'
acceptances; certificates of deposit; and other obligations which, in
the opinion of Funding's board of directors, are similar in risk,
quality and maturity to any of the foregoing.
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) (i) any representation or warranty made or deemed made
pursuant to this Agreement shall prove to have been false or misleading
in any respect, or (ii) any material representation, warranty,
statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with or
pursuant to this Agreement shall prove to have been false or misleading
in any respect; and only if, in both subsection (i) and subsection
---
(ii), such falsehood or misleading matter would result in a Material
Adverse Effect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise, and such default shall continue
unremedied for one Business Day;
(c) default shall be made in the payment of any interest on any
Loan or any Fee or any other amount (other than an amount referred to
in (b) above) due under this Agreement, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of five Business Days;
(d) default shall be made in the due observance or performance
by the Borrowers of any covenant, condition or agreement contained in
Section 5.01(a), 5.05 or 5.10 or in Article VI and such default shall
continue unremedied for a period of five Business Days;
(e) default shall be made in the due observance or performance
by any Borrower or Restricted Subsidiary of any covenant, condition or
agreement contained in this Agreement (other than those specified in
(b), (c) or (d) above) and such default shall continue unremedied for a
period of 30 days after notice thereof from the Administrative Agent or
any Lender to such Borrower or, if such default is able to be cured and
such Borrower is using its best efforts to cure such default, such
longer period as is reasonably required to cure such default;
<PAGE>
48
(f) any Borrower or Restricted Subsidiary shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
indebtedness for borrowed money in a principal amount in excess of
$50,000,000, when and as the same shall become due and payable (after
the expiration of any applicable grace period), and (unless such
indebtedness is already due and payable at the time of such default)
such default results in an acceleration of such indebtedness and in
either case is not cured within five Business Days thereafter or (ii)
fail to observe or perform any other term, covenant, condition or
agreement contained in any agreement or instrument evidencing or
governing any such indebtedness (other than to the extent arising
solely out of the violation by any Borrower or any Subsidiary of any
covenant in any way restricting any Borrower's or any Subsidiary's
right or ability to sell, pledge or otherwise dispose of Unrestricted
Margin Stock) if any failure referred to in this clause (ii) results in
an acceleration of such indebtedness that is not annulled or rescinded
within 15 days after the date of such acceleration;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of any Borrower or Material
Subsidiary, or of a substantial part of the property or assets of any
Borrower or Material Subsidiary, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for any Borrower or Material Subsidiary
or for a substantial part of the property or assets of any Borrower or
Material Subsidiary or (iii) the winding-up or liquidation of any
Borrower or Material Subsidiary; and such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(h) any Borrower or Material Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended,
or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in
a timely and appropriate manner, any proceeding or the filing of any
petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for any Borrower or Material Subsidiary
or for a substantial part of the property or assets of any Borrower or
Material Subsidiary, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v)
make a general assignment for the benefit of creditors, (vi) admit in
writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $100,000,000 shall be rendered against
any Borrower, any Restricted Subsidiary or any combination of Borrowers
and Restricted Subsidiaries and the same shall remain undischarged for
a period of 30 consecutive Business Days during which execution shall
not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon
<PAGE>
49
assets or properties of any Borrower or Restricted Subsidiary to
enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrowers to the PBGC or to any Plan or Plans in an aggregate
amount exceeding $200,000,000 and, within 30 days after the reporting
of any such Reportable Event to the Administrative Agent or after the
receipt by the Administrative Agent of the statement required pursuant
to Section 5.06, the Administrative Agent shall have notified the
Borrowers in writing that (i) the Required Lenders have made a
determination that, on the basis of such Reportable Event or Reportable
Events or the failure to make a required payment, there are reasonable
grounds (A) for the termination of such Plan or Plans by the PBGC, (B)
for the appointment by the appropriate United States District Court of
a trustee to administer such Plan or Plans or (C) for the imposition of
a lien in favor of a Plan and (ii) as a result thereof an Event of
Default exists hereunder; or a trustee shall be appointed by a United
States District Court to administer any such Plan or Plans; or the PBGC
shall institute proceedings to terminate any Plan or Plans;
(k) Funding (or any permitted successor thereto under Section
6.04(b)) shall cease to be a direct or indirect wholly-owned subsidiary
of JCPenney (unless Funding or such permitted successor shall be merged
into JCPenney); or
(l) an Event of Default shall occur under the Tranche B Credit
Agreement.
then, and in every such event (other than an event described in paragraph (g)
or (h) above), and at any time thereafter during the continuance of such event,
the Administrative Agent, at the request of the Required Lenders, shall, by
notice to the Borrowers, take either or both of the following actions, at the
same or different times: (x) terminate forthwith the Commitments and (y) declare
the Loans then outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrowers accrued hereunder, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers, anything contained
herein to the contrary notwithstanding; and in any event described in paragraph
(g) or (h) above, the Commitments shall automatically and immediately terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrowers
accrued hereunder, shall automatically and immediately become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrowers, anything contained herein to
the contrary notwithstanding.
ARTICLE VIII. THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this Agreement,
each Lender hereby appoints the Administrative Agent to act as its agent
hereunder. Each of the
<PAGE>
50
Lenders hereby irrevocably authorizes the Administrative Agent to take such
actions on behalf of such Lender and to exercise such powers as are specifically
delegated to the Administrative Agent by the terms and provisions hereof,
together with such actions and powers as are reasonably incidental thereto. The
Administrative Agent is hereby expressly authorized by the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of the Lenders
all payments of principal of and interest on the Loans and all other amounts due
to the Lenders hereunder, and promptly to distribute to each Lender its proper
share of each payment so received; (b) to give notice on behalf of each of the
Lenders to the Borrowers of any Event of Default specified in this Agreement of
which the Administrative Agent has actual knowledge acquired in connection with
its agency hereunder; and (c) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrowers
pursuant to this Agreement as received by the Administrative Agent.
The Administrative Agent and its directors, officers, employees and
agents shall not be liable as such for any action taken or omitted by any of
them, or be responsible for any statement, warranty or representation herein or
the contents of any document delivered in connection herewith, except in each
case to the extent of its or his own gross negligence or wilful misconduct in
connection therewith, or be required to ascertain or to make any inquiry
concerning the performance or observance by the Borrowers of any of the terms,
conditions, covenants or agreements contained in this Agreement. The
Administrative Agent shall not be responsible to the Lenders for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement or any other instruments or agreements; provided, however, that the
-------- -------
Administrative Agent shall be responsible for its own due execution of this
Agreement and any other instrument or agreement relating to this Agreement. The
Administrative Agent shall in all cases be fully protected in acting, or
refraining from acting, in accordance with written instructions signed by the
Required Lenders (or, when expressly required hereby, all the Lenders) and,
except as otherwise specifically provided herein, such instructions and any
action or inaction pursuant thereto shall be binding on all the Lenders. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Administrative Agent and its directors, officers, employees and
agents shall not have any responsibility to any Borrower on account of the
failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or any Borrower of any of its
respective obligations hereunder or in connection herewith. The Administrative
Agent may execute any and all of its duties hereunder by or through agents of
recognized standing or employees and shall be entitled to rely upon the advice
of legal counsel of recognized standing selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent shall be
under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
notifying the Lenders and the Borrowers. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor; provided, however,
-------- -------
that any such appointment shall be subject to the prior written consent of
JCPenney (which consent shall not be unreasonably withheld so long as such
<PAGE>
51
successor shall be (i) a bank with a rating of Aa2 or better from Moody's or a
rating of AA or better from S&P, or an Affiliate of any such bank, or (ii) any
Co-Agent). If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent; provided, however, that any such appointment shall be
-------- -------
subject to the prior written consent of JCPenney (which consent shall not be
unreasonably withheld so long as such successor shall be (i) a bank with a
rating of Aa2 or better from Moody's or a rating of AA or better from S&P, or an
Affiliate of any such bank, or (ii) any Co-Agent). Upon the acceptance of any
appointment as Administrative Agent hereunder by a permitted successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations as
Administrative Agent hereunder. After an Administrative Agent's resignation
hereunder, the provisions of this Article and Section 9.05 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Administrative Agent.
The Borrowers shall have the right to replace the Administrative Agent
if it requests compensation under Section 2.19, but only in accordance with the
provisions of Section 2.20(b).
With respect to the Loans made by it hereunder, the Administrative
Agent (and any Lender appointed as a successor Administrative Agent) in its
individual capacity and not as Administrative Agent shall have the same rights
and powers as any other Lender and may exercise the same as though it were not
the Administrative Agent (or such successor Administrative Agent) and the
Administrative Agent and its Affiliates (and any such successor Administrative
Agent and its Affiliates) may accept deposits from, lend money to and generally
engage in any kind of business with any Borrower or Subsidiary or any Affiliate
of any Borrower as if the Administrative Agent (or such successor Administrative
Agent) were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent, on
demand, in the amount of its pro rata share (based on its Commitment hereunder)
of any expenses (other than expenses in connection with the negotiation,
preparation and closing of this Agreement) incurred for the benefit of the
Lenders by the Administrative Agent, including counsel fees and compensation of
agents and employees paid for services rendered on behalf of the Lenders, which
shall not have been reimbursed by the Borrowers and (ii) to indemnify and hold
harmless the Administrative Agent and any of its directors, officers, employees
or agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as Administrative Agent or any of them in any way relating to or
arising out of this Agreement or the Transactions or any action taken or omitted
by it or any of them under this Agreement, to the extent the same shall not have
been reimbursed by the Borrowers; provided that no Lender shall be liable to the
--------
Administrative Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or wilful misconduct of the Administrative
Agent or any of its directors, officers, employees or agents.
<PAGE>
52
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender represents that
it has not relied upon Margin Stock owned by JCPenney or any Subsidiary in its
credit analysis or its decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
No Co-Agent shall have any duties or responsibilities hereunder in its
capacity as such.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications provided for
--------
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopier, as follows:
(a) if to J.C. Penney, to it at J.C. Penney Company, Inc., 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of
Treasurer
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the
same address;
(b) if to Funding, to it at J.C. Penney Funding Corporation, 6501
Legacy Drive, Mail Code 1304, Plano, TX 75024-3698, Attention of
President
Telephone: (972) 431-2011
Telecopy: (972) 431-2044
With a copy to: General Counsel - J.C. Penney Company, Inc., at the
same address;
(c) if to the Administrative Agent, to it at Credit Suisse,
Eleven Madison Avenue, New York, NY 10010, Attention of Sean Bernard
Telephone: (212) 325-9933
Telecopy: (212) 308-2753
(d) if to a Lender, to it at its address (or telecopy number) set
forth in the administrative questionnaire delivered by such Lender to
the Administrative Agent.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy, or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
<PAGE>
53
SECTION 9.02. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans, regardless of
any investigation made by the Lenders or on their behalf, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any Fee or any other amount payable under this Agreement is outstanding
and unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become effective
---------------
when it shall have been executed by each of the Borrowers and the Administrative
Agent and when the Administrative Agent shall have received copies hereof which,
when taken together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrowers, the Administrative Agent
and each Lender and their respective successors and permitted assigns in
accordance with its terms, except that no Borrower shall have any right to
assign or delegate any of its respective rights or duties hereunder or any
interest herein without the prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
-----------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and permitted assigns of such party; and all covenants,
promises and agreements by or on behalf of any Borrower, the Administrative
Agent or the Lenders that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and permitted assigns.
(b) Each Lender may assign to an Eligible Assignee, at the expense of
the assignor and/or the assignee, all or a portion of its interests, rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) pursuant to an Assignment and Acceptance
(the "Assignment Instrument"), substantially in the form of Exhibit E, executed
by such Eligible Assignee, such assigning Lender (and, in the case of an
Eligible Assignee that is not then a Lender or an Affiliate thereof, by the
Borrowers and the Administrative Agent) and delivered to the Administrative
Agent for its acceptance and recording in the Register; provided, however, that
-------- -------
(i) except in the case of an assignment by a Lender to an Affiliate of such
Lender which is a bank or bank holding company or to another Lender, the
Borrowers and the Administrative Agent must give their prior written consent to
such assignment (which consent in each case shall not be unreasonably withheld),
(ii) the amount of the Commitment of the assigning Lender subject to such
assignment (determined as of the date of such assignment) shall not be less than
$15,000,000 (or the remaining amount of the Commitment of such Lender), (iii)
other than the case of an assignment by a Lender of the remaining amount of the
Commitment of such Lender, no Lender shall make more than two assignments
(excluding assignments to an Affiliate of such Lender which is a bank or bank
holding company or to another Lender) under this Section 9.04(b) after the date
hereof and prior to the Maturity Date unless otherwise agreed by the Borrowers
in their sole discretion, (iv) the parties to each such assignment shall pay to
the Administrative Agent a processing and recordation fee of $3,500 (which fee
shall not in any event be an obligation of the Borrowers) and (v) as of the date
of such assignment, except with the prior written consent of JCPenney, (x) the
assignee shall not have any right, and shall have no knowledge that such
assignment would result in its having the right, to request compensation
pursuant to Section 2.13 or 2.19 after giving effect to such assignment in
excess of any compensation to which the assigning Lender would have been
entitled under such Sections and (y) the parties to such assignment shall have
no knowledge that such assignment (A) would cause it to be unlawful for any
party
<PAGE>
54
thereto to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan or (B)
would cause any Borrower to incur any liability under Section 2.15. Upon
acceptance and recording pursuant to paragraph (d) of this Section 9.04, from
and after the effective date specified in each Assignment Instrument, which
effective date shall be at least five days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment Instrument, shall have the rights and obligations
of, and shall for all purposes be, a Lender under this Agreement and (B) the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment Instrument, be released from its obligations under this
Agreement (and, in the case of an Assignment Instrument covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto (but, subject to Section
2.20, shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19
and 9.05, as well as to any Fees accrued for its account hereunder and not yet
paid)). Notwithstanding the foregoing, any Lender assigning any portion of its
rights and obligations under this Agreement may retain any Competitive Loans
made by it outstanding at such time, and in such case shall retain its rights
hereunder in respect of any Loans so retained until such Loans have been repaid
in full in accordance with this Agreement. No assignment may be made by any
Lender except in accordance with the provisions of this Section 9.04(b).
(c) By executing and delivering an Assignment Instrument, the assignee
thereunder shall be deemed to confirm to and agree with the other parties hereto
as follows: (i) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.04 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment Instrument; (ii) such assignee will independently and
without reliance upon the Administrative Agent, the assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (iii) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (iv) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall retain a copy of each Assignment
Instrument delivered to it and a register for the recordation of the name and
address of, and the Commitment of, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
manifest error and the Borrowers, the Administrative Agent and the Lenders may
treat each person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by any Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Each Lender may without the consent of the Borrowers or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement shall
- -------- -------
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other
<PAGE>
55
entities shall not be entitled to the benefit of the provisions contained in
Sections 2.13, 2.15, 2.19 and 9.05 and (iv) the Borrowers, the Administrative
Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than any
amendments, modifications or waivers decreasing any fees payable hereunder or
the amount of principal of or the rate at which interest is payable on the
Loans, or extending any scheduled principal payment date or date fixed for the
payment of interest on the Loans, that would affect the Lender in question and
its participants).
(f) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to any Borrower furnished to such Lender by
or on behalf of such Borrower; provided that, prior to any such disclosure of
--------
information designated by such Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree to preserve the confidentiality
of such confidential information in accordance with Section 9.15.
(g) Any Lender may at any time, without the consent of any other party
hereto, assign all or any portion of its rights under this Agreement and any
notes issued to it to a Federal Reserve Bank provided that no such assignment
--------
shall release a Lender from any of its obligations hereunder. In order to
facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at
the request of the assigning Lender, promptly execute and deliver to the
assigning Lender a note with terms in accordance with this Agreement, in a form
reasonably acceptable to the Administrative Agent and the Borrower, evidencing
the Loans made to the Borrower by the assigning Lender hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree, jointly
--------------------
and severally, to pay all reasonable out-of-pocket expenses incurred by the
Administrative Agent in connection with the negotiation, preparation and closing
of this Agreement, including the reasonable fees and disbursements of Simpson
Thacher & Bartlett, special counsel for the Administrative Agent, and, only with
the written consent of the Borrowers prior to any incurrence, all reasonable
out-of-pocket expenses incurred by the Administrative Agent in connection with
any amendment, modification or waiver of this Agreement. The Borrowers agree,
jointly and severally, to pay all reasonable out-of-pocket costs and expenses of
the Administrative Agent and Lenders, as well as the allocated costs of in-house
counsel, in connection with the collection or enforcement of this Agreement.
(b) The Borrowers agree, jointly and severally, to indemnify the
Administrative Agent, CS First Boston Corporation, each Lender and each of their
respective directors, officers and employees (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees and expenses, incurred by or asserted against any Indemnitee
arising as a result of (i) any breach by any Borrower of any of its obligations
under this Agreement or any agreement or instrument contemplated hereby, (ii)
the use of the proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, if any Indemnitee
is at any time a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities
<PAGE>
56
or related expenses (x) arise in connection with any judgment rendered by a
court of competent jurisdiction in favor of any Borrower and against such
Indemnitee, (y) result from the gross negligence or wilful misconduct of such
Indemnitee (or, if such Indemnitee is a Lender or the Administrative Agent, any
of its directors, officers or employees) or (z) result from any disputes among
the Lenders and the Administrative Agent, or any of them, other than disputes
resulting from the fault of a Borrower.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement, or any investigation made by or on behalf of the
Administrative Agent or the Lender. All amounts due under this Section 9.05
shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing and any three Lenders representing at least
$50,000,000 in aggregate amount of the Commitments have requested the
Administrative Agent, in writing, in accordance with the provisions of Article
VII, to declare the Loans to be forthwith due and payable, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of any Borrower
against any of and all the obligations of such Borrower now or hereafter
existing under this Agreement held by such Lender (other than obligations
purchased after such Event of Default shall have become known to such Lender),
irrespective of whether or not such Lender shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have. Any Lender
exercising its rights under this Section shall give notice thereof to JCPenney
concurrently with or prior to the exercise of such rights.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
---------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
-------------------
Administrative Agent or Lender in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Lenders and the Borrowers hereunder are cumulative and
are not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by any
Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Borrower in any case shall entitle such Borrower to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrowers and the Required Lenders; provided, however, that
-------- -------
no such agreement shall
<PAGE>
57
(i) decrease the principal amount of, or extend the maturity of or any scheduled
principal payment date or date for the payment of any interest on any Loan, or
waive or excuse any such payment or any part thereof, or decrease the rate of
interest on any Loan, without the prior written consent of each Lender affected
thereby, (ii) change the Commitment or decrease the Facility Fees of any Lender
without the prior written consent of such Lender, or (iii) amend or modify the
provisions of Section 2.16 or Section 9.03, the provisions of this Section or
the definition of the "Required Lenders", without the prior written consent of
each Lender; provided further that no such agreement shall amend, modify or
-------- -------
otherwise affect the rights or duties of the Administrative Agent hereunder
without the prior written consent of the Administrative Agent. Each Lender
shall be bound by any waiver, amendment or modification authorized by this
Section, and any consent by any Lender pursuant to this Section shall bind any
subsequent assignee of such Lender.
SECTION 9.09. Interest and Charges. Notwithstanding any other
---------------------
provision in this Agreement, no Lender shall ever be entitled to receive,
collect or apply, as interest on any amount owing to such Lender under this
Agreement or in connection herewith, any amount in excess of the Maximum Amount.
If any Lender ever receives, collects or applies, as interest, any such excess,
such excess shall be deemed a partial repayment of principal and treated
hereunder as such; and if principal is paid in full, any remaining excess shall
be paid to the appropriate Borrower. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount, the
Borrowers and the Lenders shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts,
the total amount of interest throughout the entire contemplated term of this
Agreement so that the interest rate is uniform throughout the entire period that
any amount is outstanding under or in connection with this Agreement; provided,
--------
however, that if any obligation owing to a Lender hereunder or in connection
- -------
herewith is paid and performed in full prior to the end of the full contemplated
term thereof, and if the interest received by such Lender on such obligation for
its actual term exceeds the Maximum Amount with respect thereto, such Lender
shall refund to the appropriate Borrower the amount of such excess or credit the
amount of such excess against the total principal amount of all amounts owing to
such Lender hereunder or in connection herewith, and, in such event, such Lender
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Maximum Amount.
SECTION 9.10. Entire Agreement. This written Agreement together with
-----------------
the letter agreement with respect to payment of fees of even date herewith
represent the final agreement among the parties with respect to the subject
matter hereof and may not be contradicted by evidence of prior, contemporaneous,
or subsequent oral agreements of the parties. There are no unwritten oral
agreements among the parties with respect to the subject matter hereof.
SECTION 9.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
<PAGE>
58
SECTION 9.12. Counterparts. This Agreement may be executed in two or
-------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.13. Headings. Article and Section headings and the Table of
---------
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.14. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to the foregoing and to paragraph (b) below, nothing in this Agreement
shall affect any right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other party hereto
in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.15. Confidentiality. Notwithstanding anything contained in
----------------
this Agreement to the contrary, the Lenders and the Administrative Agent shall
hold in confidence all agreements, statements, reports and information that are
not in the public domain concerning the Borrowers and their Subsidiaries that
the Administrative Agent or any Lender receives pursuant to or in connection
with this Agreement. The Administrative Agent and each of the Lenders shall not
distribute any such confidential information to other persons except (a) to its
counsel, its Affiliates, its examiners, regulatory authorities and prospective
assignees of, or participants in, its interest herein and their respective
counsel (each of which shall be instructed to hold the same in confidence, and
in the case of any prospective assignee or prospective participant, shall
execute an agreement to such effect pursuant to Section 9.04(f) as a condition
to receiving a copy of this Agreement and becoming an assignee or participant
hereunder), (b) pursuant to legal process, (c) in connection with litigation
against or by the Lenders and/or the Administrative Agent arising in connection
with this Agreement or (d) with the prior written consent of the Borrowers. The
Administrative Agent and each of the Lenders shall give prior or contemporaneous
notice to the Borrowers of any disclosure by it of confidential information
pursuant to clause (b) or (c) above.
<PAGE>
59
SECTION 9.16. Liability of Borrowers. Except as expressly provided in
-----------------------
this Agreement, the obligations of each Borrower hereunder shall be several
obligations with respect to Loans made to it.
IN WITNESS WHEREOF, the Borrowers, the Lenders, the Co-Agents and the
Administrative Agent have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
J. C. PENNEY COMPANY, INC.
By
-------------------------------------------------
Name: Robert B. Cavanaugh
Title: Vice President and Treasurer
J. C. PENNEY FUNDING CORPORATION
By
-------------------------------------------------
Name: Frank N. Napoli
Title: Vice President and Treasurer
CREDIT SUISSE, as Administrative Agent and as a
Lender
By
-------------------------------------------------
Name:
Title:
By
-------------------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS, as a Co-Agent and as a
Lender
By
-------------------------------------------------
Name:
Title:
BANK OF HAWAII
By
-------------------------------------------------
Name:
Title:
<PAGE>
60
THE BANK OF NEW YORK
By
-------------------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By
-------------------------------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By
-------------------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, as a Co-Agent and as a
Lender
By
-------------------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
-------------------------------------------------
Name:
Title:
BARCLAYS BANK PLC
By
-------------------------------------------------
Name:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By
-------------------------------------------------
Name:
Title:
<PAGE>
61
CANADIAN IMPERIAL BANK OF COMMERCE
By
-------------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as a Co-Agent and as a
Lender
By
-------------------------------------------------
Name:
Title:
CITIBANK, N.A., as a Co-Agent and as a Lender
By
-------------------------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By
-------------------------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By
-------------------------------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By
-------------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
-------------------------------------------------
Name:
Title:
<PAGE>
62
THE FIRST NATIONAL BANK OF CHICAGO
By
-------------------------------------------------
Name:
Title:
FIRST SECURITY BANK
By
-------------------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By
-------------------------------------------------
Name:
Title:
FIRSTAR BANK MILWAUKEE, N.A.
By
-------------------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
-------------------------------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By
-------------------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By
-------------------------------------------------
Name:
Title:
<PAGE>
63
THE HONG KONG AND SHANGHAI BANKING CORPORATION
LIMITED
By
-------------------------------------------------
Name:
Title:
INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By
-------------------------------------------------
Name:
Title:
ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
By
-------------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, New
York Branch
By
-------------------------------------------------
Name:
Title:
MELLON BANK, N.A.
By
-------------------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a
Co-Agent and as a Lender
By
-------------------------------------------------
Name:
Title:
NATIONAL AUSTRALIA BANK LIMITED A.C.N. 004044937
By
-------------------------------------------------
Name:
Title:
<PAGE>
64
NATIONSBANK OF TEXAS, N.A., as a Co-Agent and as a
Lender
By
-------------------------------------------------
Name:
Title:
THE NORTHERN TRUST COMPANY
By
-------------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By
-------------------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By
-------------------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
-------------------------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED, New York Branch
By
-------------------------------------------------
Name:
Title:
THE SANWA BANK, LIMITED, Dallas Agency
By
-------------------------------------------------
Name:
Title:
<PAGE>
65
THE SUMITOMO BANK, LTD., Houston Agency
By
-------------------------------------------------
Name:
Title:
SUNBANK, NATIONAL ASSOCIATION
By
-------------------------------------------------
Name:
Title:
UMB BANK, N.A.
By
-------------------------------------------------
Name:
Title:
UNION BANK OF SWITZERLAND
By
-------------------------------------------------
Name:
Title:
UNITED STATES NATIONAL BANK OF OREGON
By
-------------------------------------------------
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By
-------------------------------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), N.A.
By
-------------------------------------------------
Name:
Title:
<PAGE>
66
THE YASUDA TRUST & BANKING CO., LTD.
By
-------------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
Attention: [ ] [Date]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the
Five-Year Revolving Credit Agreement dated as of December 3, 1996 (as it may
hereafter be amended, modified, extended or restated from time to time, the
"Credit Agreement"), among J. C. Penney Company, Inc., J. C. Penney Funding
Corporation, the Lenders parties thereto and Credit Suisse, as Administrative
Agent. Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Credit Agreement. The Borrower hereby gives you
notice pursuant to Section 2.03(a) of the Credit Agreement that it requests a
Competitive Borrowing under the Credit Agreement, and in that connection sets
forth below the terms on which Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day)
-------------------------
(B) Principal Amount of Competitive
Borrowing /1/
-------------------------
(C) Interest rate basis /2/
-------------------------
(D) Interest Period and the last
day thereof /3/
-------------------------
Upon acceptance of any or all of the Loans offered by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted, except as otherwise provided in Section 4.01, that the conditions to
lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been
satisfied.
- --------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the Total Commitment on the
date of such Borrowing minus the outstanding aggregate principal amount on
such date of all Loans.
/2/ Eurodollar Loan, Fixed Rate Loan or CD Loan.
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
2
Very truly yours,
[Name of Borrower]
By:
-----------------------------------
Title: [Responsible Officer] /4/
- --------------------
/4/ Chairman, vice chairman, president, chief financial officer, treasurer or
controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
To the Lenders parties to the
Credit Agreement referred to below
[Date]
Dear Sirs:
Reference is made to the Five-Year Revolving Credit Agreement dated as
of December 3, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among J. C. Penney Company,
Inc. ("JCPenney"), J.C. Penney Funding Corporation ("Funding"), the Lenders
parties thereto and Credit Suisse, as Administrative Agent. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Credit Agreement. [ ] /1/ made a Competitive Bid Request on [ ], 19[ ],
pursuant to Section 2.03(a) of the Credit Agreement, and in that connection you
are invited to submit a Competitive Bid by [time], on [date]./2/ Your
Competitive Bid must comply with Section 2.03(b) of the Credit Agreement and the
terms set forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing
-------------------------
(B) Principal amount of
Competitive Borrowing
-------------------------
(C) Interest rate basis
-------------------------
(D) Interest Period and the last
date thereof
-------------------------
- --------------------
/1/ JCPenney or Funding.
/2/ The Competitive Bid must be received by the Agent: (i) in the case of
Eurodollar Loans or CD Loans, not later than 9:00 a.m., New York City time,
three Business Days before the proposed Competitive Borrowing, and (ii) in
the case of Fixed Rate Loans, not later than 9:00 a.m., New York City time,
on the day of a proposed Competitive Borrowing.
<PAGE>
2
Very truly yours,
CREDIT SUISSE,
as Administrative Agent
By:
--------------------------------------
Title:
By:
--------------------------------------
Title:
<PAGE>
EXHIBIT A-3
FORM OF COMPETITIVE BID
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [name of Lender], refers to the Five-Year Revolving
Credit Agreement dated as of December 3, 1996 (as it may hereafter be amended,
modified, extended or restated from time to time, the "Credit Agreement"), among
J. C. Penney Company, Inc. ("JCPenney"), J. C. Penney Funding Corporation
("Funding"), the Lenders parties thereto and Credit Suisse, as Administrative
Agent. Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Credit Agreement. The undersigned hereby makes a
Competitive Bid pursuant to Section 2.03(b) of the Credit Agreement, in response
to the Competitive Bid Request made by [ ] /1/ on [ ], 19[ ], and
in that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount /2/
------------------------------
(B) Competitive Bid[s]/3/
------------------------------
(C) Interest Period and the
last day thereof
------------------------------
The undersigned hereby confirms that it will, subject only to the
conditions set forth in the Credit Agreement, extend credit to the Borrower upon
acceptance by the Borrower of this bid in accordance with Section 2.03(d) of the
Credit Agreement.
- --------------------
/1/ JCPenney or Funding.
/2/ An integral multiple of $5,000,000 (unless equal to the requested
Competitive Borrowing) and not greater than the requested Competitive
Borrowing. Multiple bids will be accepted by the Administrative Agent.
/3/ One or more rates; i.e., LIBO Rate + or - ____%, in the case of Eurodollar
----
Loans, Adjusted CD Rate + ___%, in the case of CD Loans, or __%, in the
case of Fixed Rate Loans.
<PAGE>
2
Very truly yours,
[NAME OF LENDER]
By:
---------------------------------------
Title:
<PAGE>
EXHIBIT A-4
FORM OF STANDBY BORROWING REQUEST
Credit Suisse, as Administrative Agent
Eleven Madison Avenue
New York, New York 10010
[Date]
Attention: [ ]
Dear Sirs:
The undersigned, [ ] (the "Borrower"), refers to the Five-Year
Revolving Credit Agreement dated as of December 3, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among J. C. Penney Company, Inc. ("JCPenney"), J. C. Penney Funding
Corporation ("Funding"), the Lenders parties thereto and Credit Suisse, as
Administrative Agent. Capitalized terms used but not defined herein shall have
the meanings assigned to such terms in the Credit Agreement. The Borrower
hereby gives you notice pursuant to Section 2.04 of the Credit Agreement that it
requests a Standby Borrowing under the Credit Agreement, and in that connection
sets forth below the terms on which such Standby Borrowing is requested to be
made:
(A) Date of Standby Borrowing
(which is a Business Day)
------------------------------
(B) Principal Amount of
Standby Borrowing /1/
------------------------------
(C) Interest rate basis /2/
------------------------------
(D) Interest period and the last
day thereof /3/
------------------------------
- --------------------
/1/ Not less than $25,000,000 (and in integral multiples of $5,000,000) or, if
less, an aggregate principal amount equal to the remaining available
balance of the Total Commitment.
/2/ Eurodollar Loan, CD Loan or ABR Loan. Notice under Section 2.04 is
necessary to refinance a Standby Borrowing with a Eurodollar Borrowing or
CD Borrowing. In the absence of such a notice, unless the Borrowing is
repaid at the end of the applicable Interest Period, the Borrower shall be
deemed to have given notice of an election to refinance such Borrowing with
an ABR Borrowing.
/3/ Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<PAGE>
2
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted, except as otherwise provided in Section 4.01, that the conditions to
lending specified in Sections 4.01(b) and (c) of the Credit Agreement have been
satisfied; provided, however, that in the case of a refinancing of a Standby
-------- -------
Borrowing with a new Standby Borrowing that does not increase the outstanding
aggregate principal amount of the Loans of any Lender, the Borrower shall not be
subject to the satisfaction of any of the Section 4.01 conditions.
Very truly yours,
[Name of Borrower]
By:
---------------------------------------
Title: [Responsible Officer]/4/
- --------------------
/4/ Chairman, vice chairman, president, chief financial officer, treasurer or
controller of such corporation or any executive or senior vice president of
such corporation.
<PAGE>
EXHIBIT B
FORM OF GUARANTY
GUARANTY
--------
This Guaranty Agreement is executed as of this 3rd day of
December, 1996, by J. C. Penney Company, Inc., a Delaware corporation
("Guarantor"), in favor of J. C. Penney Funding Corporation, a
Delaware corporation ("Funding"), and the Lenders (as defined below).
RECITALS:
---------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day
and Five-Year Revolving Credit Agreements (collectively, the "Agreements"), each
dated as of December 3, 1996, among Guarantor, Funding, Credit Suisse, as
administrative agent for the Lenders, and certain other financial institutions
named in the Agreements (collectively, the "Lenders") in amounts not to exceed
One Billion Five Hundred Million Dollars ($1,500,000,000) for each such
Agreement; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding
under the Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises, Guarantor hereby
agrees as follows:
1. Subject to the terms and conditions of subordination set forth in
this Guaranty, Guarantor hereby unconditionally guarantees in favor of the
Lenders, the prompt payment when due of all interest, principal, and other
amounts owing under the Agreements (collectively, the "Guaranteed Debt"). This
is an unconditional guaranty of payment, and in the event of default by Funding
in the payment of interest, principal, or any other amounts payable under the
Guaranteed Debt, the Lenders may proceed directly against Guarantor to enforce
this Guaranty (including by the institution of legal proceedings) without first
proceeding against Funding.
<PAGE>
2
2. Guarantor acknowledges that it has received and will receive a
direct or indirect benefit from the making of this Guaranty and the creation of
the Guaranteed Debt.
3. (a) The Guaranteed Debt shall be subordinated and subject in
right of payment to the prior payment in full of any and all other indebtedness
for borrowed money incurred, created, assumed, or otherwise guaranteed by
Guarantor (collectively referred to as the Guarantor's "Senior Debt").
(b) In the event of (i) any dissolution or winding-up or total or
partial liquidation or reorganization of Guarantor, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership, or similar proceeding
relative to Guarantor, or (ii) any default in the payment of principal
(including any acceleration or required prepayments or amortization) of or
interest on any Senior Debt of Guarantor, then, subject to the provisions of
subsection (d) below, the Lenders shall not be entitled to receive any payment
under this Guaranty on account of the Guaranteed Debt unless and until all
Senior Debt shall have been paid in full or otherwise discharged.
(c) For purposes of determining the priority of payments between the
Senior Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or
any part thereof, is declared due and payable prior to its stated maturity, all
principal of and interest and any other amounts due on all Senior Debt
outstanding at the time of such declaration as to the Guaranteed Debt shall
first have been paid in full, before any payment is made by Guarantor upon the
Guaranteed Debt.
(d) In no event shall any Lender be required by this subordination to
refund any amounts paid to it pursuant to this Guaranty on account of the
Guaranteed Debt prior to the events specified in subsections (b) and (c) above,
and prior to such events the Lenders shall be entitled to be paid hereunder as
agreed and to collect any sums due such Lenders hereunder by any lawful means.
(e) The provisions of this Section are for the purpose of defining
the relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation
<PAGE>
3
of Guarantor, which is unconditional and absolute, to guarantee the prompt
payment when due of the Guaranteed Debt in accordance with the terms and
provisions thereof; nor shall anything herein prevent the Lenders from
exercising all remedies otherwise permitted by applicable law upon default
hereunder, subject to the rights, if any, under this Section of any Senior Debt
holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
as of the date first written above.
J. C. PENNEY COMPANY, INC., a Delaware
corporation, as Guarantor
By:
-----------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF CLOSING CERTIFICATE
Pursuant to Section 4.02(b) of the Five-Year Revolving Credit Agreement,
dated as of December 3, 1996 (the "Credit Agreement"; terms defined therein
----------------
being used herein as therein defined unless otherwise defined herein), among J.
C. Penney Company, Inc. ("JCPenney"), J.C. Penney Funding Corporation
("Funding"), the Lenders parties thereto and Credit Suisse, as Administrative
Agent, the undersigned _____________________ of [Name of Borrower] (the
"Certifying Borrower") hereby certifies as follows:
- --------------------
1. The representations and warranties of the Certifying Borrower
contained in Article III of the Credit Agreement are true and correct in
all material respects on and as of the date hereof with the same effect as
though made on and as of the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date;
2. No Default or Event of Default has occurred and is continuing on
the date hereof or after giving effect to any extensions of credit to be
made on the date hereof;
3. ____________________ is and at all times since ______________
19__, has been the duly elected and qualified Assistant Secretary of the
Certifying Borrower and the signature set forth on the signature line for
such officer below is such officer's true and genuine signature;
and the undersigned Assistant Secretary of the Certifying Borrower hereby
certifies as follows:
4. The Certifying Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware;
5. Attached hereto as Exhibit A is a complete and true copy of
resolutions duly adopted by the Board of Directors of the Certifying
Borrower on _________, 19__; such resolutions have not in any way been
amended, modified, revoked or rescinded and have been in full force and
effect since their adoption to and including the date hereof and are now in
full force and effect; such resolutions are the only corporate proceedings
of the Certifying Borrower now in force with respect to the Credit
Agreement;
6. Attached hereto as Exhibit B is a complete and true copy of the
by-laws of the Certifying Borrower as in effect at all times since
_________________, 19__ to and including the date hereof; and attached
hereto as Exhibit C is a true and complete copy of the certificate of
incorporation of the Certifying Borrower as in effect at all times since
___________________, 19__ to and including the date hereof;
<PAGE>
7. The following persons are now duly elected and qualified officers
of the Certifying Borrower holding the offices indicated next to their
respective names below, and the signatures appearing opposite their
respective names below are the true and genuine signatures of such officers
and the first such officer listed below is duly authorized to execute and
deliver on behalf of the Certifying Borrower the Credit Agreement and any
certificate or other document to be delivered by the Certifying Borrower
pursuant to the Credit Agreement:
Name Office Signature
---- ------ ---------
Vice President and Treasurer
------------------------- -------------------
Assistant Secretary
------------------------- -------------------
IN WITNESS WHEREOF, the undersigned have hereto set our names.
- ------------------------------------ ------------------------------------
Title: Vice President and Treasurer Title: Assistant Secretary
Date: December 3, 1996
<PAGE>
DRAFT
EXHIBIT D
[Name]
[Title]
[General Counsel]
December __, 1996
Each of the lenders named in the
Schedules referred to below
Re: Revolving Credit Agreements of
J. C. Penney Company, Inc. and
J. C. Penney Funding Corporation
--------------------------------
Dear Sirs:
As the General Counsel of J. C. Penney Company, Inc., a Delaware
corporation ("JCPenney"), and of J. C. Penney Funding Corporation, a Delaware
corporation ("Funding"; together with JCPenney, "Borrowers"), I have been asked
to render an opinion pursuant to Section 4.02(f) of each of those certain 364-
Day and Five-Year Revolving Credit Agreements dated as of December __, 1996 (the
"Agreements"), among the Borrowers, Credit Suisse (the "Administrative Agent"),
and the lenders listed in Schedule 2.01 of each of the Agreements ("Lenders").
In rendering the opinion set forth below, I have examined originals,
photostatic, or certified copies of the Agreements, the Guaranty of JCPenney
referred to in Section 4.02(a)(ii) of each Agreement (the "Guaranty"), the
respective corporate records and documents of the Borrowers, copies of public
documents, certificates of the officers or representatives of the Borrowers, and
such other instruments and documents, and have made such inquiries, as I have
deemed necessary as a basis for such opinion. In making such examinations, I
have assumed with your consent the genuineness of all signatures (other than the
signatures of the Borrowers) and the authenticity of all documents submitted to
me as originals, the conformity to original documents of all documents submitted
to me as certified or photostatic copies, and the authenticity of the originals
of such latter documents. As to questions of fact material to such opinion, to
the extent I deemed necessary, I have relied upon the representations and
warranties of the Borrowers made in the Agreements and upon certificates of the
officers of the Borrowers. Capitalized terms not otherwise defined in this
opinion letter have the meanings specified in the Agreements.
Based upon the foregoing, I am of the opinion that:
1. Each of the Borrowers has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, and is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where the failure to so qualify would have a Material Adverse
Effect. Each of the Borrowers has the requisite corporate power and authority
to own, pledge, and operate its properties and assets, to lease the property it
operates under lease, and to conduct its business as now conducted.
<PAGE>
Each of the lenders named in the Schedules
December __, 1996
Page 2
2. The execution, delivery, and performance by the Borrowers of the
Agreements, the Borrowings by the Borrowers under the Agreements and, in the
case of JCPenney, the execution, delivery and performance of the Guaranty (i)
are within the corporate power of each of the Borrowers; (ii) have been duly
authorized by each of the Borrowers by all necessary corporate action; (iii) are
not in contravention of JCPenney's Restated Certificate of Incorporation, as
amended, Funding's Certificate of Incorporation, as amended, or either of the
Borrower's by-laws; (iv) to the best of my knowledge do not violate any material
law, statute, rule, or regulation, or any material order of any Governmental
Authority, applicable to either of the Borrowers; (v) do not conflict with or
result in the breach of, or constitute a default under, the material indentures,
agreements, or other instruments of either of the Borrowers; (vi) do not result
in the creation or imposition of any Lien upon any of the property or assets of
either of the Borrowers; and (vii) do not require the consent or approval of, or
any filing with, any Governmental Authority or any other person party to those
agreements described above other than those that have been obtained or made or
where the failure to obtain such consent or approval would not result in a
Material Adverse Effect.
3. The Agreements and, in the case of JCPenney, the Guaranty have been
duly executed and delivered by each of the Borrowers and constitute the legal,
valid, and binding obligation of such Borrower, enforceable against such
Borrower in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
4. Neither Borrower is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "public-utility company" or a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
5. To the best of my knowledge after due inquiry, except as set forth in
Schedule 3.09 of each Agreement, no litigation by or before any Governmental
Authority is now pending or threatened against JCPenney or Funding (i) which
involves the Agreements or the borrowings under the Agreements or (ii) as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, result in a
Material Adverse Effect.
6. The Support Agreements have been duly executed and delivered by
JCPenney and, where applicable, Funding and, as of the Closing Date, are in full
force and effect in accordance with their terms.
7. No part of the proceeds of any Loan will be used for "purchasing" or
"carrying" (within the respective meanings of each of the quoted terms under
Regulation G or Regulation U of the Board) any Margin Stock in violation of the
applicable requirements of such Regulations.
The opinions expressed herein are limited to the laws of the State of
Delaware with respect to the opinions provided in paragraph 1 (except as to due
qualification as a foreign corporation and good standing under the laws of other
jurisdictions) and clauses (i), (ii), and (iii) of paragraph 2. The other
<PAGE>
Each of the lenders named in the Schedules
December __, 1996
Page 3
opinions expressed are limited to the laws of the State of New York and the laws
of the United States. I do not express any opinion herein concerning any laws
of any other jurisdictions. The opinion is furnished to you in connection with
the transactions contemplated by the Agreements, and may not be relied upon by
any other person, firm, or corporation for any purpose or by you in any other
context without my prior written consent.
Very truly yours,
[Name]
<PAGE>
EXHIBIT E
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Five-Year Revolving Credit Agreement, dated
as of December 3, 1996 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among J. C. Penney Company, Inc. ("JCPenney"),
---------------- --------
J.C. Penney Funding Corporation ("Funding"; together with JCPenney, the
-------
"Borrowers"), the Lenders parties thereto and Credit Suisse, as administrative
- ----------
agent for the Lenders (in such capacity, the "Administrative Agent"). Unless
--------------------
otherwise defined herein, terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
The Assignor identified on Schedule l hereto (the "Assignor") and the
--------
Assignee identified on Schedule l hereto (the "Assignee") agree as follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), the interest described in Schedule 1 hereto
(the "Assigned Interest") in and to the Assignor's rights and obligations under
-----------------
the Credit Agreement with respect to those credit facilities contained in the
Credit Agreement as are set forth on Schedule 1 hereto (individually, an
"Assigned Facility"; collectively, the "Assigned Facilities"), in a principal
----------------- -------------------
amount for each Assigned Facility as set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant
thereto, other than that the Assignor has not created any adverse claim upon the
interest being assigned by it hereunder and that such interest is free and clear
of any such adverse claim and (b) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower, any Subsidiary or any other obligor or the performance or observance
by any Borrower, any Subsidiary or any other obligor of any of their respective
obligations under the Credit Agreement or any other instrument or document
furnished pursuant hereto or thereto.
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements delivered pursuant to Section 3.05 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (c) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
any other instrument or document furnished pursuant hereto or thereto; (d)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit Agreement
or any other instrument or document furnished pursuant hereto or thereto as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are incidental thereto; and (e) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to
be performed by it as a Lender including, if it is organized under the
<PAGE>
2
laws of a jurisdiction outside the United States, its obligation pursuant to
Section 2.19(e) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be the
Effective Date of Assignment described in Schedule 1 hereto (the "Effective
---------
Date"). Following the execution of this Assignment and Acceptance, it will be
- ----
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective as of the
Effective Date (which shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to the Effective Date
and to the Assignee for amounts which have accrued subsequent to the Effective
Date. The Assignor and the Assignee shall make all appropriate adjustments in
payments by the Administrative Agent for periods prior to the Effective Date or
with respect to the making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other instruments and documents delivered pursuant thereto and shall be bound by
the provisions thereof and (b) the Assignor shall, to the extent provided in
this Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule 1
to Assignment and Acceptance
Name of Assignor:
----------------------------------------------
Name of Assignee:
----------------------------------------------
Effective Date of Assignment:
----------------------------------
Credit Principal
Facility Assigned Amount Assigned Commitment Percentage Assigned/1/
- ----------------- --------------- --------------------------------
$__________ __._____________%
[Name of Assignee] [Name of Assignor]
By: By:
-------------------------------- --------------------------------
Title: Title:
Accepted: Consented To:/2/
CREDIT SUISSE, as Administrative Agent J.C. PENNEY COMPANY, INC.
By: By:
-------------------------------- --------------------------------
Title: Title:
By:
--------------------------------
Title:
J. C. PENNEY FUNDING CORPORATION
By:
--------------------------------
Title:
- --------------------
/1/ Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all
Lenders.
/2/ Include when the Borrowers' consent is required. See Section 9.04(b) of the
Credit Agreement.
<PAGE>
SCHEDULE 2.01
================================================================================
BANKS COMMITMENTS
- --------------------------------------------------------------------------------
Credit Suisse $ 87,500,000
- --------------------------------------------------------------------------------
Bank of America Illinois $ 62,500,000
- --------------------------------------------------------------------------------
Bank of Hawaii $ 15,000,000
- --------------------------------------------------------------------------------
The Bank of New York $ 50,000,000
- --------------------------------------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd. $ 50,000,000
- --------------------------------------------------------------------------------
Bank One, Texas, N.A. $ 15,000,000
- --------------------------------------------------------------------------------
Bankers Trust Company $ 62,500,000
- --------------------------------------------------------------------------------
Banque Nationale De Paris $ 28,750,000
- --------------------------------------------------------------------------------
Barclays Bank PLC $ 15,000,000
- --------------------------------------------------------------------------------
Caisse Nationale de Credit Agricole $ 15,000,000
- --------------------------------------------------------------------------------
Canadian Imperial Bank of Commerce $ 50,000,000
- --------------------------------------------------------------------------------
The Chase Manhattan Bank $ 62,500,000
- --------------------------------------------------------------------------------
Citibank, N.A. $ 62,500,000
- --------------------------------------------------------------------------------
Compagnie Financiere de CIC et de $ 15,000,000
l'Union Europeenne
- --------------------------------------------------------------------------------
CoreStates Bank, N.A. $ 50,000,000
- --------------------------------------------------------------------------------
The Dai-Ichi Kangyo Bank, Ltd. $ 28,750,000
- --------------------------------------------------------------------------------
The First National Bank of Boston $ 28,750,000
- --------------------------------------------------------------------------------
The First National Bank of Chicago $ 28,750,000
- --------------------------------------------------------------------------------
First Security Bank $ 7,500,000
- --------------------------------------------------------------------------------
First Union National Bank of North $ 28,750,000
Carolina
- --------------------------------------------------------------------------------
Firstar Bank Milwaukee, N.A. $ 8,750,000
- --------------------------------------------------------------------------------
Fleet National Bank $ 50,000,000
- --------------------------------------------------------------------------------
The Fuji Bank, Limited $ 28,750,000
- --------------------------------------------------------------------------------
Hibernia National Bank $ 7,500,000
- --------------------------------------------------------------------------------
The Hong-Kong Shanghai Banking $ 15,000,000
Corporation Limited
- --------------------------------------------------------------------------------
Industrial Bank of Japan Trust Company $ 15,000,000
- --------------------------------------------------------------------------------
Istituto Bancario San Paolo di Torino $ 15,000,000
S.P.A.
- --------------------------------------------------------------------------------
The Long-Term Credit Bank of Japan, $ 15,000,000
Limited
- --------------------------------------------------------------------------------
Mellon Bank, N.A. $ 28,750,000
- --------------------------------------------------------------------------------
<PAGE>
2
================================================================================
BANKS COMMITMENTS
- --------------------------------------------------------------------------------
Morgan Guaranty Trust Company of New York $ 75,000,000
- --------------------------------------------------------------------------------
National Australia Bank Limited $ 28,750,000
- --------------------------------------------------------------------------------
NationsBank of Texas, N.A. $ 62,500,000
- --------------------------------------------------------------------------------
The Northern Trust Company $ 15,000,000
- --------------------------------------------------------------------------------
Norwest Bank Minnesota, National Association $ 15,000,000
- --------------------------------------------------------------------------------
PNC Bank, National Association $ 50,000,000
- --------------------------------------------------------------------------------
Royal Bank of Canada $ 50,000,000
- --------------------------------------------------------------------------------
The Sakura Bank, Limited $ 28,750,000
- --------------------------------------------------------------------------------
The Sanwa Bank, Limited $ 15,000,000
- --------------------------------------------------------------------------------
The Sumitomo Bank, Ltd. $ 15,000,000
- --------------------------------------------------------------------------------
Sunbank, National Association $ 28,750,000
- --------------------------------------------------------------------------------
UMB Bank, N.A. $ 10,000,000
- --------------------------------------------------------------------------------
Union Bank of Switzerland $ 50,000,000
- --------------------------------------------------------------------------------
United States National Bank of Oregon $ 15,000,000
- --------------------------------------------------------------------------------
Wachovia Bank of Georgia, N.A. $ 50,000,000
- --------------------------------------------------------------------------------
Wells Fargo Bank (Texas), N.A. $ 28,750,000
- --------------------------------------------------------------------------------
The Yasuda Trust & Banking Co., Ltd. $ 15,000,000
================================================================================
TOTAL $1,500,000,000
================================================================================
<PAGE>
SCHEDULE 3.08
RESTRICTED SUBSIDIARIES
-----------------------
J.C. Penney Life Insurance Company
J.C. Penney Properties, Inc.
Thrift Drug, Inc.
<PAGE>
EXHIBIT 4(l)
4(2) COMMERCIAL PAPER DEALER AGREEMENT
This Agreement dated as of February 7, 1997 will confirm our arrangement whereby
Credit Suisse First Boston Corporation ("CSFB") will act as dealer in sales of
commercial paper notes (the "Notes") of J. C. Penney Funding Corporation (the
"Company") on a private placement basis to a limited number of sophisticated
purchasers as provided below. In that connection CSFB may, but shall not be
obligated to, purchase such commercial paper from the Company as principal.
The Notes will be issued under an Issuing and Paying Agency Agreement dated as
of February 3, 1997 (the "Paying Agency Agreement") between the Company and The
Chase Manhattan Bank, as Issuing and Paying Agent (the "Paying Agent").
If CSFB and the Company shall agree upon the sale of any Notes (including, but
not limited to, agreement with respect to the price, principal amount, maturity
and interest or discount rate thereof), (i) instructions to the Paying Agent to
complete, authenticate and deliver the Notes shall be given in the manner
described in the Paying Agency Agreement and (ii) the authentication and
delivery to CSFB of such Notes by the Paying Agent shall constitute the issuance
of such Notes by the Company.
It is understood that the commercial paper will have a maturity at the time of
issuance not to exceed 270 days (exclusive of days of grace) and will be
denominated in Notes having a principal amount not less than $250,000 each or
integral multiples of $1,000 in excess thereof. CSFB understands that, in
connection with any issuance and sale of Notes by the Company, the Company will
obtain the prior advice of its counsel that all action required by any
regulatory body or bodies has been duly taken.
All representations and warranties contained herein are deemed to be made by the
Company as of the date hereof and, as of each date on which the Company accepts
an offer to purchase Notes (including any purchase by CSFB as principal).
The Company represents and warrants to CSFB that (i) the Notes have been duly
authorized, and when issued, will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms, and
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, and other laws of general applicability relating to or affecting
creditors' rights generally and to general equity principles, (ii) the offer and
sale of the Notes will be entitled to the exemption from registration under the
Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) (or any
successor section thereto) thereunder, and (iii) the Company is not an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
<PAGE>
The Company has reviewed, approved and authorized the use of a Commercial Paper
Memorandum ("Memorandum") prepared by CSFB on the basis of information furnished
to CSFB by the Company. Such Memorandum may be used in connection with the sale
of the Company's Notes until the Company advises CSFB in writing that an updated
or revised Memorandum in a form approved by the Company should be substituted. A
legend substantially in the form of Annex A will be set forth in the Memorandum.
The Company will promptly advise CSFB of any material change in its ratings, its
financial condition or the results of its operations which may make such
updating or revision advisable.
CSFB represents that it will offer and sell Notes only to corporations and other
institutional investors each of which it reasonably believes to be either (i) a
sophisticated institutional investor that is an "Accredited Investor", as
defined in Rule 501(a) under the Act ("Institutional Accredited Investor"), that
has such knowledge and experience in financial and business matters that it is
capable of evaluating and bearing the economic risk of an investment in the
Notes (including an evaluation of any Memorandum) and that either is purchasing
Notes for its own account, is a U.S. bank or savings and loan acting in its
individual or fiduciary capacity or is a fiduciary or agent (other than a U.S.
bank or savings and loan) purchasing Notes for one or more accounts each of
which is such an Institutional Accredited Investor (A) which itself possesses
such knowledge and experience or (B) with respect to which such purchaser has
sole investment discretion, or (ii) a "Qualified Institutional Buyer", as
defined in Rule 144A under the Act ("QIB"), that is purchasing Notes for its
own account or for the account of one or more QIBs.
CSFB will only offer or sell Notes to an investor (i) that, at the time of such
offer or sale, is reasonably believed by CSFB to be a QIB or an Institutional
Accredited Investor, and (ii) that is purchasing Notes in a minimum principal
amount of not less than U.S. $250,000. At or prior to the time of sale of Notes
to a purchaser, CSFB will furnish to such purchaser the then current Memorandum.
The Company agrees that each Note will bear a legend substantially in the form
of Annex B.
In addition, the Company represents that (except as permitted herein) in the six
months prior to the date hereof neither it nor any person other than CSFB has
offered or sold, and agrees that so long as Notes are being issued hereunder and
for six months after the termination of such offering neither it nor any person
acting as its agent or on its behalf will offer or sell, directly or indirectly,
any Notes or any substantially similar securities, to any person by means of any
form of general solicitation or general advertising (within the meaning of Rule
502 under the Act) or under circumstances where such offer, sale or solicitation
would cause the exemption from registration under the Act pursuant to Section
4(2) thereunder to cease to be applicable to the offer and sale, provided that
it is understood that this representation and agreement by the Company does not
apply to offers, sales or solicitations by CSFB, in which case CSFB shall assume
responsibility that such offer, sale or solicitation has not and will not cause
the exemption from registration under the Act pursuant to Section 4(2)
thereunder to cease to be applicable to the offer and/or sale of the Notes. CSFB
intends to offer and sell Notes by means of its proprietary automated trading
system and represents that it has not and agrees that it will not, directly or
indirectly, offer any Notes for sale by means of any form of general
solicitation or advertising (within the meaning of Rule 502 under the Act). CSFB
represents that it has not offered or sold the Company's commercial paper in the
past six months by any means of general
<PAGE>
solicitation or general advertising on or under circumstances which would cause
the Section 4(2) exemption from registration under the Act to be unavailable.
It is understood that changes in the Federal securities laws or in
administrative or judicial interpretations thereof may occasion revision from
time to time of the procedures set forth herein which in any event shall be
subject to the further agreement of the Company and CSFB.
No Notes shall be issued until the Company and CSFB each has received an opinion
of C. R. Lotter, General Counsel of the Company, to the effect that the offer
and sale of the Notes in the manner contemplated by this Letter Agreement may
lawfully be made without registration of the Notes under the Act or
qualification of an indenture under the Trust Indenture Act of 1939, as amended,
and covering such additional matters as CSFB may reasonably request.
The Company represents and agrees that the proceeds of the sale of the Notes are
not currently contemplated to be used for the purpose of buying, carrying or
trading securities within the meaning of Regulation T and the interpretations
thereunder by the Board of Governors of the Federal Reserve System. In the event
the Company determines to use such proceeds for the purpose of buying, carrying
or trading securities in connection with an acquisition of another company, the
Company shall give CSFB at least five business days' prior written notice to
that effect. The Company shall also give CSFB prompt notice of the actual date
that it commences to purchase such securities with the proceeds of commercial
paper. Thereafter, in the event that CSFB purchases Notes as principal and does
not resell such Notes on the day of such purchase, CSFB will sell such Notes
only to Offerees it reasonably believes to be QIBs or to QIBs it reasonably
believes are acting for other QIBs, in each case in accordance with Rule 144A
under the Act.
With respect to the original Memorandum, and each updated or revised Memorandum
approved by the Company, the Company will indemnify CSFB and hold CSFB, and any
person who controls CSFB within Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), harmless
against any loss, claim, damage, liability or expense (including reasonable
costs of defense) arising out of or based upon any allegation that such
Memorandum includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such loss, claim, damage, liability or expense
arises out of or is based upon any untrue statement or omission or alleged
untrue statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with information furnished to the Company in
writing by CSFB. The foregoing indemnity agreement shall continue in force and
effect for a period of one year after the last issuance by the Company of
commercial paper pursuant to this Agreement.
With respect to the original Memorandum, and each updated or revised Memorandum
then currently in use, CSFB will indemnify the Company and hold the Company, and
any person who controls the Company within Section 15 of the Act or Section 20
of the Exchange Act, harmless against any loss, claim, damage, liability or
expense (including reasonable costs of defense) arising out of or based upon any
allegation that such Memorandum includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in
<PAGE>
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, to the extent that such loss, claim, damage,
liability or expense arises out of or is based upon any untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with information furnished
to the Company in writing by CSFB. The foregoing indemnity agreement shall
continue in force and effect for a period of one year after the last issuance by
the Company of commercial paper pursuant to this Agreement.
In addition, the Company agrees to furnish promptly to CSFB (mailed directly to
the attention of its Short Term Finance Department) the following information:
1. All reports filed by the Company with the Securities and Exchange Commission
(the "SEC") pursuant to Section 13(a) or 15(d) of the Exchange Act (or
reasonably comparable information if the Company is not subject to such
filing requirements), the Annual Report to Stockholders of J. C. Penney
Company, Inc. ("JCPenney"), and all reports filed by JCPenney with the SEC
pursuant to the Exchange Act;
2. All reports mailed to JCPenney's public stockholders; and
3. Copies of reports submitted by the Company to rating agencies showing the
amounts of commercial paper outstanding and the bank lines and other
liquidity sources supporting such commercial paper;
The Company also agrees to provide such other information as CSFB may reasonably
request.
The Company will notify CSFB promptly, to the attention of its Short Term
Finance Department, of any change (or any advice from a rating agency of a
contemplated change) in any of its debt ratings, any material change in the
aggregate size of its commercial paper program and any other development in its
affairs or in the industry or industries in which it is engaged which has a
material impact on the results of its operations, its financial condition or the
marketability of its commercial paper.
If at any time when CSFB is offering Notes or any Notes are outstanding, any
event occurs or condition exists as a result of which the Memorandum as then
amended or supplemented would include an untrue statement of a material fact, or
omit to state any material fact necessary to make the statements therein, in the
light of the circumstances when such Memorandum is delivered to a purchaser, not
misleading, or if, in CSFB's opinion or the opinion of the Company, it is
necessary at any time to amend or supplement the Memorandum as then amended or
supplemented to comply with applicable law, the Company will immediately notify
CSFB and will prepare and furnish to CSFB a revision or supplement to the
Memorandum satisfactory in all respects to CSFB, that will correct such
statement or omission or effect such compliance.
This Agreement may be terminated at any time by either of the parties hereto
upon the giving of at least 15 days' prior written notice to the other party.
<PAGE>
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
J. C. PENNEY FUNDING CORPORATION CREDIT SUISSE FIRST BOSTON
CORPORATION
By /s/ Robert B. Cavanaugh By /s/ Helena Willner
------------------------------ ------------------------------
Name Robert B. Cavanaugh Name Helena Willner
---------------------------- ----------------------------
Title Chairman of the Board Title Vice President
--------------------------- ---------------------------
<PAGE>
ANNEX A
1. THE NOTES DESCRIBED HEREIN (THE "NOTES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS, AND OFFERS AND SALES THEREOF MAY BE MADE ONLY IN COMPLIANCE
WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
2. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER THEREOF WILL BE DEEMED
TO HAVE REPRESENTED THAT IT IS NOT ACQUIRING NOTES WITH A VIEW TO ANY
DISTRIBUTION THEREOF AND THAT EITHER:
(A) IT IS AN INSTITUTIONAL INVESTOR THAT IS, OR IN WHICH EACH OF THE
EQUITY OWNERS IS, AN "ACCREDITED INVESTOR", AS DEFINED IN RULE 501(a) UNDER
THE ACT ("INSTITUTIONAL ACCREDITED INVESTOR"), THAT HAS SUCH KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT IT IS CAPABLE OF
EVALUATING AND BEARING THE ECONOMIC RISK OF AN INVESTMENT IN THE NOTES
(INCLUDING AN EVALUATION OF ANY PRIVATE PLACEMENT MEMORANDUM) AND THAT
EITHER IS PURCHASING NOTES FOR ITS OWN ACCOUNT, IS A U.S. BANK (AS DEFINED
IN SECTION 3(a)(2) OF THE ACT) OR A SAVINGS AND LOAN ASSOCIATION OR OTHER
INSTITUTION (AS DEFINED IN SECTION 3(a)(5)(A) OF THE ACT) ACTING IN ITS
INDIVIDUAL OR FIDUCIARY CAPACITY OR IS A FIDUCIARY OR AGENT (OTHER THAN A
U.S. BANK OR SAVINGS AND LOAN) PURCHASING NOTES FOR ONE OR MORE ACCOUNTS
EACH OF WHICH IS SUCH AN INSTITUTIONAL ACCREDITED INVESTOR (A) WHICH ITSELF
POSSESSES SUCH KNOWLEDGE AND EXPERIENCE OR (B) WITH RESPECT TO WHICH SUCH
PURCHASER HAS SOLE INVESTMENT DISCRETION; OR
(B) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE ACT) ("QIB") AND IS ACQUIRING NOTES FOR ITS OWN ACCOUNT OR FOR ONE
OR MORE ACCOUNTS, EACH OF WHICH IS A QIB AND WITH RESPECT TO EACH OF WHICH
THE PURCHASER HAS SOLE INVESTMENT DISCRETION; AND THE PURCHASER ACKNOWLEDGES
THAT IT IS AWARE THAT THE SELLER MAY RELY UPON THE EXEMPTION FROM THE
REGISTRATION PROVISIONS OF SECTION 5 OF THE ACT PROVIDED BY RULE 144A.
3. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER THEREOF ALSO WILL BE
DEEMED TO HAVE AGREED THAT ANY RESALE OR OTHER TRANSFER OF A NOTE WILL BE MADE
ONLY
<PAGE>
(A) TO OR THROUGH CREDIT SUISSE FIRST BOSTON CORPORATION OR TO AN
INSTITUTIONAL ACCREDITED INVESTOR OR A QIB IN A TRANSACTION EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF THE ACT AND APPROVED BY CREDIT SUISSE FIRST
BOSTON CORPORATION OR A CO-DEALER, OR
(B) TO A QIB IN A TRANSACTION WHICH MEETS THE REQUIREMENTS OF RULE
144A,
AND ONLY IN A MINIMUM PRINCIPAL AMOUNT OF $250,000 FOR EACH PURCHASER OR
ACCOUNT TO WHICH NOTES MAY BE SOLD OR TRANSFERRED.
<PAGE>
ANNEX B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND OFFERS AND SALES THEREOF MAY BE
MADE ONLY IN COMPLIANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. BY ITS
ACCEPTANCE OF A NOTE, THE PURCHASER WILL BE DEEMED TO HAVE REPRESENTED THAT IT
IS NOT ACQUIRING NOTES WITH A VIEW TO ANY DISTRIBUTION THEREOF AND THAT IT IS
EITHER (A) AN INSTITUTIONAL "ACCREDITED INVESTOR", AS DEFINED IN RULE 501(a)
UNDER THE ACT, THAT EITHER IS PURCHASING NOTES FOR ITS OWN ACCOUNT OR IS A
FIDUCIARY OR AGENT (OTHER THAN A U.S. BANK OR SAVINGS AND LOAN) PURCHASING NOTES
FOR ONE OR MORE ACCOUNTS EACH OF WHICH IS SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, OR (B) A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE ACT) ("QIB") AND ACKNOWLEDGES THAT THE SELLER MAY RELY ON THE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE ACT PROVIDED BY RULE 144A THEREUNDER. BY
ITS ACCEPTANCE OF A NOTE, THE PURCHASER WILL ALSO BE DEEMED TO HAVE AGREED THAT
ANY RESALE OR OTHER TRANSFER OF A NOTE WILL BE MADE ONLY (A) IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE ACT, EITHER (I) TO CREDIT SUISSE FIRST BOSTON
CORPORATION OR THROUGH CREDIT SUISSE FIRST BOSTON CORPORATION TO AN
INSTITUTIONAL ACCREDITED INVESTOR OR A QIB, OR (ii) IF SUCH PURCHASER IS A QIB,
TO A QIB IN A TRANSACTION WHICH MEETS THE REQUIREMENTS OF RULE 144A AND (B) IN
MINIMUM PRINCIPAL AMOUNTS OF $250,000.
<PAGE>
EXHIBIT 4(m)
GUARANTY
--------
This Guaranty Agreement is executed as of this 3rd day
of December, 1996, by J. C. Penney Company, Inc., a Delaware
corporation ("Guarantor"), in favor of J. C. Penney Funding
Corporation, a Delaware corporation ("Funding"), and the
Lenders (" ") (as defined below).
RECITALS:
--------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day and
Five-Year Revolving Credit Agreements (collectively, the "Agreements") each
dated as of December 16, 1993, as amended and restated with new Lenders as of
December 7, 1994, as amended as of December 6, 1995, as amended and restated as
of December 3, 1996 and as further amended, modified, extended or restated from
time to time with the written consent of the Guarantor, (the "Restated
Agreements"), among Guarantor, Funding, Morgan Guaranty Trust Company of New
York, as agent for the Lenders, Bank of America Illinois, Bankers Trust Company,
The Chase Manhattan Bank, Citibank, N.A., Credit Suisse and Nationsbank of
Texas, N.A., as co-agents for the Lenders, and certain other financial
institutions named in the Restated Agreements (collectively, the "Lenders") in
amounts not to exceed One Billion Five Hundred Million Dollars ($1,500,000,000)
and One Billion Five Hundred Million Dollars ($1,500,000,000), respectively; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding under
the Restated Agreements on the terms set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the premises, Guarantor hereby agrees
as follows:
1. Subject to the terms and conditions of subordination set forth in this
Guaranty, Guarantor hereby unconditionally guarantees in favor of the Lenders,
the prompt payment when due of all interest, principal, and other amounts owing
under the Restated Agreements (collectively, the "Guaranteed Debt"). This is an
unconditional guaranty of payment, and in the event of default by Funding in the
payment of interest, principal, or any other amounts payable under the
Guaranteed Debt, the Lenders may proceed directly against Guarantor to enforce
this Guaranty (including by the institution of legal proceedings) without first
proceeding against Funding.
2. Guarantor acknowledges that it has received and will receive a direct
or indirect benefit from the making of this Guaranty and the creation of the
Guaranteed Debt.
3. a. The Guaranteed Debt shall be subordinated and subject in right of
payment to the prior payment in full of any and all other indebtedness for
borrowed money incurred, created, assumed, or otherwise guaranteed by Guarantor
(collectively referred to as the Guarantor's "Senior Debt").
b. In the event of (1) any dissolution or winding-up or total or
partial liquidation or reorganization of Guarantor, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership, or similar proceeding
relative to Guarantor, or (2) any default in the payment of principal (including
any acceleration or required prepayments or amortization) of or interest on any
Senior Debt of Guarantor, then, subject to the provisions of subsection d.
below, the Lenders shall not be entitled to receive any
2
<PAGE>
payment under this Guaranty on account of the Guaranteed Debt unless and until
all Senior Debt shall have been paid in full or otherwise discharged.
c. For purposes of determining the priority of payments between the
Senior Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or
any part thereof, is declared due and payable prior to its stated maturity, all
principal of and interest and any other amounts due on all Senior Debt
outstanding at the time of such declaration as to the Guaranteed Debt shall
first have been paid in full, before any payment is made by Guarantor upon the
Guaranteed Debt.
d. In no event shall any Lender be required by this subordination to
refund any amounts paid to it pursuant to this Guaranty on account of the
Guaranteed Debt prior to the events specified in subsections b. and c. above,
and prior to such events the Lenders shall be entitled to be paid hereunder as
agreed and to collect any sums due such Lenders hereunder by any lawful means.
e. The provisions of this Section are for the purpose of defining the
relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation of Guarantor, which is
unconditional and absolute, to guarantee the prompt payment when due of the
Guaranteed Debt in accordance with the terms and provisions thereof; nor shall
anything herein prevent the Lenders from exercising all remedies otherwise
permitted by applicable law upon default hereunder, subject to the rights, if
any, under this Section of any Senior Debt holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
3
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
J. C. PENNEY COMPANY, INC.,
a Delaware corporation, as Guarantor,
By: /s/ Robert B. Cavanaugh
---------------------------------------
Name: Robert B. Cavanaugh
Title: Vice President & Treasurer
4
<PAGE>
EXHIBIT 4(n)
GUARANTY
--------
This Guaranty Agreement is executed as of this 3rd day
of December, 1996, by J. C. Penney Company, Inc., a Delaware
corporation ("Guarantor"), in favor of J. C. Penney Funding
Corporation, a Delaware corporation ("Funding"), and the
Lenders (as defined below).
RECITALS:
--------
WHEREAS, Funding is a wholly-owned subsidiary of Guarantor;
WHEREAS, Funding and Guarantor have entered into those certain 364-Day and
Five-Year Revolving Credit Agreements (collectively, the "Agreements") each
dated as of December 3, 1996, among Guarantor, Funding, Credit Suisse, as
administrative agent for the Lenders, and certain other financial institutions
named in the Agreements (collectively, the "Lenders") in amounts not to exceed
One Billion Five Hundred Million Dollars ($1,500,000,000) for each such
Agreement; and
WHEREAS, Guarantor is willing to guarantee any borrowings of Funding under
the Agreements on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises, Guarantor hereby agrees
as follows:
1. Subject to the terms and conditions of subordination set forth in this
Guaranty, Guarantor hereby unconditionally guarantees in favor of the Lenders,
the prompt payment when due of all interest, principal, and other amounts owing
under the Agreements (collectively, the "Guaranteed Debt"). This is an
unconditional guaranty of payment, and in the event of default by Funding in the
payment of interest, principal, or any other
<PAGE>
amounts payable under the Guaranteed Debt, the Lenders may proceed directly
against Guarantor to enforce this Guaranty (including by the institution of
legal proceedings) without first proceeding against Funding.
2. Guarantor acknowledges that it has received and will receive a direct
or indirect benefit from the making of this Guaranty and the creation of the
Guaranteed Debt.
3. (a) The Guaranteed Debt shall be subordinated and subject in right of
payment to the prior payment in full of any and all other indebtedness for
borrowed money incurred, created, assumed, or otherwise guaranteed by Guarantor
(collectively referred to as the Guarantor's "Senior Debt").
(b) In the event of (i) any dissolution or winding-up or total or
partial liquidation or reorganization of Guarantor, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership, or similar proceeding
relative to Guarantor, or (ii) any default in the payment of principal
(including any acceleration or required prepayments or amortization) of or
interest on any Senior Debt of Guarantor, then, subject to the provisions of
subsection (d) below, the Lenders shall not be entitled to receive any payment
under this Guaranty on account of the Guaranteed Debt unless and until all
Senior Debt shall have been paid in full or otherwise discharged.
(c) For purposes of determining the priority of payments between the
Senior Debt and the Guaranteed Debt, in the event that the Guaranteed Debt, or
any part thereof, is declared due and payable prior to its stated maturity, all
principal of and interest and any other amounts due on all Senior Debt
outstanding at the time of such declaration as to the Guaranteed Debt shall
first have been paid in full, before any
2
<PAGE>
payment is made by Guarantor upon the Guaranteed Debt.
(d) In no event shall any Lender be required by this subordination to
refund any amounts paid to it pursuant to this Guaranty on account of the
Guaranteed Debt prior to the events specified in subsections (b) and (c) above,
and prior to such events the Lenders shall be entitled to be paid hereunder as
agreed and to collect any sums due such Lenders hereunder by any lawful means.
(e) The provisions of this Section are for the purpose of defining the
relative rights of the holders of any Senior Debt, on the one hand, and the
Lenders, on the other hand, against Guarantor, and nothing herein shall impair,
as between the Guarantor and the Lenders, the obligation of Guarantor, which is
unconditional and absolute, to guarantee the prompt payment when due of the
Guaranteed Debt in accordance with the terms and provisions thereof; nor shall
anything herein prevent the Lenders from exercising all remedies otherwise
permitted by applicable law upon default hereunder, subject to the rights, if
any, under this Section of any Senior Debt holder.
4. The substantive laws of the State of New York shall govern the
validity, construction, enforcement, and interpretation of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as
of the date first written above.
J. C. PENNEY COMPANY, INC.,
a Delaware corporation, as Guarantor,
By: /s/ Robert B. Cavanaugh
---------------------------------------
Name: Robert B. Cavanaugh
Title: Vice President & Treasurer
3
<PAGE>
EXHIBIT 10(e)
CONFORMED COPY
J. C. PENNEY FUNDING CORPORATION
- --------------------------------------------------------------------------------
6501 Legacy Drive
Mail Code 1304
Plano, Texas 75024-3698
(972) 431-2011
November 22, 1996
J. C. Penney Company, Inc.
6501 Legacy Drive
Mail Code 1304
Plano, Texas 75024-3698
Attention: Treasurer
Re: Amendment No. 2 to Loan Agreement, dated as of January 28, 1986, as
amended by Amendment No. 1, dated as of December 26, 1986
("Agreement"), between your company and our company
----------------------------------------------------------------------
Dear Sirs:
You and we agree that the Agreement is amended as follows:
FIRST: The name of the Corporation having been changed by filing in the State
of Delaware on April 10, 1988, from "J. C. Penney Financial Corporation"
("Financial") to "J. C. Penney Funding Corporation" ("Funding"), the terms "J.
C. Penney Financial Corporation" and "Financial" are deleted throughout the
Agreement, and the terms, "J. C. Penney Funding Corporation" and "Funding", as
the case may be, are substituted therefor and adopted in lieu thereof.
SECOND: The principal place of business set forth in the preamble of the
Agreement, for both Penney and Funding, is deleted in its entirety and the
following substituted therefor:
6501 Legacy Drive
Plano, Texas 75024-3698
The addresses for Notices set forth in Section 10 of the Agreement are deleted
in their entirety and the following substituted therefor:
(a) for deliveries other than by U.S. Post Office, to the principal place
of business, and
(b) for mailing, to the following address:
P. O. Box 10001
Dallas, Texas 75301-0001
THIRD: Section 1(c) of the Agreement is deleted in its entirety and the
following substituted therefor:
(c) without the approval of the Board of Directors of Funding, shall not
exceed in aggregate principal amount at any one time outstanding
(i) $8,000,000,000, in the case of all senior loans and subordinated
loans considered together, and
(ii) $1,000,000,000, in the case of all subordinated loans.
<PAGE>
In the event of any conflict between the provisions of this Amendment No. 2
and those of the Agreement, the provisions of this Amendment No. 2 shall
govern.
Please sign the acceptance below on both counterparts and return one counterpart
to us, whereupon this Amendment No. 2 will become effective as of the date set
forth above.
Very truly yours,
J. C. PENNEY FUNDING CORPORATION
By /s/ Frank N. Napoli
------------------------------
Vice President and Treasurer
Accepted and agreed to:
J. C. PENNEY COMPANY, INC.
By /s/ Robert B. Cavanaugh
---------------------------------
Vice President and Treasurer
<PAGE>
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 1996 ANNUAL REPORT
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated
subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The business of Funding
consists of financing a portion of JCPenney's operations through loans to
JCPenney, the purchase of customer receivable balances that arise from the
retail credit sales of JCPenney, or a combination of both. No receivables have
been purchased by Funding since 1985. The loan agreement between Funding and
JCPenney provides for unsecured loans to be made by Funding to JCPenney. Each
loan is evidenced by a revolving promissory note and is payable upon demand in
whole or in part as may be required by Funding. Copies of Funding's loan and
receivables agreements with JCPenney are available upon request.
Funding issues commercial paper through Credit Suisse First Boston Corporation,
J.P. Morgan Securities Inc., Merrill Lynch Money Markets Inc., and Morgan
Stanley & Co. Incorporated to corporate and institutional investors in the
domestic market. The commercial paper is guaranteed by JCPenney on a
subordinated basis. The commercial paper is rated "A1" by Standard & Poor's
Corporation, "P1" by Moody's Investors Service, Inc., and "F1" by Fitch
Investors Service L.P.
Income is derived primarily from earnings on loans to JCPenney and is designed
to produce earnings sufficient to cover interest expense at a coverage ratio of
at least one and one-half times.
In 1996, net income decreased to $38 million from $43 million in 1995 which
increased from $32 million in 1994. The decrease in 1996 is attributed to lower
borrowing levels and lower interest rates. The increase in 1995 is attributed
to higher borrowing levels and higher interest rates. Interest expense was $111
million in 1996 compared with $128 million in 1995 and $94 million in 1994.
Interest earned from JCPenney was $169 million in 1996 compared to $194 million
in 1995 and $143 million in 1994.
Commercial paper borrowings averaged $1,827 million in 1996 compared to $2,145
million in 1995 and $1,990 million in 1994. The average interest rate on
commercial paper was 5.4 per cent in 1996, down from 5.9 per cent in 1995 and up
from 4.6 percent in 1994.
Committed bank credit facilities available to Funding and JCPenney as of January
25, 1997, amounted to $6 billion. In 1996, JCPenney and Funding amended the two
existing syndicated revolving credit facilities and entered into two new
syndicated revolving credit facilities with a group of domestic and
international banks. The "Existing" facilities support JCPenney's short term
borrowing program, and are comprised of a $1.5 billion, 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period thus allowing JCPenney to
match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for JCPenney's acquisition of Eckerd Corporation and
are also comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion,
five-year revolver. As of January 25, 1997, $1.5 billion was borrowed under the
five-year "Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility. See page 8 for a complete list of committed bank credit
facilities.
1996 total short term debt, including commercial paper and the credit facility
borrowings, averaged $2,041 million in 1996 compared to $2,145 million in 1995,
and $1,990 million in 1994. The average interest rate on the total short term
debt was 5.5 per cent in 1996, down from 5.9 per cent in 1995, and up from 4.6
per cent in 1994. The $1.9 billion credit line debt under the "Acquisition"
facilities was paid off on February 18, 1997. Subsequent to year end Funding
established a new Commercial Paper program.
We would like to express our appreciation to the institutional investment
community, as well as to our credit line participants and commercial paper
dealers for their continued support during 1996.
/s/ Robert B. Cavanaugh
Robert B. Cavanaugh
Chairman of the Board
February 27, 1997
2
<PAGE>
STATEMENTS OF INCOME J. C. PENNEY FUNDING CORPORATION
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
-------------------------------
<S> <C> <C> <C>
INTEREST INCOME FROM JCPENNEY.................. $ 169 $ 194 $ 143
INTEREST EXPENSE............................... 111 128 94
----- ----- -----
INCOME BEFORE INCOME TAXES..................... 58 66 49
Income taxes................................ 20 23 17
----- ----- -----
NET INCOME..................................... $ 38 $ 43 $ 32
===== ===== =====
</TABLE>
STATEMENTS OF REINVESTED EARNINGS
($ in millions)
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR................... $ 926 $ 883 $ 851
NET INCOME..................................... 38 43 32
----- ----- -----
BALANCE AT END OF YEAR......................... $ 964 $ 926 $ 883
===== ===== =====
</TABLE>
--------------------
See Notes to Financial Statements on page 6
3
<PAGE>
BALANCE SHEETS J. C. PENNEY FUNDING CORPORATION
(In millions except share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
ASSETS
Loans to JCPenney.............................. $5,062 $2,563 $3,114
====== ====== ======
LIABILITIES AND EQUITY OF JCPENNEY
CURRENT LIABILITIES
Short term debt................................ $3,952 $1,482 $2,074
Due to JCPenney................................ 1 10 12
------ ------ ------
TOTAL CURRENT LIABILITIES................. 3,953 1,492 2,086
EQUITY OF JCPENNEY
Common stock (including contributed
capital), par value $100:
Authorized, 750,000 shares -
issued and outstanding, 500,000 shares...... 145 145 145
Reinvested earnings............................ 964 926 883
------ ------ ------
TOTAL EQUITY OF JCPENNEY.................. 1,109 1,071 1,028
------ ------ ------
TOTAL LIABILITIES AND EQUITY OF JCPENNEY.. $5,062 $2,563 $3,114
====== ====== ======
</TABLE>
--------------------
See Notes to Financial Statements on page 6
4
<PAGE>
STATEMENTS OF CASH FLOWS J. C. PENNEY FUNDING CORPORATION
($ In millions)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
-------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 38 $ 43 $ 32
(Increase)Decrease in loans to JCPenney....... (2,499) 551 (791)
Increase(Decrease) in amount due to JCPenney.. (9) (2) (31)
------- ----- -----
$(2,470) $ 592 $(790)
FINANCING ACTIVITIES
Increase(Decrease) in short term debt......... $ 2,470 $(592) $ 790
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.................................. $ 111 $ 128 $ 94
Income taxes paid.............................. $ 28 $ 26 $ 10
</TABLE>
--------------------
See Notes to Financial Statements on page 6
5
<PAGE>
INDEPENDENT AUDITORS' REPORT J. C. PENNEY FUNDING CORPORATION
To the Board of Directors of
J. C. Penney Funding Corporation:
We have audited the accompanying balance sheets of J. C. Penney Funding
Corporation as of January 25, 1997, January 27, 1996, and January 28, 1995, and
the related statements of income, reinvested earnings, and cash flows, appearing
on pages 3 through 5 for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J. C. Penney Funding
Corporation as of January 25, 1997, January 27, 1996, and January 28, 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1997
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NATURE OF OPERATIONS
- --------------------
J. C. Penney Funding Corporation ("Funding") is a wholly-owned consolidated
subsidiary of J. C. Penney Company, Inc. ("JCPenney"). The principal business
of Funding consists of financing a portion of JCPenney's operations through
loans to JCPenney. To finance its operations, Funding issues commercial paper,
which is guaranteed by JCPenney on a subordinated basis, to corporate and
institutional investors in the domestic market. Funding has, from time to time,
issued long term debt in public and private markets in the United States and
abroad.
DEFINITION OF FISCAL YEAR
Funding's fiscal year ends on the last Saturday in January. Fiscal year 1996
ended January 25, 1997, 1995 ended January 27, 1996, and 1994 ended January 28,
1995.
COMMERCIAL PAPER PLACEMENT
Funding places commercial paper solely through dealers. The average interest
rate on commercial paper at year end 1996, 1995, and 1994 was 5.5%, 5.7%, and
5.9%, respectively.
SUMMARY OF ACCOUNTING POLICIES
- ------------------------------
INCOME TAXES
Funding's taxable income is included in the consolidated federal income tax
return of JCPenney. Income taxes in Funding's statement of income are computed
as if Funding filed a separate federal income tax return.
USE OF ESTIMATES
Funding's financial statements have been prepared in conformity with generally
accepted accounting principles. Certain amounts included in the financial
statements are estimated based on currently available information and
management's judgment as to the outcome of future conditions and circumstances.
While every effort is made to ensure the integrity of such estimates, including
the use of third party specialists where appropriate, actual results could
differ from these estimates.
LOANS TO JCPENNEY
- -----------------
Funding and JCPenney are parties to a Loan Agreement which provides for
unsecured loans, payable on demand, to be made from time to time by Funding to
JCPenney for the general business purposes of JCPenney, subject to the
terms and conditions of the Loan Agreement. Under the terms of the Loan
Agreement, Funding and JCPenney agree upon a mutually-acceptable earnings
coverage of Funding's interest and other fixed charges. The earnings to fixed
charges ratio has historically been at least one and one-half times.
COMMITTED BANK CREDIT FACILITIES
- --------------------------------
Committed bank credit facilities available to Funding and JCPenney as of January
25, 1997, amounted to $6 billion. In 1996, JCPenney and Funding amended the two
existing syndicated revolving credit facilities and entered into two new
syndicated revolving credit facilities with a group of domestic and
international banks. The "Existing" facilities support JCPenney's short term
borrowing program, and are comprised of a $1.5 billion, 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period thus allowing JCPenney to
match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for JCPenney's acquisition of Eckerd Corporation and
are also comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion,
five-year revolver. As of January 25, 1997, $1.5 billion was borrowed under the
five-year "Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The fair value of short term debt (commercial paper) at January 25, 1997,
January 27, 1996, and January 28, 1995, approximates the amount as reflected on
the balance sheet due to its short average maturity.
The fair value of loans to JCPenney at January 25, 1997, January 27, 1996, and
January 28, 1995, also approximates the amount reflected on the balance sheet
because the loan is payable on demand and the interest charged on the loan
balance is adjusted to reflect current market interest rates.
--------------------
6
<PAGE>
FIVE YEAR FINANCIAL SUMMARY J. C. PENNEY FUNDING CORPORATION
($ In millions)
<TABLE>
<CAPTION>
AT YEAR END 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Short term debt
Commercial paper............ $2,049 $1,482 $2,074 $1,284 $ 887
Credit line advance......... 1,903 -- -- -- --
------ ------ ------ ------ ------
Total short term debt..... 3,952 1,482 2,074 1,284 887
Equity of JCPenney............. 1,109 1,071 1,028 996 980
------ ------ ------ ------ ------
TOTAL CAPITALIZATION.............. $5,061 $2,553 $3,102 $2,280 $1,867
====== ====== ====== ====== ======
COMMITTED BANK CREDIT FACILITIES.. $6,000 $3,000 $2,500 $1,250 $1,250
FOR THE YEAR
INCOME............................ $ 169 $ 194 $ 143 $ 71 $ 77
EXPENSES.......................... $ 111 $ 128 $ 94 $ 47 $ 51
NET INCOME........................ $ 38 $ 43 $ 32 $ 16 $ 17
FIXED CHARGES - TIMES EARNED...... 1.52 1.52 1.52 1.52 1.52
PEAK SHORT TERM DEBT.............. $4,010 $2,771 $2,649 $2,327 $1,665
AVERAGE DEBT...................... $2,041 $2,145 $1,990 $1,347 $1,185
AVERAGE INTEREST RATES............ 5.5% 5.9% 4.6% 3.2% 3.9%
</TABLE>
--------------------
7
<PAGE>
QUARTERLY DATA J. C. PENNEY FUNDING CORPORATION
($ in millions) (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----------------- ---------------- ---------------- ----------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income....................... $ 32 48 24 33 48 32 36 52 38 68 46 49
Expenses..................... $ 21 31 16 22 32 21 24 34 25 44 31 32
Income before taxes.......... $ 11 17 8 11 16 11 12 18 13 24 15 17
Net income................... $ 7 11 5 7 10 7 8 12 9 16 10 11
Fixed charges -
times earned............... 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52 1.52
</TABLE>
COMMITTED REVOLVING CREDIT FACILITIES
AS OF JANUARY 25, 1997
Bank of America NT & SA The Industrial Bank of Japan
Bank of Hawaii Trust Company
Bank of New York The Long Term Credit Bank of
Bank One, Texas, N.A. Japan, Ltd.
Bankers Trust Company Mellon Bank, N.A.
The Bank of Tokyo-Mitsubishi, Ltd. Morgan Guaranty Trust Company
Banque Nationale de Paris of New York
Barclays Bank PLC National Australia Bank, Limited
Caisse Nationale de Credit Agricole NationsBank of Texas, N.A.
Canadian Imperial Bank of Commerce The Northern Trust Company
The Chase Manhattan Bank Norwest Bank Minnesota, N.A.
Citibank, N.A. PNC Bank, N.A.
Compagnie Financiere de CIC et The Royal Bank of Canada
de l'Union Europeenne The Sanwa Bank, Limited
CoreStates Bank, N.A. Sakura Bank, Limited
Credit Suisse First Boston San Paolo Bank
Dai-Ichi Kangyo Bank The Sumitomo Bank, Limited
The First National Bank of Boston SunBank, N.A.
The First National Bank of Chicago Union Bank of Switzerland
First Security Bank of Utah, N.A. United Missouri Bank, N.A.
First Union National Bank of United States National Bank
North Carolina of Oregon
Firstar Bank Milwaukee, N.A. Wachovia Bank of North
Fleet National Bank Carolina, N.A.
The Fuji Bank, Limited Wells Fargo Bank (Texas), N.A.
Hibernia National Bank Yasuda Trust & Banking
The Hong-Kong Shanghai Banking Company, Ltd.
Corporation, Ltd.
--------------------
8
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors of J. C. Penney
Funding Corporation:
We consent to incorporation by reference in: (1) the Registration Statement
(No. 33-28390) on Form S-8; (2) the Registration Statement (No. 33-59666) on
Form S-8; (3) the Registration Statement (No. 33-59668) on Form S-8; (4) the
Registration Statement (No. 33-66070) on Form S-8; (5) the Registration
Statement (No. 33-66072) on Form S-8; (6) the Registration Statement (No. 33-
56993) on Form S-8; (7) the Registration Statement (No. 33-56995) on Form S-8;
(8) the Registration Statement (No. 333-13949) on Form S-8; (9) the Registration
Statement (No. 333-13951) on Form S-8; (10) the Registration Statement (No. 333-
22627) on Form S-8; (11) the Registration Statement (No. 333-22607) on Form S-8;
(12) the Registration Statement (No. 333-23339) on Form S-3; and (13) the
Registration Statement (No. 333-06883) on Form S-3 of J. C. Penney Company,
Inc. of our report dated February 27, 1997, relating to the balance sheets of J.
C. Penney Funding Corporation as of January 25, 1997, January 27, 1996, and
January 28, 1995, and the related statements of income, reinvested earnings, and
cash flows for the years then ended, which report appears in the 1996 Annual
Report of J. C. Penney Funding Corporation, which Annual Report is incorporated
by reference in the Annual Report on Form 10-K of J. C. Penney Funding
Corporation for the year ended January 25, 1997.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 24, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT each of the undersigned directors and
officers of J. C. PENNEY FUNDING CORPORATION, a Delaware corporation, which is
about to file with the Securities and Exchange Commission, Washington, D.C.,
under the provisions of the Securities Exchange Act of 1934, its Annual Report
on Form 10-K for the 52 weeks ended January 25, 1997, hereby constitutes and
appoints W. J. Alcorn and R. B. Cavanaugh, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power to act without the other,
for him or her and in his or her name, place, and stead, in any and all
capacities, to sign said Annual Report, which is about to be filed, and any and
all subsequent amendments to said Annual Report, and to file said Annual Report
and each subsequent amendment so signed, with all exhibits thereto, and any and
all documents in connection therewith, and to appear before the Securities and
Exchange Commission in connection with any matter relating to said Annual Report
and any subsequent amendments, hereby granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform any and all
acts and things requisite and necessary to be done in and about the premises as
fully and to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of
the 21st day of March, 1997.
/s/ R. B. Cavanaugh /s/ W. J. Alcorn
- ------------------------------ --------------------------------
R. B. Cavanaugh W. J. Alcorn
Chairman of the Board Controller
(principal executive officer); (principal accounting officer)
Director
/s/ S. F. Walsh
- ------------------------------
S. F. Walsh
President
(principal financial officer);
Director
/s/ D. A. McKay
- ----------------------------
D. A. McKay
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME OF J. C.
PENNEY FUNDING CORPORATION AS OF JANUARY 25, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> JAN-25-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,062
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,062
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,062
<CURRENT-LIABILITIES> 3,953
<BONDS> 0
0
0
<COMMON> 145
<OTHER-SE> 964
<TOTAL-LIABILITY-AND-EQUITY> 5,062
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58)
<INCOME-PRETAX> 58
<INCOME-TAX> 20
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS]
JCPenney's financial strength has enabled the Company to continue to seek out
opportunities to enhance stockholder value. In 1996 the Company used its
financial strength to acquire two drugstore operations. Eckerd Corporation
(Eckerd) and Fay's Incorporated (Fay's), which makes the Company a stronger and
more effective competitor in the rapidly consolidating drugstore industry. In
December 1996 JCPenney acquired for cash a 50.1 per cent stake in Eckerd, a
drugstore chain with 1,748 stores operating primarily in the Sunbelt. The Eckerd
acquisition was completed at the end of February 1997, when the Company
exchanged approximately 23 million shares of its common stock for the remaining
49.9 per cent of Eckerd's outstanding common stock. The Company's investment,
including Eckerd debt assumed by the Company, was $3.3 billion. Additionally,
the Company purchased Fay's Incorporated, a chain of 272 drugstores operating
principally in New York state markets not previously served by the Company. The
Company's investment in Fay's was $353 million. These acquisitions were
accounted for by the purchase method of accounting for business combinations,
and accordingly their results of operations are included as of their respective
acquisition date.
The Company also continues to be a leader in the department store segment of
the retail industry. In 1996, the Company opened seven Washington, D. C. stores
acquired in late 1995 from Woodward and Lothrop. In addition, the Company
committed $598 million in capital expenditures to build, modernize, and expand
other JCPenney store locations. In 1996 the Company added approximately three
million square feet of gross selling space.
Over the next three years capital expenditures of $1 billion per year are
currently expected to be used to continue to build and modernize JCPenney
stores, and to aggressively grow our drugstore operations.
The Company was disappointed with 1996 operating results, particularly in the
first half of the year when retail sales in department stores and catalog were
flat with the comparable period of the prior year. However, in the second half
of the year retail sales rebounded, posting an increase of seven per cent. In
support of second half sales, the Company stepped up its marketing programs and
raised the level of its merchandise inventory. This combination led to increased
markdowns and a decline in gross margin, especially in the fourth quarter of the
year.
While gross margin suffered in 1996, the Company continued to manage and
leverage its expense structure. Selling, general and administrative (SG&A)
expenses declined as a per cent of sales by 70 basis points. SG&A expenses were
well managed across all operating divisions and support functions. Over the last
five years, the SG&A ratio has declined 250 basis points.
JCPenney's insurance operations posted another record year for the Company,
marking the seventh consecutive year of increasing premiums and profits. Over
the last five years, both revenue and pre-tax operating earnings have increased
at an annual rate of approximately 20 per cent.
The remainder of Management's Discussion and Analysis will discuss in more
detail the results of operations by business segment - Stores and Catalog,
Drugstores and Insurance.
The Company is committed to maintaining a leadership position in the
businesses it operates, improving its operating performance, and maintaining its
financial strength.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
($ in millions) 1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Earnings before business
acquisition and consolidation
expenses, net of tax $ 793 $ 838 $1,057
Net income 565 838 1,057
- ---------------------------------------------------------
</TABLE>
Earnings before business acquisition and consolidation expenses declined to $793
million compared with $838 million in 1995 and $1,057 million in 1994. Business
acquisition and consolidation expenses recorded in 1996 totaled $354 million
pre-tax and reduced net income by $228 million. These expenses were principally
related to the integration of drugstore acquisitions, costs associated with
closing drugstores and certain support functions, and the write-down of assets.
See footnote 18 for more details. Net income in 1996 was $565 million. While
sales rebounded in the second half of 1996, results were negatively impacted by
softness in gross margins in the Company's retail segments, resulting primarily
from aggressive marketing programs. In addition, the Company experienced higher
costs associated with net interest and credit operations as a result of higher
Company
14
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
debt levels and high levels of bad debt losses. Income in 1995 declined from
1994 levels and was negatively impacted by softness in consumer demand and the
continuing consolidation within the retail industry.
<TABLE>
<CAPTION>
SALES
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog $19,506 $18,711 $18,840
% inc/(dec) 4.2% (0.7%) 7.2%
Comp store % inc/(dec) 3.4% (1.4%) 6.8%
Drugstores $ 3,147 $ 1,851 $ 1,540
% increase 70.0% 20.2% 9.0%
Comp store % inc 7.7% 5.5% 5.5%
- ----------------------------------------------------------------------
</TABLE>
Sales in JCPenney stores were soft in the first half of 1996 and accelerated in
the second half. The Company's strategy was to regain market share lost in 1995
and the first half of 1996. The sales increase in 1996 was primarily driven by a
more fashionable mix of merchandise, particularly Men's and Women's, and
aggressive marketing programs. For 1996 the strongest sales gains were reported
in Children's and Men's, followed by Home and Women's. Men's and Women's had
strong recoveries during the second half of 1996. The best merchandise sales
were experienced in athletic apparel, children's apparel and shoes, furniture,
and cosmetics. The Company's ten largest geographic markets led the sales
performance, partly as a result of new stores in Washington, D. C. and Dallas
which helped to generate sales increases. The West, South and Northeast regions
followed in sales gains. In Catalog, sales were generally weak through November.
In December and January sales accelerated and Catalog recorded a small sales
gain for the year. Catalog's strengths were principally in the specialty media,
led by apparel. Soft sales were recorded by Catalog in the hard line areas,
particularly in electronics and toys. Sales in 1995 were weak after a very
strong sales performance in both Stores and Catalog in 1994 reflecting
continuing pressure in the retail sector of the economy.
Drugstore sales for 1996 showed strong growth, consistent with the overall
results in the drugstore industry. In 1996, total drugstore sales reflect the
addition of the Fay's and Eckerd drugstores in October and December 1996,
respectively, and in 1995, reflect the February acquisition of the Kerr
drugstores.
FIFO GROSS MARGIN
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog 30.1% 30.8% 31.9%
Drugstores 22.5% 23.3% 23.5%
- ----------------------------------------------------------------------
</TABLE>
Gross margin dollars for Stores and Catalog increased to $5,872 million in 1996
compared with $5,758 million in 1995, an increase of 2.0 per cent. As a per cent
of sales, margins declined 70 basis points primarily as a result of strong
marketing programs designed to boost sales volume and reduce higher levels of
inventory. Gross margin dollars in 1995 declined from $6,001 in 1994, a decrease
of 4.0 per cent. During 1995, margin ratios in Stores and Catalog also declined
primarily as a result of promotional markdowns.
Drugstore gross margin dollars increased to $708 million in 1996 compared with
$431 million in 1995. The majority of the increase was related to the
acquisition of Fay's and Eckerd. Gross margin dollars in 1995 increased from
$362 million in 1994, with both sales and margins increasing about 20 per cent.
Gross margin as a per cent of sales declined in 1996 and 1995. The decline was a
result of increases in managed care prescription drug sales which generally have
lower margins than non-managed care sales.
SELLING, GENERAL, AND
ADMINISTRATIVE (SG&A) EXPENSES
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog 24.0% 24.4% 23.8%
Drugstores 18.2% 19.6% 20.0%
- ----------------------------------------------------------------------
</TABLE>
SG&A for Stores and Catalog were well managed in 1996, and as a per cent of
sales declined by 40 basis points. SG&A expenses totaled $4,689 million in 1996
compared with $4,560 million in 1995 and $4,492 million in 1994. Expenses in
both 1996 and 1995 increased modestly despite higher paper and postage costs in
both 1995 and most of 1996. As a
15
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
per cent of sales, SG&A expenses increased bv 60 basis points in 1995 compared
with 1994, primarily as a result of declines in sales.
Drugstores SG&A expenses totaled $573 million in 1996 compared to $364 million
in 1995 and $308 million in 1994. The increases in both years were primarily
related to drugstore acquisitions which occurred in those years. As a per cent
of sales, SG&A expenses were well leveraged, decreasing by 140 basis points in
1996 and 40 basis points in 1995. Drugstores have achieved improvement in SG&A
ratios through increased store productivity and management of expense levels.
The Company expects further improvement in the SG&A ratio in future periods as
the recently acquired drugstores are fully integrated into the drugstore
operation. The Company expects those savings to come from areas such as
reduction of duplicate facilities and consolidation of support activities.
NET INTEREST AND CREDIT OPERATIONS
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue $(641) $(631) $(624)
Credit costs 560 489 447
Interest expense, net 359 325 270
--------------------------------------
Net interest and credit costs $ 278 $ 183 $ 93
- ----------------------------------------------------------------------
</TABLE>
Net interest and credit costs have increased over the past three years
principally as a result of higher bad debt write-offs and interest expense.
Finance charge revenue has remained relatively constant. Net bad debt losses and
increases in provisions established for future losses totaled $267 million in
1996 compared with $219 million in 1995, and $177 million in 1994. The increase
in both years is primarily related to continued high levels of delinquencies and
consumer bankruptcies. Increases in 1996 interest expense are generally related
to higher debt levels required to finance increases in working capital, the
drugstore acquisitions, and capital spending. Increases in 1995 interest expense
were primarily related to capital spending and debt associated with the
Company's stock purchase program.
JCPENNEY INSURANCE GROUP
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Revenue increase 20.1% 22.9% 22.3%
Profit increase 18.5% 23.6% 18.7%
- ----------------------------------------------------------------------
</TABLE>
JCPenney's Insurance group continues to contribute strong growth in revenue and
operating profits. In 1996, revenues grew to $832 million compared with $693
million in 1995 and $564 million in 1994. The growth is primarily attributable
to continued success in developing marketing relationships with third party
businesses throughout North America, principally banks, oil companies, and
retailers. Pre-tax operating profits increased to $186 million in 1996 compared
with $157 million in 1995 and $127 million in 1994. The increase in operating
profits has been driven by the strong growth in revenues.
Income taxes. The effective income tax rate was 37.9 per cent in 1996 compared
with 37.5 per cent in 1995 and 37.8 per cent in 1994. Tax rates will be
increasing to about 39 per cent beginning in 1997. The increase is a result of
the amortization of goodwill associated with the drugstore acquisitions which
provides no tax benefit.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Financial measures
($ in millions except
per share data) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operations $ 382 $1,403 $ 738
Capital expenditures (cash) 704 717 550
Debt to capital 60.1%* 52.6% 53.1%
Dividends per share 2.08 1.92 1.68
- ----------------------------------------------------------------------
*Assumes the completion of the Eckerd transaction.
</TABLE>
16
<PAGE>
[MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS] continued
The Company's goal is to maintain a strong balance sheet to provide financial
flexibility and to increase stockholder value. On February 20, 1997, the Company
completed a public offering of $500 million of 100-year, 7 5/8 per cent
Debentures due March 1, 2097. The Debentures were priced at par. The sale of
these Debentures was the first step in the Company's plan to convert short term
acquisition debt to longer term maturities.
Financial flexibility has permitted the Company to capitalize on attractive
opportunities for growth, as demonstrated by the recent acquisition of Eckerd,
to modernize and update JCPenney retail stores, and to open 20 new large
department stores in 1996 in premier shopping centers across the country.
The Board of Directors increased the dividend on the Company's common stock to
an indicated annual rate of $2.14 from $2.08 per share in March 1997. Including
this increase, the dividend on common stock has risen in excess of 60 per cent
over the last five years. Dividends on common shares were paid at a quarterly
rate of 52 cents per share in 1996, 48 cents per share in 1995, and 42 cents per
share in 1994.
Merchandise inventory in 1996 increased to $5,722 million compared with $3,935
million in 1995 and $3,876 million in 1994 due primarily to the drugstore
acquisitions. In addition, inventory for Department Stores and Catalog increased
by approximately 15 per cent in 1996. This increase is principally due to the
addition of three million square feet of gross selling space, low inventory
levels entering the year, and an acceleration of a marketing program earlier in
1997. Inventory position, however, was above the Company's plan in Department
Stores and Catalog at the end of 1996.
Intangible assets consist principally of intangible assets acquired in the 1996
drugstore acquisitions, comprised of favorable lease rights, prescription files,
software, and trade name, as well as goodwill representing the excess of
purchase price over the fair value of assets acquired.
Debt to capital. The Company's strong balance sheet enabled the strategic
acquisition of Eckerd. As a result of the first step of the acquisition, the
debt to capital ratio, including both on and off-balance-sheet debt, increased
to 64.5 per cent at year end 1996 compared with 52.6 per cent in 1995 and 53.1
per cent in 1994. Upon completion of the acquisition in February 1997, the debt
to capital ratio decreased to 60.1 per cent as a result of the issuance of 23.2
million shares of common stock. In addition to its drugstore acquisitions, the
Company purchased 7.5 million shares of its common stock in 1996 for $366
million. Over the past three years, the Company has purchased 25 million shares
of its common stock at an aggregate purchase price of $1,176 million.
Total debt, both on and off-balance-sheet, was $10,807 million at January
25, 1997 compared with $6,542 million at January 27, 1996, and $6,366 million at
January 28, 1995. The increase in 1996 included $1,235 million related to the
acquisition of 50.1 per cent of the outstanding common stock of Eckerd, the
assumption of $760 million of Eckerd debt, $366 million related to the purchase
of 7.5 million shares of JCPenney common stock, the assumption of $700 million
of Eckerd operating lease obligations, and approximately $500 million related to
working capital requirements. During 1996, the Company issued $600 million of
long term debt with an average coupon rate of approximately 7.3 per cent.
The Company's long term debt is rated A by Standard and Poor's Corporation, A2
by Moody's Investors Service, and A by Fitch Investors Service, Inc., which
continue to be among the highest in the retail industry. The Company's
commercial paper is rated Al, P1, and Fl by the three organizations,
respectively. Short term debt ratings were left unchanged by each of the rating
agencies.
Cash flow. The Company expects to generate sufficient cash flow internally to
meet substantially all of its cash requirements for working capital, capital
expenditures, and dividends in the future.
Inflation and changing prices have not had a significant impact on the Company
in recent years due to low levels of inflation.
17
<PAGE>
[INDEPENDENT
AUDITOR'S REPORT]
To the Stockholders and Board of Directors
of J.C. Penney Company, Inc.:
We have audited the accompanying consolidated balance sheets of J.C. Penney
Company, Inc. and Subsidiaries as of January 25, 1997, January 27, 1996, and
January 28, 1995, and the related consolidated statements of income, reinvested
earnings, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J.C. Penney
Company, Inc. and Subsidiaries as of January 25, 1997, January 27, 1996, and
January 28, 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, in 1994, and Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1995.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1997
[COMPANY STATEMENT
ON FINANCIAL INFORMATION]
The Company is responsible for the information presented in this Annual Report.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are considered to present fairly in
all material respects the Company's results of operations, financial position,
and cash flows. Certain amounts included in the consolidated financial
statements are estimated based on currently available information and judgment
as to the outcome of future conditions and circumstances. Financial information
elsewhere in this Annual Report is consistent with that in the consolidated
financial statements.
The Company's system of internal controls is supported by written policies and
procedures and supplemented by a staff of internal auditors. This system is
designed to provide reasonable assurance, at suitable costs, that assets are
safeguarded and that transactions are executed in accordance with appropriate
authorization and are recorded and reported properly. The system is continually
reviewed, evaluated, and where appropriate, modified to accommodate current
conditions. Emphasis is placed on the careful selection, training, and
development of professional managers.
An organizational alignment that is premised upon appropriate delegation of
authority and division of responsibility is fundamental to this system.
Communication programs are aimed at assuring that established policies and
procedures are disseminated and understood throughout the Company.
The consolidated financial statements have been audited by independent
auditors whose report appears to the left. This audit was conducted in
accordance with generally accepted auditing standards, which include the
consideration of the Company's internal controls to the extent necessary to form
an independent opinion on the consolidated financial statements prepared by
management.
The Audit Committee of the Board of Directors is composed solely of directors
who are not officers or employees of the Company. The Audit Committee's
responsibilities include recommending to the Board for stockholder approval the
independent auditors for the annual audit of the Company's consolidated
financial statements. The Committee also reviews the independent auditors' audit
strategy and plan, scope, fees, audit results, and non-audit services and
related fees; internal audit reports on the adequacy of internal controls; the
Company's ethics program; status of significant legal matters; the scope of the
internal auditors' plans and budget and results of their audits; and the
effectiveness of the Company's program for correcting audit findings. The
independent auditors and Company personnel, including internal auditors, meet
periodically with the Audit Committee to discuss auditing and financial
reporting matters.
/s/ Donald A. McKay
Donald A. McKay
Senior Vice President and Chief Financial Officer
18
<PAGE>
[CONSOLIDATED STATEMENTS OF INCOME]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ($ in millions except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Retail sales $22,653 $20,562 $20,380
Revenue of insurance and bank 996 857 702
--------------------------
Total revenue 23,649 21,419 21,082
--------------------------
Costs and expenses
Cost of goods sold, occupancy, buying, and
warehousing costs 16,043 14,333 13,970
Selling, general, and administrative expenses 5,239 4,895 4,783
Costs and expenses of insurance and bank 803 667 537
Net interest expense and credit operations 278 183 93
Minority interest and amortization of intangibles 23 -- --
Business acquisition and consolidation expenses 354 -- --
--------------------------
Total costs and expenses 22,740 20,078 19,383
--------------------------
Income before income taxes 909 1,341 1,699
Income taxes 344 503 642
--------------------------
Net income $ 565 $ 838 $ 1,057
--------------------------
Earnings per common share
Primary $ 2.29 $ 3.48 $ 4.29
Fully diluted $ 2.25 $ 3.33 $ 4.05
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34
[CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS]
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinvested earnings at beginning of year $ 4,397 $ 4,262 $ 4,093
Net income 565 838 1,057
Net unrealized change in debt and equity securities
and currency translation adjustments (21) 72 (21)
Retirement of common stock (320) (301) (435)
Common stock dividends declared (471) (434) (392)
Preferred stock dividends declared, net of taxes (40) (40) (40)
--------------------------
Reinvested earnings at end of year $ 4,110 $ 4,397 $ 4,262
==========================
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34.
19
<PAGE>
[CONSOLIDATED BALANCE SHEETS]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASSETS ($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets
Cash (including short term investments
of $131, $173, and $207) $ 131 $ 173 $ 261
Receivables, net 5,757 5,207 5,159
Merchandise inventory (LIFO reserves of $265,
$226, and $247) 5,722 3,935 3,876
Prepaid expenses 102 94 73
--------------------------
Total current assets 11,712 9,409 9,369
Properties, net 5,014 4,281 3,954
Investments, primarily insurance operations 1,605 1,651 1,359
Deferred insurance policy acquisition costs 666 582 482
Goodwill and other intangible assets 1,861 -- --
Other assets 1,230 1,179 1,038
--------------------------
$22,088 $17,102 $16,202
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY ($ in millions)
- --------------------------------------------------------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 3,738 $ 2,404 $ 2,274
Short term debt 3,950 1,509 2,092
Current maturities of long term debt 250 -- --
Deferred taxes 28 107 115
--------------------------
Total current liabilities 7,966 4,020 4,481
Long term debt 4,565 4,080 3,335
Deferred taxes 1,362 1,188 1,039
Insurance policy and claims reserves 781 691 568
Other liabilities (including bank deposits
of $724, $767, and $702) 1,383 1,239 1,164
Minority interest in Eckerd 79 -- --
Stockholders' equity
Preferred stock, without par value:
Authorized, 25 million shares - issued, 1 million
shares of Series B LESOP convertible preferred 568 603 630
Guaranteed LESOP obligation (142) (228) (307)
Common stock, par value 50 cents:
Authorized, 1,250 million shares - issued,
224, 224, and 227 million shares 1,416 1,112 1,030
Reinvested earnings 4,110 4,397 4,262
--------------------------
Total stockholders' equity 5,952 5,884 5,615
--------------------------
$22,088 $17,102 $16,202
==========================
</TABLE>
See Notes to Consolidated Financial Statements on pages 22 through 34.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
J.C. Penney Company. Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR ($ in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 565 $ 838 $1,057
Business acquisition and consolidation expenses 310 -- --
Depreciation and amortization, including intangibles 381 341 323
Deferred taxes (18) 144 29
Change in cash from:
Customer receivables (297) 73 (326)
Inventory, net of trade payables (521) (55) (352)
Other assets and liabilities, net (38) 62 7
----------------------------
382 1,403 738
----------------------------
Investing activities
Capital expenditures (704) (717) (550)
Eckerd acquisition (1,776) -- --
Purchases of investment securities (471) (583) (476)
Proceeds from sales of investment securities 493 420 287
----------------------------
(2,458) (880) (739)
----------------------------
Financing activities
Change in short term debt 2,401 (583) 808
Issuance of long term debt 596 991 500
Payments of long term debt (133) (244) (350)
Common stock issued, net 68 50 45
Common stock purchased and retired (366) (335) (475)
Preferred stock retired (35) (27) (18)
Dividends paid, preferred and common (497) (463) (421)
----------------------------
2,034 (611) 89
----------------------------
Net increase/(decrease) in cash and
short term investments (42) (88) 88
Cash and short term investments at beginning of year 173 261 173
----------------------------
Cash and short term investments at end of year $ 131 $ 173 $ 261
============================
Supplemental cash flow information
Interest paid $ 390 $ 355 $ 301
Interest received 60 54 55
Income taxes paid 356 409 509
</TABLE>
Non-Cash Transactions. In October 1996, the Company acquired all of the assets
and liabilities of Fay's Incorporated in a transaction valued at approximately
$353 million. The transaction was accomplished through an exchange of common
stock valued at approximately $278 million and the assumption of approximately
$75 million of Fay's Incorporated debt.
In February 1995, the Company acquired all of the assets and liabilities of
Kerr Drug Stores, Inc. The transaction was accomplished through an exchange of
common stock valued at approximately $74 million.
Pro forma effects of these acquisitions would not differ significantly from
historical results.
See Notes to Consolidated Financial Statements on pages 22 through 34.
21
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]
- --------------------------------------------------------
1. Nature of Operations
2. Summary of Accounting Policies
3. Business Acquisitions
4. Receivables
5. Properties
6. Capital Expenditures
7. Financial Instruments and Fair Value
8. Accounts Payable and Accrued Expenses
9. Short Term Debt
10. Long Term Debt
11. Preferred Stock
12. Common Stock
13. Stock-Based Compensation
14. Interest Expense, Net
15. Rent Expense
16. Advertising Costs
17. Retirement Plans
18. Business Acquisition and Consolidation Expenses
19. Taxes
20. Segment Reporting
- --------------------------------------------------------
[1] NATURE OF OPERATIONS
The Company operates: Retail Department Stores and Catalog (Stores and
Catalog), Drugstores, and Insurance.
Stores and Catalog is comprised of retail stores located in all 50 states,
Puerto Rico, two stores in Mexico, and one store in Chile, as well as six
catalog fulfillment centers which together provide the consumer multiple
shopping formats. The major portion of the Company's business is conducted
domestically, and consists of providing merchandise and services to consumers
through department stores that include catalog departments. The Company's
merchandise offerings consist predominantly of family apparel, jewelry, shoes,
accessories, and home furnishings.
Drugstores include the Company's former Thrift drugstore operations, and
all of the Eckerd, Fay's, and Kerr drugstores acquired in 1996 and 1995. The
drugstore segment operates 2,699 store locations primarily in the Northeast,
Southeast, and Sunbelt regions of the United States which sell pharmaceuticals
and related products as well as general merchandise.
The Insurance segment consists of several insurance companies, the principal of
which is J.C. Penney Life Insurance Company (collectively, JCPenney Insurance).
JCPenney Insurance markets life, health, accident, and credit policies through
direct response solicitations throughout the United States and Canada to
JCPenney customers and customers of third party credit card issuers.
[2] SUMMARY OF ACCOUNTING POLICIES
Basis of presentation. Certain prior year amounts may have been reclassified to
conform with the current year presentation.
Basis of consolidation. The consolidated financial statements present the
results of J. C. Penney Company, Inc. and its subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Definition of fiscal year. The Company's fiscal year ends on the last Saturday
in January. Fiscal year 1996 ended January 25, 1997, 1995 ended January 27,
1996, and 1994 ended January 28, 1995. The accounts of JCPenney Insurance are on
a calendar year basis.
Retail sales. Retail sales include merchandise and services, net of returns, and
exclude all taxes.
Earnings per common share. Primary earnings per share are computed by dividing
net income less dividend requirements on the Series B LESOP convertible
preferred stock, net of tax, by the weighted average common stock and common
stock equivalents outstanding. Fully diluted earnings per share also assume
conversion of the Series B LESOP convertible preferred stock into the Company's
common stock. Additionally, it assumes adjustment of net income for the
additional cash requirements, net of tax, needed to fund the LESOP debt service
resulting from the assumed replacement of the preferred dividends with common
stock dividends.
Cash and short term investments. Cash invested in instruments with remaining
maturities of three months or less from time of investment is reflected as short
term investments.
Merchandise inventory. Substantially all merchandise inventory is valued at the
lower of cost (last-in, first-out) or
22
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
market, determined by the retail method. The Company applies internally
developed indices to measure increases and decreases in its own retail prices.
Depreciation and amortization. The cost of buildings and equipment is
depreciated on a straight line basis over the estimated useful lives of the
assets. The principal annual rates of depreciation are two to 10 per cent for
buildings and building improvements, five per cent for warehouse fixtures and
equipment, 10 per cent for selling fixtures and equipment, and 20 to 33 per cent
for computer equipment. Improvements to leased premises are amortized on a
straight line basis over the expected term of the lease or their estimated
useful lives, whichever is shorter. Intangible assets, other than trade name,
are being amortized over periods ranging from five to seven years. Trade name
and goodwill are amortized over 40 years.
Deferred charges. Expenses associated with the opening of new stores are written
off in the year of the store opening, except those of stores opened in January,
which are written off in the following fiscal year. Deferred policy acquisition
costs, principally marketing costs and commissions incurred by JCPenney
Insurance to secure new insurance policies, are amortized over the expected
premium-paying period of the related policies.
Investments. The Company's investments are classified as available-for-sale and
are carried at fair value. Changes in unrealized gains and losses are recorded
directly to stockholders' equity, net of applicable income taxes. Realized gains
and losses are determined on a first-in, first-out basis.
Insurance policy and claims reserves. Liabilities established by JCPenney
Insurance for future policy benefits are computed using a net level premium
method including assumptions as to investment yields, mortality, morbidity, and
persistency based on the Company's experience. Liabilities for unpaid claims are
charged to expense in the period that the claims are incurred.
Advertising. Costs for newspaper, television, radio, and other media advertising
are expensed as incurred. Catalog book preparation and printing costs, which are
considered direct response advertising, are charged to expense over the life of
the catalog, not to exceed six months.
Derivative financial instruments. The Company's current derivative positions
consist of non-leveraged off-balance-sheet interest rate swaps which are
accounted for by recording the net interest received or paid as an adjustment to
interest expense on a current basis. Gains or losses resulting from market
movements are not recognized.
Stock-based compensation. The Company elected to continue accounting for stock
options under Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees.
Use of estimates. The Company's consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. Certain
amounts included in the consolidated financial statements are estimated based on
currently available information and management's judgment as to the outcome of
future conditions and circumstances. While every effort is made to ensure the
integrity of such estimates, including the use of third party specialists where
appropriate, actual results could differ from these estimates.
New accounting rule. The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, in June 1996.
This standard was effective for transactions occurring after December 31, 1996,
and did not have a material impact on the Company.
[3] BUSINESS ACQUISITIONS
In November 1996 the Company entered into a definitive agreement to acquire
Eckerd Corporation (Eckerd), a 1,748 store drugstore chain with stores located
in 13 states primarily in the Southeast and Sunbelt, in a two-step cash and
stock transaction. The aggregate transaction value, including the assumption of
$760 million of Eckerd debt, was $3.3 billion. The transaction was effected
through a two-step process consisting of: i) a cash tender offer, which was
completed in December 1996, at $35.00 per share for 35.3 million shares of
Eckerd common stock, or 50.1 per cent of the total number of outstanding shares,
for a total consideration of $1,235 million, and ii) the exchange of 23.2
million shares of JCPenney common stock for the remaining 35.1 million shares of
Eckerd common stock at a conversion rate of 0.6604 of a share of JCPenney common
stock for each Eckerd share of common stock, for a consideration valued at
$1,311 million, including the cash out of certain outstanding Eckerd employee
23
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
stock options, in a transaction which was completed in February 1997. The
purchase price was allocated to assets acquired and liabilities assumed based on
their estimated fair value, and accordingly, the Company recognized intangible
assets consisting of favorable lease rights, prescription files, computer
software, and trade name. The excess of the purchase price over the estimated
fair value of assets acquired and liabilities assumed is classified as goodwill
and totaled $2.3 billion at the conclusion of the acquisition, of which $1.2
billion is reflected in the consolidated balance sheet.
In October 1996 the Company completed the acquisition of Fay's
Incorporated (Fay's), a drugstore chain with 272 stores located primarily in New
York state. The transaction was effected through the issuance of 5.2 million
shares of common stock valued at $278 million, and assumption of $75 million of
Fay's debt. The excess of the purchase price over the estimated fair value of
assets acquired and liabilities assumed totaled $220 million, and is classified
as goodwill.
Both the Eckerd and Fay's acquisitions are being accounted for under
the purchase method of accounting for business combinations, and accordingly,
the results of operations of both Eckerd and Fay's are included in the Company's
results of operations since the respective dates of acquisition.
The following unaudited pro forma condensed statements of operations
give effect to the Eckerd and Fay's acquisitions as if the transactions occurred
at the beginning of each of the periods presented.
<TABLE>
<CAPTION>
52 Weeks Ended
------------------------------------------
Jan. 25, 1997 Jan. 27, 1996
($ in millions except share data) Reported Pro forma Reported Pro forma
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail sales $22,653 $28,028 $20,562 $26,442
Earnings before
extraordinary items 565 519 838 766
Earnings per share before
extraordinary items:
Primary 2.29 1.92 3.48 2.88
Fully diluted 2.25 1.91 3.33 2.78
</TABLE>
Pro forma earnings do not reflect cost savings which the Company
believes should be at least $100 million per year once drugstore operations are
fully integrated.
See footnote 18 for a discussion of business acquisition and
consolidation expenses related to these acquisitions.
[4] RECEIVABLES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Customer receivables serviced $ 5,006 $ 4,688 $ 4,751
Customer receivables sold (725) (725) (725)
-------------------------
Customer receivables owned 4,281 3,963 4,026
Less allowance for doubtful accounts (105) (84) (74)
-------------------------
Customer receivables, net 4,176 3,879 3,952
Consumer banking receivables 735 776 729
Other receivables 846 552 478
-------------------------
Receivables, net $ 5,757 $ 5,207 $ 5,159
=========================
</TABLE>
The Company's policy is to write off accounts when the scheduled
minimum payment has not been received for six consecutive months, if any portion
of the balance is more than 12 months past due, or if it is otherwise determined
that the customer is unable to pay. Collection efforts continue subsequent to
write off, and recoveries are applied as a reduction of bad debt losses.
During the period 1988 to 1990, the Company transferred portions of
its customer receivables to a trust which, in turn, sold certificates
representing undivided interests in the trust in public offerings. Certificates
sold during this period totaled $1,400 million. As of January 25, 1997, $725
million of the certificates were outstanding and the balance of the receivables
in the trust was $1,869 million. The Company owns the remaining undivided
interest in the trust not represented by the certificates and will continue to
service all receivables for the trust.
Cash flows generated from receivables in the trust are dedicated to
payment of interest on the outstanding certificates with stated rates of 8.95
per cent and 9.625 per cent, absorption of defaulted accounts in the trust, and
payment of servicing fees to the Company. Reserve funds (fully funded at $91
million) are available if cash flows from the receivables become insufficient to
make such payments. None of the reserve funds has been utilized as of January
25, 1997. Additionally, the Company has made available to the trust irrevocable
letters of credit of $87 million that may be drawn upon should the reserve funds
be exhausted. None of the letters of credit was in use as of January 25, 1997.
24
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[5] PROPERTIES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Land $ 265 $ 216 $ 213
Buildings
Owned 2,666 2,410 2,178
Capital leases 159 182 186
Fixtures and equipment 3,710 2,978 2,763
Leasehold improvements 915 622 611
-------------------------
7,715 6,408 5,951
Less accumulated depreciation
and amortization 2,701 2,127 1,997
-------------------------
Properties, net $ 5,014 $ 4,281 $ 3,954
=========================
</TABLE>
1996 includes $431 million, net, related to the 1996 acquisitions.
At January 25, 1997, the Company owned 301 retail stores and other units, four
catalog distribution centers, one store merchandise distribution center, its
home office facility, and the JCPenney Insurance corporate offices.
[6] CAPITAL EXPENDITURES
Capital expenditures, primarily for new and relocated JCPenney stores and for
modernizations and updates of existing stores, were as follows:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
JCPenney stores:
New and relocated stores* $ 296 $ 399 $ 197
Modernizations and updates 219 134 136
Technology and other store
improvements 83 54 78
---------------------
598 587 411
Catalog 38 28 21
Drugstores 103 53 59
Other 51 81 53
---------------------
Total capital expenditures $ 790 $ 749 $ 544
=====================
</TABLE>
* 1995 total includes $173 million for the purchase of seven Woodward and
Lothrop stores in the Washington, D.C., area.
[7] FINANCIAL INSTRUMENTS AND FAIR VALUE
Financial Assets. The Company's financial assets are recorded at fair value
based on quoted market prices, and consist principally of fixed income and
equity securities, the majority of which are held by JCPenney Insurance, and
which had a fair value of $1,138 million, $995 million, and $758 million at the
end of 1996, 1995, and 1994, respectively, and asset-backed certificates.
Unrealized gains and losses are included in stockholders' equity, net of tax,
and consisted of net unrealized gains of $52 million on investments having a
fair value of $1,605 million and an amortized cost of $1,523 million at January
25, 1997, net unrealized gains of $70 million on investments having a fair value
of $1,651 million and an amortized cost of $1,540 million at January 27, 1996,
and net unrealized losses of $12 million on investments having a fair value of
$1,359 million and an amortized cost of $1,378 at January 28, 1995.
The scheduled maturities for fixed income securities at year end
1996 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
($ in millions) Cost Value
- -------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 12 $ 12
Due after one year through five years 632 673
Due after five years through 10 years 240 243
Due after 10 years 162 174
---------------------
1,046 1,102
Mortgage-backed securities 359 356
Equity securities 95 124
Other 23 23
---------------------
Total $1,523 $1,605
=====================
</TABLE>
Financial Liabilities are recorded in the consolidated balance sheets at
historical cost which approximate fair value. These values are not necessarily
indicative of actual market transactions.
25
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
The fair value of long term debt, excluding capital leases, is based on
the interest rate environment and the Company's credit rating.
Derivative Financial Instruments. The Company selectively uses non-leveraged,
off-balance-sheet derivative instruments to manage its market and interest rate
risk, and does not hold derivatives for trading purposes. Current derivative
positions consist of two offsetting interest rate swaps, each with a notional
principal amount of $375 million which were entered into in connection with the
sale of asset-backed certificates in 1990. The impact of these interest rate
swaps on both interest expense and the Company's average long term borrowing
rates for 1996, 1995, and 1994 was not material. These swaps help to protect
certificate holders by reducing the possibility of an early amortization of the
principal. The counterparty to these contracts is a high credit quality
commercial bank. Consequently, credit risk, which is inherent in all swaps, has
been minimized to a large extent.
Concentrations of Credit Risk. The Company has no significant concentrations of
credit risk. Individual accounts comprising accounts receivable are widely
dispersed and investments are well diversified.
[8] ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Trade payables $1,558 $ 979 $1,014
Accrued salaries, vacations,
profit-sharing, and bonuses 419 309 336
Taxes, including income taxes 376 362 358
Workers' compensation and
public liability insurance 208 132 123
Common dividend payable 121 107 96
Other 1,056 515 347
------------------------------------
Total $3,738 $2,404 $2,274
====================================
</TABLE>
1996 total includes $835 million related to the 1996 acquisitions.
<TABLE>
<CAPTION>
[9] SHORT TERM DEBT
($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper $ 2,050 $ 1,482 $ 2,074
Bank debt 1,900 - -
Other - 27 18
------------------------------------
Total $ 3,950 $ 1,509 $ 2,092
Average interest rate at year end 5.5% 5.7% 5.9%
====================================
</TABLE>
Committed bank credit facilities available to the Company as of January 25,
1997, amounted to $6.0 billion. In 1996, the Company amended its two existing
syndicated revolving credit facilities and entered into two new syndicated
revolving credit facilities totaling $6.0 billion with a group of domestic and
international banks. The "Existing" facilities support the Company's short term
borrowing program, and are comprised of a $1.5 billion 364-day revolver, and a
$1.5 billion, five-year revolver. The 364-day revolver includes a $750 million
seasonal credit line for the August to January period, thus allowing the Company
to match its seasonal borrowing requirements. The "Acquisition" facilities
provided short term funding for the Company's acquisition of Eckerd and are also
comprised of a $1.5 billion, 364-day revolver, and a $1.5 billion, five-year
revolver. As of January 25, 1997, $1.5 billion was borrowed under the five-year
"Acquisition" facility and $400 million was borrowed under the 364-day
"Acquisition" facility. Subsequent to year end, the Company initiated a new
commercial paper program to refinance the total amounts outstanding under the
bank lines at a lower cost.
Also, the Company had $945 million of uncommitted credit lines in the form
of letters of credit with seven banks to support its direct import merchandise
program. At January 25, 1997, $282 million of letters of credit issued by the
Company were outstanding.
26
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[10] LONG TERM DEBT
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Original issue discount
6% debentures, due 2006, $200 at
maturity, effective rate 13.2% $ 112 $ 108 $ 104
Debentures and notes
5.375% to 7.650%, due 1998 to 2026 3,100 2,500 1,500
8.25%, due 2002 250 250 250
9% to 10%, due 1997 to 2021* 1,045 835 1,000
Guaranteed LESOP notes,
8.17%, due 1998** 142 228 307
Present value of commitments
under capital leases 127 91 104
Other 39 68 70
-------------------------------
Long term debt $4,815 $4,080 $3,335
Average long term debt outstanding $4,053 $3,241 $2,754
Average interest rates 7.7% 7.9% 8.2%
===============================
</TABLE>
1996 includes $278 million related to the 1996 acquisitions.
*Includes current maturities of $250 million.
**For further discussion, see footnote 17.
<TABLE>
<CAPTION>
Changes in long term debt ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Increases
5.375% to 7.650% notes,
due 1998 to 2026 $ 600 $1,000 $ 500
Amortization of original
issue discount 4 4 3
Eckerd debt outstanding at
end of year 278 -- --
-------------------------------
882 1,004 503
-------------------------------
Decreases
9.375% notes due 1998,
retired in 1995 -- 165 --
Transfers to current maturities 250 -- --
Other, including LESOP amortization 147 94 97
-------------------------------
397 259 97
-------------------------------
Net increase in long term debt $ 485 $ 745 $ 406
===============================
</TABLE>
<TABLE>
<CAPTION>
Maturities of long term debt
Long Capital
($ in millions) Term Debt Leases
- ---------------------------------------------------
<S> <C> <C>
1997 $ 252 $ 17
1998 403 29
1999 228 13
2000 303 12
2001 252 13
2002 to 2006 1,711 12
Thereafter 1,485 46
------ ------
Total $4,634 $ 142
======
Less future interest and
executory expenses 15
------
Present value $ 127
======
</TABLE>
[11] PREFERRED STOCK
In 1988, a leveraged employee stock ownership plan (LESOP) was adopted (see
footnote 17). The LESOP purchased approximately 1.2 million shares of a new
issue of Series B convertible preferred stock from the Company. These shares are
convertible into shares of the Company's common stock at a conversion rate
equivalent to 20 shares of common stock for each share of preferred stock. The
conversion price is $30 per common share. The convertible preferred stock may be
redeemed at the option of the Company or the LESOP, under certain limited
circumstances. The redemption price may be satisfied in cash or
27
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
common stock or a combination of both at the Company's sole discretion. The
dividends are cumulative, are payable semi-annually on January 1 and July 1, and
yield 7.9 per cent. The convertible preferred stock issued to the LESOP has been
recorded in the stockholders' equity section of the consolidated balance sheets,
and the "Guaranteed LESOP obligation," representing borrowings by the LESOP, has
been recorded as a reduction of stockholders' equity. As of January 25, 1997,
approximately 946 thousand shares had been allocated to participants' accounts
since 1988, and approximately 231 thousand shares were committed to be released
in the next two years.
Preferred stock dividends. The preferred dividend is payable semi-annually at an
annual rate of $2.37 per common equivalent share. Preferred dividends declared
were $46 million in 1996, $48 million in 1995, and $50 million in 1994; on an
after tax basis, the dividends amounted to $28 million in 1996, $29 million in
1995, and $31 million in 1994.
Preferred stock purchase rights. In 1990, the Board of Directors declared a
dividend distribution of one new preferred stock purchase right on each
outstanding share of common stock and authorized the redemption of the old
preferred stock purchase rights for five cents per share, totaling $12 million.
The preferred stock purchase rights, in accordance with the rights agreement,
entitle the holder to purchase, for each right held, 1/400 of a share of Series
A junior participating preferred stock at a price of $140. The rights are
exercisable upon the occurrence of certain events and are redeemable by the
Company under certain circumstances, all as described in the rights agreement.
<TABLE>
<CAPTION>
Shares Paid-in Capital
(In thousands) ($ in millions)
Changes in outstanding ---------------------------------------------------------------
common stock 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 223,925 227,441 236,086 $ 1,112 $ 1,030 $ 1,003
Common stock issued 7,463 3,858 1,455 350 113 70
Common stock purchased and retired (7,500) (7,374) (10,100) (46) (31) (43)
---------------------------------------------------------------
Balance at end of year 223,888 223,925 227,441 $ 1,416 $ 1,112 $ 1,030
===============================================================
</TABLE>
[12] COMMON STOCK
The quarterly common dividend was 52 cents per share in 1996, 48 cents per share
in 1995, and 42 cents per share in 1994, or an indicated annual per share rate
of $2.08 in 1996, $1.92 in 1995, and $1.68 in 1994. Common dividends declared
were $471 million in 1996, $434 million in 1995, and $392 million in 1994.
The Company issued 1.8 million shares of its common stock in February 1995,
in connection with the Kerr Drug acquisition and 5.2 million shares in October
1996, in connection with the Fay's acquisition. In addition, the Company issued
23.2 million shares of its common stock in connection with the Eckerd
acquisition which will be recorded in the 1997 fiscal year.
Over the past three years the Board has authorized three share purchase
programs. Their status as of January 25, 1997 is as follows:
Common Shares Purchases
-------------------------------
(in millions) Shares Cost
- -------------------------------------------------------
1994 10.0 $ 475
1995 7.5 335
1996 7.5 366
-----------------------
Total 25.0 $1,176
=======================
There were approximately 59,000 stockholders of record at year end 1996. In
addition, the Company's savings plans, including the LESOP, had approximately
117,000 participants and held 34.1 million shares of the Company's common stock.
The savings plans also held 0.9 million shares of preferred stock, convertible
into 18.9 million shares of common stock. On a combined basis, these plans held
approximately 22 per cent of the Company's common shares after giving effect to
the conversion of the preferred stock at the end of fiscal year 1996.
28
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[13] STOCK-BASED COMPENSATION
At January 25, 1997, the Company had two stock-based compensation plans: the
1993 Equity Compensation Plan (Plan) and the 1993 Non-Associate Directors'
Equity Plan (Directors' Plan), both of which were approved by stockholders in
May 1993. Under the Plan, 11.6 million shares of common stock were reserved for
issuance upon the exercise of options and for the payment of stock awards over
the five-year term of the Plan. Shares acquired through exercise of options
generally have a two year retention requirement. Participants in the Plan are
generally to be selected management associates of the Company and its
subsidiaries and affiliates as determined by the committee administering
the Plan. Approximately 2,000 associates are eligible to participate. No awards
may be made under the Plan after May 31, 1998. Under the Directors' Plan,
90,000 shares of common stock were reserved for issuance upon the exercise of
stock options and the payment of stock awards over its five-year term. Each
director who is presently not an active employee of the Company will
automatically be granted annually an option to purchase 800 shares, in tandem
with an award of 200 restricted shares of common stock. An initial grant/award
in this same amount will also automatically be made to each new Non-Associate
Director upon his or her first being elected as a director. Such stock options
will become exercisable six months from the date of grant, but shares acquired
upon such exercise will not be transferable until a director terminates service.
Under the plans, both the number of shares and the exercise price, which is
based on the average market price, are fixed at the date of grant and have a
maximum term of 10 years.
The Board of Directors has approved a new 1997 Equity Compensation Plan
(1997 Plan) subject to stockholder approval at the annual meeting which will be
held May 16, 1997. The 1997 Plan will initially reserve 14 million shares for
issuance, which number may be increased in certain circumstances as set forth in
the 1997 Plan, as more fully described in the Company's 1997 Proxy Statement.
The 1997 Plan also provides for grants of stock options and stock awards to
members of the Board of Directors not otherwise employed by the Company. If the
1997 Plan is approved, no future grants will be made under the existing Plan or
the Directors' Plan.
The Company has elected to continue accounting for stock-based compensation
under the provisions of APB No. 25, Accounting for Stock Issued to Employees.
Accordingly, net income and earnings per share shown in the consolidated
statements of income appearing on page 19 do not reflect any compensation cost
for the Company's fixed stock options. In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, the fair value of each fixed option
granted is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Dividend yield 3.9% 3.9%
Expected volatility 22.3% 21.9%
Risk-free interest rate 5.6% 7.0%
Expected option term 5 years 5 years
Fair value per share of
options granted $ 8.88 $ 8.20
SFAS 123 compensation
expense (millions) $ 11 $ 11
</TABLE>
The effect on earnings per share of recording compensation expense under
SFAS No. 123 was a reduction of about four cents per share in 1996 and 1995.
For stock and restricted stock awards granted under the Plan, the Company
records compensation expense at the date of grant or over the vesting period. In
1996 and 1994 stock awards were not material. In 1995, the Company issued 531
thousand shares of its common stock in connection with its Shareholder Value
Award (SVA) program, which was a performance-based stock award plan. The SVA
program awarded shares to approximately 2,000 management associates and vested
over the 1993 to 1995 period. Compensation expense was recorded over the vesting
period based on the end of the year market price, and accordingly the Company
recorded compensation expense of $6 million in 1995 and $25 million in 1994.
The following table summarizes the status of the Company's fixed stock
option plans as of January 25, 1997, January 27, 1996, and January 28, 1995, and
changes for the years then ended:
29
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Option Shares Option Shares Option
Stock options (In thousands) Price (In thousands) Price (In thousands) Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year 8,867 $33.40 8,347 $ 3l.36 8,235 $27.96
Granted 1,266 47.51 1,230 43.00 997 55.31
Exercised (1,427) 27.39 (689) 25.67 (865) 26.51
Expired and cancelled (73) 42.49 (21) 38.63 (20) 32.68
-----------------------------------------------------------------------------------------
Balance at end of year 8,633 $36.39 8,867 $ 33.40 8,347 $31.36
Options exercisable at
year-end 7,419 34.54 7,637 31.87 7,354 28.13
=========================================================================================
</TABLE>
[14] INTEREST EXPENSE, NET
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt $ 102 $ 129 $ 92
Long term debt 312 254 225
Income on short term
investments (22) (18) (16)
Interest capitalized (10) (8) (3)
Other, net* (23) (32) (28)
----------------------------
Interest expense, net $ 359 $ 325 $ 270
============================
</TABLE>
* Includes $34 million in each year for interest income from the Company's
investment in asset-backed certicates.
[15] RENT EXPENSE
The Company conducts the major part of its operations from leased premises which
include retail stores, distribution centers, warehouses, offices, and other
facilities. Almost all leases will expire during the next 20 years; however,
most leases will be renewed or replaced by leases on other premises. Rent
expense for real property operating leases was:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $ 285 $ 245 $ 235
Contingent rents based on
sales 48 36 37
----------------------------------
Total $ 333 $ 281 $ 272
==================================
</TABLE>
The Company also leases data processing equipment and other personal
property under operating leases of primarily three to five years. Rent expense
for personal property leases was $106 million in 1996, $106 million in 1995, and
$92 million in 1994.
Future minimum lease payments for noncancelable real and personal property
operating leases and subleases as of January 25, 1997 were:
<TABLE>
<CAPTION>
($ in millions) Operating Leases
- -----------------------------------------------------
<S> <C>
1997 $ 394
1998 356
1999 308
2000 279
2001 232
Thereafter 1,508
-------
Total minimum lease payments $ 3,077
=======
Present value $ 1,800
Weighted average interest rate 10%
=======
</TABLE>
1996 drugstore acquisitions account for $1,458 million of minimum rents having a
present value of $700 million.
The minimum lease payments are shown net of estimated executory costs, which
are principally real estates taxes, maintenance, and insurance.
30
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[16] ADVERTISING COSTS
Advertising costs consist principally of newspaper, television, radio, and
catalog book costs. In 1996, the total cost of advertising was $988 million,
compared with $969 million in 1995, and $912 million in 1994. The consolidated
balance sheets included deferred catalog book costs of $98 million at January
25, 1997, $111 million at January 27, 1996, and $99 million at January 28,
1995, and are included in other assets.
[17] RETIREMENT PLANS
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Pension
Service cost $ 69 $ 44 $ 57
Interest cost 165 148 134
Actual return on assets (386) (464) (22)
Net amortization and deferral 179 302 (181)
-----------------------------
Pension charge/(credit) 27 30 (12)
-----------------------------
Post-retirement health care
Service cost 4 3 3
Interest cost 21 23 25
Net amortization and
deferral (5) (2) --
-----------------------------
Post-retirement health
care charge 20 24 28
LESOP expense 56 53 53
-----------------------------
Total retirement plans $ 103 $ 107 $ 69
=============================
</TABLE>
Pension plan. JCPenney's principal pension plan, which is noncontributory,
covers substantially all United States employees who have completed 1,000 or
more hours of service within a period of 12 consecutive months and have attained
21 years of age. In addition, the Company has an unfunded, noncontributory,
supplemental retirement program for certain management employees. In general,
benefits payable under the principal pension plan are determined by reference to
a participant's final average earnings and years of credited service up to 35
years. Eckerd has a pension plan which is noncontributory and covers its
employees who have completed 12 consecutive months of service and have attained
age 21.
In 1996, the Company increased its discount rate to 8.0 per cent,
reflecting a higher interest rate environment. The impact of this change
decreased the Company's obligation at year end 1996. Pension plan assumptions
are reviewed and modified as necessary on an annual basis. The Company made
contributions to the plan in 1996, 1995, and 1994 in the amounts of $119, $104,
and $99 million, respectively. Benefits paid were $110 million in 1996, $101
million in 1995, and $96 million in 1994.
Post-retirement health care benefits. The Company's retiree health care
plan (Retiree Plan) covers medical and dental services, and eligibility for
benefits is based on age and years of service. The Retiree Plan is contributory
and the amounts paid by retired employees have increased in recent years and are
expected to continue to do so. For certain group of employees, Company
contributions toward the cost of retiree coverage will be based on a fixed
dollar amount which will vary with years of service, age, and dependent
coverage. The Retiree Plan is funded on a pay-as-you-go basis by the Company and
retiree contributions.
The Company uses the same discount rate for both its pension plan and
Retiree Plan. The health care trend rate was lowered to 7.0 per cent for 1997
with gradual reductions to five per cent over the next several years. A one per
cent increase in the health care trend rate would increase the amount reported
for the accumulated obligation by $22 million and would result in $2 million
additional expense for 1996.
LESOP. The Company's LESOP, adopted in 1988, is a defined contribution
plan which covers substantially all United States employees who have completed
at least 1,000 hours of service within a period of 12 consecutive months, and if
hired on or after January 1, 1988, have attained 21 years of age.
The LESOP borrowed $700 million at an interest rate of 8.17 per cent
through a 10 year loan guaranteed by the Company. The LESOP used the proceeds of
the loan to purchase a new issue of convertible preferred stock from the
Company. As the Company makes contributions to the LESOP, these contributions,
plus the dividends paid on the Company's preferred stock held by the LESOP, will
be used to repay the loan. As the principal amount of the loan is repaid, the
"Guaranteed LESOP obligation" is reduced accordingly. The loan will be fully
paid in January 1998.
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
<TABLE>
<CAPTION>
December 31
------------------------------
Retirement plans ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension
Present value of accumulated benefits
Vested $ 1,836 $ 1,817 $ 1,368
Non-vested 59 94 75
----------------------------
$ 1,895 $ 1,911 $ 1,443
============================
Present value of projected benefit obligation $(2,187) $(2,183) $(1,661)
Net assets at fair market value 2,735 2,292 1,825
Unrecognized transition asset, net of
unrecognized losses 23 345 200
----------------------------
Net prepaid pension cost $ 571 $ 454 $ 364
============================
Post-retirement health care benefits
Accumulated benefit obligations
Retirees $ 232 $ 249 $ 217
Fully eligible active participants 27 30 43
Other active participants 32 39 40
----------------------------
291 318 300
Unrecognized net gains 45 19 32
----------------------------
Net liability $ 336 $ 337 $ 332
============================
Key assumptions
Rate of return on pension plan assets 9.5% 9.5% 9.5%
Discount rate 8.0% 7.25% 8.75%
Salary progression rate 4.0% 4.0% 4.0%
============================
</TABLE>
[18] BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES
During the third and fourth quarters of 1996, the Company recorded costs
totaling $354 million on a pre-tax basis, or 92 cents per share, which are
principally related to drugstore acquisitions, and are reported as Business
Acquisition and Consolidation Expenses on the consolidated income statement. The
largest component of such costs are related to the Company's agreement with the
Federal Trade Commission (FTC) to divest certain drugstores in North Carolina
and South Carolina.
These expenses consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Drugstore closings* $ 188
Asset write-downs 104
Other integration costs 62
-----
Total $ 354
Income taxes (126)
-----
Business acquisition and consolidation
expenses, net $ 228
</TABLE>
* Includes the effects of the FTC agreement as well as other overlap and
unproductive stores.
32
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[19] TAXES
Deferred tax assets and liabilities reflected on the Company's consolidated
balance sheet at January 25, 1997 were measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. In addition to the amounts shown in the
table, the Company recognized a $48 million deferred tax asset related to Eckerd
operating loss carryforwards for which an offsetting valuation reserve of an
equal amount has been established. No other valuation allowances have been
considered necessary for any year.
The major components of deferred tax (assets)/liabilities at January 25,
1997, January 27, 1996, and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
Income tax expense ($ in millions) 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 321 $ 306 $ 521
State and local 43 56 92
----------------------------
364 362 613
----------------------------
Deferred
Federal (19) 124 25
State and local (l) 17 4
----------------------------
(20) 141 29
----------------------------
Total $ 344 $ 503 $ 642
Effective tax rate 37.9% 37.5% 37.8%
============================
</TABLE>
<TABLE>
<CAPTION>
Per cent of
Amounts ($ in millions) Pre-tax income
-----------------------------------------------
Reconciliation of tax rates 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory
rate $318 $469 $594 35.0 35.0 35.0
State and local income taxes,
less federal income tax benefit 27 49 65 3.0 3.6 3.8
Tax effect of dividends on
allocated LESOP shares (12) (11) (9) (1.3) (.8) (.5)
Tax credits and other 11 (4) (8) 1.2 (.3) (.5)
--------------------------------------------
Total $344 $503 $642 37.9 37.5 37.8
============================================
</TABLE>
<TABLE>
<CAPTION>
Temporary differences
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Workers' compensation/
public liability $ (92) $ (101) $ (100)
Accounts receivable (44) (33) (29)
Business acquisition and
consolidation expenses (73) -- --
Vacation pay (55) (11) (9)
Other (19) -- (69)
Liabilities:
Retirement plans 93 51 12
Leases 318 332 338
Merchandise inventories 138 104 94
Depreciation and amortization 932 774 757
Deferred acquisition costs 192 174 160
Other -- 5 --
----------------------------------
Total* $1,390 $1,295 $1,154
==================================
</TABLE>
*1996 deferred taxes include amounts related to the Fay's and Eckerd drugstore
acquisitions totaling $115 million.
33
<PAGE>
[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS] continued
[20] SEGMENT REPORTING
The Company operates in three business segments: Stores and Catalog, Drugstores,
and Insurance. Other items are shown in the table below for purposes of
reconciling to total Company consolidated amounts.
<TABLE>
<CAPTION>
Depreciation
Operating Total Capital and
($ in millions) Year Revenue Earnings Assets Expenditures Amortization
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stores and Catalog 1996 $19,506 $1,183 $14,754 $680 $325
1995 18,711 1,199 13,744 689 308
1994 18,840 1,508 13,381 475 298
Drugstores 1996 3,147 135 4,389 103 41
1995 1,851 68 618 53 26
1994 1,540 54 469 59 18
Insurance 1996 832 186 1,986 7 5
1995 693 157 1,741 7 3
1994 564 127 1,360 10 3
Total Segments 1996 23,485 1,504 21,129 790 371
1995 21,255 1,424 16,103 749 337
1994 20,944 1,689 15,210 544 319
Business Acquisition and
Consolidation Expenses 1996 (354)
Net Interest and
Credit Operations 1996 (278)
1995 (183)
1994 (93)
Other 1996 164 37 959 10
1995 164 100 999 4
1994 138 103 992 4
Total Company 1996 23,649 909 22,088 790 381
1995 21,419 1,341 17,102 749 341
1994 21,082 1,699 16,202 544 323
</TABLE>
(1) Total Company operating earnings equals income before income taxes as shown
on the Company's consolidated statements of income.
(2) Other revenue includes bank and insurance capital gains.
(3) Other operating income includes the banking and business services
operations, insurance capital gains, real estate operations, LIFO
adjustments, amortization of goodwill and other intangible assets, and
minority interest.
34
<PAGE>
[QUARTERLY DATA] unaudited
<TABLE>
<CAPTION>
First Second Third Fourth
--------------------------------------------------------------------------------------------
($ in millions except per share data) 1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales 4,452 4,367 4,350 4,507 4,435 4,242 5,537 5,128 5,149 8,157 6,632 6,639
per cent inc/(dec) 1.9 0.4 9.7 1.6 4.6 7.1 8.0 (0.4) 8.7 23.0 (0.1) 5.0
Total revenue 4,692 4,564 4,519 4,753 4,643 4,412 5,788 5,352 5,328 8,416 6,860 6,823
per cent increase 2.8 1.0 10.0 2.4 5.3 7.4 8.1 0.4 9.0 22.7 0.5 5.3
LIFO gross margin 1,355 1,370 1,395 1,312 1,292 1,282 1,701 1,592 1,661 2,242 1,975 2,072
per cent of retail sales 30.4 31.4 32.1 29.1 29.1 30.2 30.7 31.0 32.2 27.5 29.8 31.2
FIFO gross margin
per cent of retail sales 30.4 31.4 32.1 29.1 29.1 30.2 30.7 31.0 32.2 27.3 29.5 31.2
Selling, general, and
administrative expenses 1,154 1,148 1,092 1,150 1,107 1,079 1,247 1,201 1,204 1,688 1,439 1,408
per cent of retail sales 25.9 26.3 25.1 25.5 25.0 25.5 22.5 23.4 23.4 20.7 21.7 21.2
Net income 142 156 223 93 116 132 236 240 274 94 326 428
Net income per common share
Primary 0.58 0.63 0.88 0.37 0.46 0.52 0.98 1.00 1.11 0.36 1.39 1.78
Fully diluted 0.57 0.61 0.84 0.37 0.46 0.51 0.95 0.95 1.04 0.36 1.31 1.66
Dividends per common share 0.52 0.48 0.42 0.52 0.48 0.42 0.52 0.48 0.42 0.52 0.48 0.42
Common stock price range
High 52 47 59 53 50 54 57 50 54 54 49 52
Low 46 41 50 47 43 47 49 43 47 46 42 39
Close 50 44 54 50 49 49 53 44 51 48 46 41
</TABLE>
35
<PAGE>
[SUPPLEMENTAL INFORMATION] unaudited
General. The following information is provided as a supplement to the Company's
audited financial statements. Its purpose is to facilitate an understanding of
the Company's credit operations, capital structure, and cash flows.
Credit Operations. The following presents the results of the Company's
proprietary credit card operation and shows both the net cost of credit in
support of the Company's retail businesses and the net cost of credit measured
on an all-inclusive, economic basis. The "economic basis" of the cost of credit
includes the cost of equity capital in addition to debt used to finance accounts
receivable balances. The cost of equity capital is based on the Company's
minimum return on equity objective of 16 per cent. The results presented below
cover all JCPenney credit card accounts receivable, both owned and those sold
under securitization transactions.
<TABLE>
<CAPTION>
Pre-tax cost of JCPenney credit card
($ in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance charge revenue
On receivables owned $(641) $(631) $(624)
On receivables sold (118) (112) (105)
----------------------------------
Total (759) (743) (729)
----------------------------------
Bad debt expense 311 256 208
Operating expenses
(including in-store costs) 251 255 268
Interest expense on debt financing 281 278 269
----------------------------------
Total costs 843 789 745
----------------------------------
Pre-tax cost of credit -
retail operations 84 46 16
Pre-tax cost of equity capital 138 137 135
----------------------------------
Pre-tax cost of credit -
economic basis 222 183 151
----------------------------------
Per cent of JCPenney credit sales 2.4% 2.0% 1.6%
==================================
</TABLE>
<TABLE>
<CAPTION>
Credit Sales 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Per cent Per cent Per cent
(Stores and Amounts of Eligible Amounts of Eligible Amounts of Eligible
Catalog) (In billions) Sales (In billions) Sales (In billions) Sales
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney
credit card $ 9.1 46.9 $ 9.0 48.4 $ 9.4 49.6
Third party
credit cards 4.1 21.2 3.7 19.8 3.4 17.9
---------------------------------------------------------------------------------
Total $13.2 68.1 $12.7 68.2 $12.8 67.5
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Key JCPenney credit card information
($ in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Number of accounts
serviced with balances 17.0 17.0 17.6
Total customer
receivables serviced $5,006 $4,688 $4,751
Average customer
receivables financed 4,322 4,258 4,197
Average account
balances (in dollars) 295 275 269
Average account maturity
(months) 4.5 4.3 4.2
9O-day delinquencies 3.7% 3.3% 2.5%
=================================
</TABLE>
Capital structure. The Company's objective is to maintain a capital structure
that will assure continuing access to financial markets so that it can, at
reasonable cost, provide for future needs and capitalize on attractive
opportunities for growth.
The debt to capital ratio shown in the table below includes both debt recorded
on the Company's consolidated balance sheet as well as off-balance-sheet debt
related to operating leases and the securitization of a portion of the Company's
customer accounts receivable (asset-backed certificates).
<TABLE>
<CAPTION>
Debt to capital ($ in millions) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Short term debt,
net of cash investments $ 3,818 $ 1,168 $ 1,737
Long term debt,
including current maturities 4,815 4,080 3,335
-----------------------------
8,633 5,248 5,072
Off-balance-sheet debt
Present value of operating leases 1,800 1,000 1,000
Securitization of accounts
receivable, net 374 294 294
-----------------------------
Total debt 10,807 6,542 6,366
Consolidated equity 5,952 5,884 5,615
-----------------------------
Total capital $16,759 $12,426 $11,981
Per cent of total debt to capital 64.5% 52.6% 53.1%
After completion of the
Eckerd transaction 60.1%
=============================
</TABLE>
The Company builds its capital base according to the different needs and
credit characteristics of its customer receivables and its other core retail
assets. Customer receivables are highly diversified and predictable financial
assets, very different from the core assets of a retailer, which include fixed
assets and merchandise inventories for stores
36
<PAGE>
[SUPPLEMENTAL INFORMATION] unaudited, continued
and catalog. Accordingly, the Company finances receivables with more leverage,
much like a finance company. The standards for these assets are a debt ratio of
approximately 88 per cent, and interest coverage of about 1.5 times. Core assets
are financed with less leverage and are more comparable to the leverage of non-
retail industrial companies with strong credit ratings. The Company's capital
structure after completion of the Eckerd transaction in February 1997 was:
<TABLE>
<CAPTION>
Customer Core
($ in millions) Receivables Assets Combined
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Debt $4,288 $ 6,519 $10,807
Equity 613 6,569 7,182
----------------------------------------
Total capital $4,901 $13,088 $17,989
Debt to capital per cent 87.5% 49.8%* 60.1%
========================================
</TABLE>
* Includes acquisition capital. Excluding such capital would reduce the ratio
to 37.1 per cent.
The historical debt to capital per cent and fixed charge coverage for the
prior three years, on a separate and combined basis, was:
<TABLE>
<CAPTION>
Debt to capital per cent 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 60.1 52.6 53.1
Core assets 49.8 32.1 31.1
Customer receivables 87.5 87.5 87.5
===========================================
</TABLE>
<TABLE>
<CAPTION>
Fixed charge coverage 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Combined 2.4 3.4 4.5
Core assets 3.8 6.0 9.1
Customer receivables 1.5 1.5 1.5
===========================================
</TABLE>
Financing costs incurred by the Company to finance its operations, including
those costs related to off-balance-sheet liabilities, were as follows:
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense, net $359 $325 $270
Interest portion of LESOP
debt payment 17 23 30
Off-balance-sheet financing
costs
Interest imputed on
operating leases 110 102 95
Asset-backed certificates
interest 68 68 68
----------------------------------------
Total $554 $518 $463
========================================
</TABLE>
Earnings before interest, taxes, depreciation, and amortization (EBITDA).
Management believes that a key measure of cash flow generated is EBITDA. The
following schedule shows the calculation of EBITDA and EBITDA as a per cent of
total revenue.
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before business
acquisition and consolidation
expenses and income taxes $ 1,263 $ 1,341 $ 1,699
Financing costs 554 518 463
Depreciation and
amortization 381 341 323
-----------------------------------------
EBITDA $ 2,l98 $ 2,200 $ 2,485
Total revenue $23,649 $21,419 $21,082
EBITDA as a per cent of
total revenue 9.3% 10.3% 11.8%
=========================================
</TABLE>
EBITDA by operating segment *
<TABLE>
<CAPTION>
($ in millions) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Stores and Catalog
EBITDA $1,754 $1,820 $2,161
as a per cent of sales 9.0% 9.7% 11.5%
Drugstores
EBITDA $ 206 $ 116 $ 87
as a per cent of sales 6.5% 6.3% 5.6%
Insurance
EBITDA $ 191 $ 160 $ 130
as a per cent of revenue 23.0% 23.1% 23.0%
=========================================
</TABLE>
* EBITDA for the operating segments differs from operating earnings by
depreciation, amortization, off-balance-sheet financing, and net credit costs.
Credit ratings. Over the years, the Company has maintained one of the highest
credit ratings in the retail industry. The Company's objective is to maintain a
strong investment grade rating on its senior long term debt and commercial
paper. Currently, the credit ratings for the Company are as follows:
<TABLE>
<CAPTION>
Long Term Commercial
Debt Paper
- --------------------------------------------------------------------------------
<S> <C> <C>
Standard & Poor's Corporation A Al
Moody's Investors Service A2 P1
Fitch Investors Service, Inc. A F1
============================
</TABLE>
37
<PAGE>
[FIVE YEAR FINANCIAL SUMMARY]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
($ in millions except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results for the year
Total revenue $23,649 $21,419 $21,082 $19,578 $18,515
Retail sales 22,653 20,562 20,380 18,983 18,009
per cent increase 10.2 0.9 7.4 5.4 11.2
FIFO gross margin as a per cent of retail sales 29.1 30.2 31.5 31.3 31.5
LIFO gross margin as a per cent of retail sales 29.2 30.3 31.5 31.5 31.7
Selling, general, and administrative
expenses as a per cent of retail sales 23.1 23.8 23.5 23.7 24.7
Depreciation and amortization 381 341 323 316 310
Income taxes 344 503 642 610 482
Earnings before business acquisition and
consolidation expenses, net of tax 793 838 1,057 944 777
Return on stockholders' equity 13.5 14.9 19.7 20.1 18.6
Net income 565 838 1,057 940 777
per cent to total revenue per common share 2.4 3.9 5.0 4.8 4.2
Per common share:
Earnings before business acquisition
and consolidation expenses, net of tax
Primary 3.29 3.48 4.29 3.79 3.15
Fully diluted 3.17 3.33 4.05 3.55 2.95
Net income
Primary 2.29 3.48 4.29 3.77 3.15
Fully diluted 2.25 3.33 4.05 3.53 2.95
Dividends 2.08 1.92 1.68 1.44 1.32
Stockholders' equity 25.67 24.76 23.45 21.53 19.17
Financial position
Receivables, net 5,757 5,207 5,159 4,679 3,750
Merchandise inventories 5,722 3,935 3,876 3,545 3,258
Properties, net 5,014 4,281 3,954 3,818 3,755
Capital expenditures 790 749 544 459 494
Total assets 22,088 17,102 16,202 14,788 13,467
Total debt 8,765 5,589 5,427 4,561 4,078
Stockholders' equity 5,952 5,884 5,615 5,365 4,705
Number of common shares
outstanding at year end 224 224 227 236 235
Weighted average common shares
Primary 229 229 237 239 236
Fully diluted 248 249 258 261 258
Number of employees at year end (In thousands) 252 205 202 193 192
</TABLE>
38
<PAGE>
[FIVE YEAR OPERATIONS SUMMARY]
J.C. Penney Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JCPenney stores
Number of stores
Beginning of year 1,238 1,233 1,246 1,266 1,283
Openings 36 43 29 24 33
Closings (46) (38) (42) (44) (50)
------------------------------------------------------------------
End of year 1,228 1,238 1,233 1,246 1,266
Gross selling space (In million sq.ft.) 117.2 114.3 113.0 113.9 114.4
Sales (In millions) $15,734 $14,973 $15,023 $14,056 $13,460
Sales including catalog desks (In millions) 18,694 17,930 18,048 16,846 15,698
Sales per gross square foot 159 156 159 146 137
Catalog
Number of catalog units
JCPenney stores l,226 1,228 1,233 1,246 1,266
Freestanding sales centers and merchants 552 548 552 543 640
Drugstores 107 106 94 101 128
Other, principally outlet stores 17 17 16 14 14
------------------------------------------------------------------
Total 1,902 1,899 1,895 1,904 2,048
Number of fulfillment centers 6 6 6 6 6
Distribution space (In millions sq.ft.) 11.4 11.4 11.4 11.4 11.4
Sales (In millions) $ 3,772 $ 3,738 $ 3,817 $ 3,514 $ 3,166
Drugstores
Number of stores
Beginning of year 645 526 506 548 530
Openings 47 37 46 35 30
Drugstore acquisitions 2,020 97 -- -- --
Closings (13) (15) (26) (77) (12)
------------------------------------------------------------------
End of year 2,699 645 526 506 548
Gross selling space (In millions) 26.4 6.2 4.5 4.6 5.2
Sales (In millions) $ 3,147 $ 1,851 $ 1,540 $ 1,413 $ 1,383
Sales per gross square foot 261 253 243 235 211
JCPenney Insurance (In millions)
Revenue $ 832 $ 693 $ 564 $ 461 $ 376
Policies and certificates in force 10.4 9.0 7.5 5.8 4.6
Amount of life insurance in force 9,990 9,559 8,780 7,627 6,552
Total assets 1,986 1,741 1,360 1,246 1,033
</TABLE>
39
