<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1998
REGISTRATION NO. 333-64649
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
JCP MASTER CREDIT CARD TRUST
(ISSUER OF THE CERTIFICATES)
JCP RECEIVABLES, INC.
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6141 75-2231415
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION)
6501 LEGACY DRIVE, MAIL STOP 1318
PLANO, TEXAS 75024
(972) 431-2082
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CHARLES R. LOTTER, ESQ.
EXECUTIVE VICE PRESIDENT, SECRETARY AND
GENERAL COUNSEL
J. C. PENNEY COMPANY, INC.
6501 LEGACY DRIVE
PLANO, TEXAS 75024
(972) 431-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JEFFREY J. VAWRINEK, ESQ. JAMES S. STRINGFELLOW, ESQ.
J. C. PENNEY COMPANY, INC. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
6501 LEGACY DRIVE, MAIL STOP 1103 LLP
PLANO, TEXAS 75024 919 THIRD AVENUE
NEW YORK, NEW YORK 10022
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Class A Asset Backed
Certificates, Series
E..................... $550,000,000 100% $550,000,000 $162,250
</TABLE>
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(1)Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1998
PROSPECTUS
$550,000,000
JCP MASTER CREDIT CARD TRUST
% Class A Asset Backed Certificates, Series E
JCP RECEIVABLES, INC.
Originator of the Trust
J. C. PENNEY COMPANY, INC.
Servicer of the Receivables
--------
Each % Class A Asset Backed Certificate, Series E (collectively, the
"Certificates") will represent an undivided interest in the JCP Master Credit
Card Trust (the "Trust") which was formed pursuant to a Master Pooling and
Servicing Agreement, as amended, among JCP Receivables, Inc. ("JCPR"), as the
seller of the Certificates and the originator of the Trust, J. C. Penney
Company, Inc. ("JCPenney"), as servicer (the "Servicer"), and The Fuji Bank
and Trust Company, as trustee (the "Trustee"), as supplemented by the Series
E Supplement relating to the Certificates (together, the "Pooling and
Servicing Agreement"). Concurrently with the issuance of the Certificates,
the Trust will issue the Class B Investor Interest, Series E (the "Class B
Investor Interest") in the initial amount of $60,365,854 and the Class C
Investor Interest, Series E (the "Class C Investor Interest" and, together
with the Class B Investor Interest, the "Series E Investor Interests") in
the initial amount of $60,365,854, each of which will be subordinated to
the Certificates as described herein. Only the Certificates are being
offered hereby. The property of the Trust includes a portfolio of
JCPenney credit card receivables ("Receivables") generated, or to be
generated, by JCPenney and its affiliates in the ordinary course of
business and all monies due or to become due in respect of the
Receivables. The Trust has previously issued four other series of
certificates that evidence undivided interests in the Trust, two of
which are currently outstanding. JCPR owns the remaining undivided
interest in the Trust not represented by the Certificates, the Series E
Investor Interests or certificates relating to such other series
issued by the Trust. From time to time, JCPR may offer other series
(each, a "Series"), which may have terms significantly different from
the terms of the Certificates and the Series E Investor Interests, by
exchanging a portion of its interest in the Trust for the
certificates of such other Series. The certificates of any such
other Series evidence undivided interests in certain assets of the
Trust.
The Certificates initially will be represented by Certificates which will be
registered in the name of Cede & Co., the nominee of The Depository Trust
Company. The interests of holders of beneficial interests in the
Certificates ("Certificate Owners") will be represented by book
entries on the records of The Depository Trust Company and
participating members thereof. Definitive Certificates will
be available to Certificate Owners only under the
limited circumstances described herein. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Definitive
Certificates."
There currently is no market for the Certificates, and
there is no assurance that one will develop or, if
one does develop, that it will continue until
the Certificates are paid in full.
(continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE CERTIFICATES, SEE
"RISK FACTORS" ON PAGE 14 HEREIN.
THE CERTIFICATES REPRESENT UNDIVIDED INTERESTS IN THE TRUST AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF JCPR, JCPENNEY OR ANY AFFILIATE
THEREOF, EXCEPT TO THE EXTENT DESCRIBED HEREIN. A CERTIFICATE IS NOT A
DEPOSIT AND NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES OR ANY COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS JCPR(1)(2)
--------- ------------- ------------
<S> <C> <C> <C>
Per Certificate............................ % % %
Total...................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, at the Class A Certificate Rate from ,
1998.
(2) Before deduction of expenses payable by JCPR estimated at $ .
The Certificates are offered by the Underwriters when, as and if issued and
accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that the Certificates will be delivered in
book-entry form on or about , 1998, through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme and the Euroclear System.
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
Prospectus dated , 1998
<PAGE>
(continued from previous page)
Interest on the Certificates will accrue at the rate of % per annum (the
"Class A Certificate Rate"). Interest with respect to the Certificates will be
distributed on the 15th day of each month or, if such 15th day is not a
business day, the next succeeding business day (each, a "Distribution Date"),
commencing , 1998. Principal on the Certificates is scheduled to be
distributed on the , 2003 Distribution Date (the "Class A Expected Final
Distribution Date"), but may be paid earlier or later under certain limited
circumstances described herein.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
JCPR, as originator of the Trust, has filed a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") with respect to the
Certificates offered pursuant to this Prospectus. This Prospectus, which forms
a part of the Registration Statement, omits certain information contained in
such Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and amendments thereof and exhibits thereto, which are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; Seven
World Trade Center, New York, New York 10048; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, or through the Web site maintained by the
Commission at (http://www.sec.gov). Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Trust is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, JCPR, on behalf of the Trust, files
reports and other information with the Commission. Copies of such reports and
other information with respect to the Trust can be inspected and copied at the
public reference facilities maintained by the Commission referred to above.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as hereinafter defined) are
issued, monthly and annual reports, containing information concerning the
Trust and prepared by the Servicer, will be sent on behalf of the Trust to
Cede & Co., as registered holder of the Certificates, pursuant to the Pooling
and Servicing Agreement. See "Description of the Certificates and the Pooling
and Servicing Agreement--Book-Entry Registration," "--Reports to
Certificateholders" and "--Evidence as to Compliance." Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. JCPR does not intend to send any of its financial
reports to Certificate Owners.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms which are used herein are defined elsewhere in this
Prospectus. See "Index of Key Terms." Unless the context otherwise requires,
certain capitalized terms, when used herein, only relate to the Certificates.
Other Series which may be issued pursuant to other similar prospectuses or
disclosure documents may also use such capitalized terms in such prospectuses
or documents. However, in such cases, reference to such terms will, unless the
context otherwise requires, only be made in the context of the issuance of such
other Series.
Trust....................... JCP Master Credit Card Trust ("Trust") was formed
pursuant to the Pooling and Servicing Agreement.
The property of the Trust includes a portfolio of
Receivables generated or to be generated by
JCPenney and its affiliates in the ordinary
course of business and arising under designated
credit card accounts ("Accounts") in the
portfolio (the "JCPenney Portfolio") of accounts
(the "JCPenney credit card accounts") of JCPenney
Card Bank, National Association, a wholly owned
subsidiary of JCPenney ("JCP Card Bank"), all
monies due or to become due in respect of the
Receivables, all proceeds of the Receivables and
proceeds of credit insurance policies relating to
the Receivables and all monies on deposit in
certain bank accounts of the Trust. JCP Card
Bank, through JCPenney, has sold or transferred
to JCPR, and JCPR has transferred to the Trust,
all Receivables arising in the Accounts.
Securities Offered.......... Each of the Certificates offered hereby
represents an undivided interest in the Trust.
Each such Certificate represents the right to
receive payments of interest at the Class A
Certificate Rate and payment of principal on the
Class A Expected Final Distribution Date or, in
certain limited circumstances, earlier as
described herein, which will be funded from a
varying percentage of the payments received with
respect to the Receivables. JCPR may, at its
option, repurchase the Certificates on any
Distribution Date on or after the Class A
Expected Final Distribution Date (as hereinafter
defined). The interest of the holders of the
Certificates (the "Certificateholders") in the
Trust (the "Class A Investor Interest") will
initially equal $550,000,000. The interest of the
holder of the Class B Investor Interest (the
"Class B Interest Holder") in the Trust (the
"Class B Investor Interest") will initially equal
$60,365,854. The interest of the holder of the
Class C Investor Interest (the "Class C Interest
Holder") in the Trust (the "Class C Investor
Interest" and, together with the Class A Investor
Interest and the Class B Investor Interest, the
"Investor Interest" or the "Investor Amount")
will initially equal $60,365,854. The Investor
Interest will be reduced by the aggregate amount
of (1) all transfers in respect of principal on
the Certificates, the Class B Investor Interest
and the Class C Investor Interest made to the
Principal Funding Account (as hereinafter
defined), (2) all distributions in respect of
principal to Certificateholders, the Class B
Interest Holder and the Class C Interest Holder
(without duplication of amounts transferred
pursuant to clause (1) of this sentence) and
(3) Investor
3
<PAGE>
Charge Offs (as hereinafter defined). JCPR owns
the remaining undivided interest in the Principal
Receivables (as hereinafter defined) in the Trust
not represented by the Certificates, the Series E
Investor Interests or certificates of another
Series ("JCPR Amount"). The Certificates will be
issued pursuant to an Exchange (as hereinafter
defined) as provided for in the Pooling and
Servicing Agreement. See "Description of the
Certificates and the Pooling and Servicing
Agreement." The Certificates represent interests
in the Trust and do not represent interests in or
obligations of JCPR, JCPenney or any affiliate
thereof, except to the extent provided herein.
None of the Certificates, the Accounts, the
Receivables or any collections thereon are
insured or guaranteed by JCPR, JCPenney or any
affiliate of either or by the Federal Deposit
Insurance Corporation (the "FDIC") or any other
governmental agency or instrumentality.
The Series E Investor Interests are not being
offered hereby and are expected to be initially
retained by JCPR. JCPR reserves the right to sell
the Class B Investor Interest or the Class C
Investor Interest at any time.
As of the date hereof, the Trust has two other
issued and outstanding Series of certificates:
(1) its 8.95% Asset Backed Certificates, Series B
("Series B Certificates") having an initial
principal amount of $350,000,000; and (2) its
9.625% Asset Backed Certificates, Series C
("Series C Certificates") having an initial
principal amount of $375,000,000.
Accounts and Receivables.... The Accounts currently consist of substantially
all the United States JCPenney credit card
accounts in Cycles One, Two, Three and Four (four
of the 10 billing cycles for JCPenney credit card
accounts) that satisfied the criteria provided in
the Pooling and Servicing Agreement as of the
applicable cut-off date (the "Addition Date").
The Accounts include JCPenney credit card
accounts originated by JCP Card Bank in which
JCPenney has purchased the Receivables arising
thereunder but do not include commercial accounts
and accounts serviced by third parties in Puerto
Rico, Mexico and Chile. Additional accounts added
to such Cycles in the normal operation of
JCPenney's credit card business and satisfying
the criteria provided in the Pooling and
Servicing Agreement are expected to be added to
the Trust on a daily basis as a category of
Additional Accounts (as hereinafter defined). The
Receivables arising in the Accounts and the
Additional Accounts (regardless of which category
of such Accounts) consist of amounts charged by
cardholders for merchandise and services
(excluding insurance other than credit insurance)
purchased from JCPenney and its affiliates
("Principal Receivables"), plus the related
finance charges, amounts, if any, charged to the
Accounts in respect of late charges and returned
check fees and similar fees and charges
(collectively, the "Finance Charge Receivables")
and recoveries (net of estimated
4
<PAGE>
recovery expenses) of Receivables charged off
pursuant to the Pooling and Servicing Agreement
("Recoveries"). The Receivables arising from the
Accounts as of the beginning of September 30,
1998 totaled $1,444,269,021 in Principal
Receivables and $3,767,072 in Finance Charge
Receivables. The Finance Charge Receivables and
Receivables in Defaulted Accounts (as hereinafter
defined) have been or will be conveyed to the
Trust but will not affect the Investor Amount or
the JCPR Amount, each of which is determined on
the basis of the amount of Principal Receivables
in the Trust.
Under the Pooling and Servicing Agreement, the
Servicer may estimate the amounts of Principal
Receivables and Finance Charge Receivables and
allocate collections in respect thereof using a
formula that assumes generally that, for all
accounts within a particular billing cycle, a pro
rata portion of the Finance Charge Receivables
billed on a given cycle billing date is received
on each processing day during such period. The
determination of the amount of Finance Charge
Receivables in the Accounts as of the Addition
Date is made on the same basis. Any such
estimates are binding for all purposes on the
Certificateholders, the Trustee and JCPR. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Investor Percentage and
JCPR Percentage."
JCPR has entered into a Receivables Purchase
Agreement dated as of September 5, 1988, as
amended, between JCPR, as purchaser, and
JCPenney, as seller (together with any
supplements thereto, the "Receivables Purchase
Agreement"). Pursuant to the Receivables Purchase
Agreement, JCPenney has sold or transferred to
JCPR all its right, title and interest in and to
the Receivables arising in the Accounts. JCPR in
turn has transferred such Receivables to the
Trust pursuant to the Pooling and Servicing
Agreement. JCPR has also assigned to the Trust
its rights with respect to the Receivables under
the Receivables Purchase Agreement. See
"Description of the Receivables Purchase
Agreement."
Subject to certain conditions, JCPR has the right
to add accounts ("Additional Accounts") to, or
remove accounts ("Removed Accounts") from, the
Accounts from time to time. The total amount of
Receivables in the Trust fluctuates from day to
day because the amount of new Receivables arising
in the Accounts and the amount of payments
collected on existing Receivables usually differ
each day. Because the JCPR Amount represents the
interest in the Principal Receivables in the
Trust not represented by the Certificates, the
Series E Investor Interests or certificates of
other Series, the JCPR Amount fluctuates from day
to day as Receivables are collected and new
Receivables are transferred to the Trust and as
Receivables from Additional Accounts and
Receivables from Removed Accounts are added to
and removed from the Trust. See "The Accounts."
The aggregate undivided interest in the Principal
5
<PAGE>
Receivables in the Trust evidenced by the
Certificates and the Series E Investor Interests
will never exceed the Investor Amount regardless
of the total amount of Principal Receivables in
the Trust.
Denominations............... The Certificates will be offered for purchase in
denominations of $1,000 and integral multiples
thereof.
Registration of The Certificates will initially be represented by
Certificates................ Certificates registered in the name of Cede & Co.
("Cede"), as the nominee of The Depository Trust
Company ("DTC"). No Certificate Owner will be
entitled to receive a definitive certificate
representing such person's interest, except if
Definitive Certificates (as hereinafter defined)
are issued under the limited circumstances
described herein. All references herein to
"Certificateholders" shall refer to Certificate
Owners, except as otherwise specified herein. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Definitive
Certificates."
Exchanges................... The Pooling and Servicing Agreement provides that
the Trust will issue two types of certificates:
(1) one or more Series of certificates that will
be transferable and have the characteristics
described below and (2) the Exchangeable
Certificate, which will evidence the JCPR Amount
and which will initially be held by JCPR and will
generally not be transferable, except that
certain interests therein may be transferred to
JCPenney pursuant to the Receivables Purchase
Agreement or to affiliates of JCPenney. See
"Description of the Receivables Purchase
Agreement." The Pooling and Servicing Agreement
also provides that, pursuant to any one or more
supplements to the Pooling and Servicing
Agreement (each, a "Supplement"), JCPR may
deliver the Exchangeable Certificate to the
Trustee in exchange for one or more new Series
and a reissued Exchangeable Certificate (any such
exchange, an "Exchange"). Under the Pooling and
Servicing Agreement, JCPR may define, with
respect to any Series, certain terms of the
Series. JCPR may offer any Series to the public
or other investors. The Certificates, together
with the Series E Investor Interests
(collectively, "Series E"), will be the fifth
Series to be offered by the Trust. Set forth
under "Description of the Certificates and the
Pooling and Servicing Agreement--Prior Issuance
of Certificates Outstanding" is a chart which
provides the principal terms and other relevant
characteristics of the Series B Certificates and
Series C Certificates which are the Series
previously issued by the Trust currently
outstanding. JCPR may offer, from time to time,
additional Series to be issued by the Trust.
Under the Pooling and Servicing Agreement and
pursuant to a Supplement, an Exchange may occur
only upon delivery to the Trustee of the
following: (a) a Supplement in form satisfactory
to the Trustee signed by JCPR and JCPenney and
specifying certain terms of such Series, (b) any
form of credit enhancement required by such
Supplement, (c) if any form of credit enhancement
is
6
<PAGE>
required by such Supplement, an appropriate
agreement with respect thereto, (d) letters from
each Rating Agency confirming that the issuance
of the new Series will not result in the
reduction or withdrawal of its rating of any
prior outstanding Series, (e) an opinion of
counsel to the effect that the certificates of
such Series under existing law should be
characterized as indebtedness of JCPR for federal
income tax purposes and (f) the existing
Exchangeable Certificate. These documents will be
delivered to the Trustee prior to the issuance of
the Certificates. See "Risk Factors--Additional
Series."
Seller and Servicer......... JCPR, which is the seller of the Certificates,
the originator of the Trust and the transferor of
the Receivables, is an indirect, wholly owned,
limited purpose subsidiary of JCPenney. JCPenney,
as Servicer, services the Receivables for the
Trust pursuant to the Pooling and Servicing
Agreement.
Collections................. The Servicer deposits all collections of
Receivables for all Series in an account
established for such purpose ("Collection
Account"); provided, however, that, subject to
certain conditions, JCPenney, as Servicer, is
generally permitted to retain all such
collections for its own use until two business
days preceding each Distribution Date. All
amounts deposited in the Collection Account are
allocated by the Servicer between amounts
collected in respect of Principal Receivables and
amounts collected in respect of Finance Charge
Receivables, in each case based on the estimating
procedures described herein. Such amounts are
then allocated among each Series and JCPR based
upon the Series' relative investor amounts and
the JCPR Amount. See "Description of the
Certificates and the Pooling and Servicing
Agreement--Applications of Collections."
Interest.................... Interest on the Certificates will be distributed
monthly on each Distribution Date, commencing
, 1998, at the Class A Certificate Rate.
Interest is calculated on the basis of a 360-day
year comprised of twelve 30-day months and, in
the case of the first Monthly Period (as
hereinafter defined), will accrue from , 1998
(the "Closing Date"). Interest payments are
funded from the portion of Finance Charge
Receivables and Net Recoveries, if any, collected
during the preceding month allocable to the
Investor Amount, and, if necessary, from certain
other amounts. See "--Subordination of the Series
E Investor Interests" and "--Additional Amounts
Available to Certificateholders and the Class B
Interest Holder." The term "Net Recoveries"
means, with respect to any Monthly Period, the
excess, if any, of Recoveries collected during
such month over the aggregate amount of
Receivables in Defaulted Accounts charged off
during such Monthly Period. See "Description of
the Certificates and the Pooling and Servicing
Agreement."
Revolving Period............ The "Revolving Period" with respect to the
Certificates means the period from and including
the Closing Date to, but not including, the
earlier of (a) the commencement of the Controlled
Accumulation
7
<PAGE>
Period or (b) the commencement of the Rapid
Amortization Period. The controlled accumulation
period with respect to the Certificates (the
"Controlled Accumulation Period") is scheduled to
begin at the end of the day on , 2003. During
the Revolving Period, collections of Principal
Receivables allocable to the Investor Interest
will be paid from the Trust to JCPR (or, in
certain circumstances, to the Class C Interest
Holder) rather than to the Certificateholders.
See "Description of the Certificates and the
Pooling and Servicing Agreement."
Controlled Accumulation Unless a Pay Out Event has occurred, the
Period................. Controlled Accumulation Period will begin at the
close of business on the last day of the
Revolving Period and will end on the earlier of
(i) the commencement of the Rapid Amortization
Period or (ii) the payment of the Investor
Interest in full. During the Controlled
Accumulation Period, amounts equal to the least
of (a) Available Investor Principal Collections
for the related Monthly Period, (b) the sum of
the applicable Controlled Accumulation Amount for
such Monthly Period and the applicable Deficit
Controlled Accumulation Amount, if any (such
applicable sum, the "Controlled Deposit Amount")
and (c) the sum of the Class A Adjusted Investor
Interest (as hereinafter defined) and the Class B
Adjusted Investor Interest (as hereinafter
defined) on the applicable Transfer Date will be
deposited on each Distribution Date beginning
with the Distribution Date in the month following
the commencement of the Controlled Accumulation
Period in a trust account established for the
benefit of the Certificateholders, the Class B
Interest Holder and the Class C Interest Holder,
and used to make principal distributions to the
Certificateholders, the Class B Interest Holder
and the Class C Interest Holder when due (the
"Principal Funding Account"). The "Transfer Date"
with respect to any Distribution Date is the
business day preceding such Distribution Date.
If, for any Monthly Period, the Available
Investor Principal Collections for such Monthly
Period exceed the applicable Controlled Deposit
Amount, any such excess will be first paid to the
Class C Interest Holder to the extent that the
Class C Investor Interest exceeds the Required
Class C Investor Interest or, subject to certain
limitations, paid to JCPR. If, for any Monthly
Period, the Available Investor Principal
Collections for such Monthly Period are less than
the applicable Controlled Deposit Amount, the
amount of such deficiency will be the applicable
"Deficit Controlled Accumulation Amount" for the
succeeding Monthly Period.
If a Pay Out Event occurs during the Controlled
Accumulation Period, the Rapid Amortization
Period will commence.
Other Series offered by the Trust may or may not
have accumulation periods like the Controlled
Accumulation Period, and such periods may have
different lengths and begin on different dates
than the Controlled Accumulation Period. Thus,
certain Series may be in their revolving periods
while others are in periods during which
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<PAGE>
collections of Principal Receivables are
distributed to or held for the benefit of
certificateholders of such other Series.
Rapid Amortization Period... During the period from the day on which a Pay Out
Event has occurred and ending on the earlier of
(a) the payment of the Investor Amount in full or
(b) the date on which Series E terminates (the
"Rapid Amortization Period"), Available Investor
Principal Collections will be distributed monthly
on each Distribution Date first to the
Certificateholders and, following payment of the
Class A Investor Interest in full, to the Class B
Interest Holder and, following payment of the
Class B Investor Interest in full, to the Class C
Interest Holder beginning with the Distribution
Date in the month following the commencement of
the Rapid Amortization Period. See "Description
of the Certificates and the Pooling and Servicing
Agreements--Investor Percentage and JCPR
Percentage" and "--Pay Out Events."
Subordination of the Series
E Investor Interests........
The Series E Investor Interests will be
subordinated, as described herein, to the extent
necessary to fund payments with respect to the
Certificates as described herein. In addition,
the Class C Investor Interest will be
subordinated to the extent necessary to fund
certain payments with respect to the Class B
Investor Interest. If the Class C Investor
Interest is reduced to zero, the Class B Interest
Holder will bear directly the credit and other
risks associated with its interest in the Trust.
To the extent the Class B Investor Interest is
reduced, the percentage of collections of Finance
Charge Receivables allocable to the Class B
Investor Interest in subsequent Monthly Periods
will be reduced. Moreover, to the extent the
amount of such reduction in the Class B Investor
Interest is not reimbursed, the amount of
principal and interest distributable to the Class
B Interest Holder will be reduced. Such
reductions of the Class B Investor Interest will
thereafter be reimbursed and the Class B Investor
Interest increased on each Transfer Date by the
amount, if any, of Excess Spread for such
Transfer Date available for that purpose. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Subordination."
Additional Amounts
Available to
Certificateholders and the
Class B Interest Holder.....
With respect to any Transfer Date, Excess Spread
will be applied to fund the Class A Required
Amount and the Class B Required Amount, if any.
The "Class A Required Amount" means the amount,
if any, by which the sum of (a) the Class A
Monthly Interest due on the related Distribution
Date and any overdue Class A Monthly Interest and
Class A Additional Interest, if any, (b) the
Class A Servicing Fee for the related Monthly
Period and any overdue Class A Servicing Fee and
(c) the Class A Investor Default Amount, if any,
for the related Monthly Period exceeds the Class
A Available Funds for the related Monthly Period.
The "Class B Required Amount" means the amount,
if any, equal to the sum of
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<PAGE>
(a) the amount, if any, by which the sum of (i)
Class B Monthly Interest due on the related
Distribution Date and any overdue Class B Monthly
Interest and Class B Additional Interest, if any,
and (ii) if JCPenney or an affiliate thereof is
no longer the Servicer, the Class B Servicing Fee
for the related Monthly Period and any overdue
Class B Servicing Fee exceeds the Class B
Available Funds for the related Monthly Period
and (b) the Class B Investor Default Amount, if
any, for the related Monthly Period. The
"Required Amount" for any Monthly Period shall
mean the sum of (a) the Class A Required Amount
and (b) the Class B Required Amount, each for
such Monthly Period. "Excess Spread" for any
Transfer Date will equal the sum of (a) the
excess of (i) Class A Available Funds for the
related Monthly Period over (ii) the sum of the
amounts referred to in clauses (a), (b) and (c)
in the definition of "Class A Required Amount"
above, (b) the excess of (i) Class B Available
Funds for the related Monthly Period over (ii)
the sum of the amounts referred to in clauses
(a)(i) and (a)(ii) in the definition of "Class B
Required Amount" above and (c) Class C Available
Funds for the related Monthly Period not used
under certain circumstances to pay the Class C
Servicing Fee, as described herein.
If, on any Transfer Date, Excess Spread is less
than the Class A Required Amount, Reallocated
Principal Collections allocable first to the
Class C Investor Interest and then to the Class B
Investor Interest with respect to the related
Monthly Period will be used to fund the remaining
Class A Required Amount. If Reallocated Principal
Collections with respect to such Monthly Period
are insufficient to fund the remaining Class A
Required Amount for the related Transfer Date,
then the Class C Investor Interest (after giving
effect to reductions for any Class C Investor
Charge-Offs and any Reallocated Principal
Collections on such Transfer Date) will be
reduced by the amount of such deficiency (but not
by more than the Class A Investor Default Amount
for such Monthly Period). In the event that such
reduction would cause the Class C Investor
Interest to be a negative number, the Class C
Investor Interest will be reduced to zero, and
the Class B Investor Interest (after giving
effect to reductions for any Class B Investor
Charge-Offs and Reallocated Class B Principal
Collections on such Transfer Date) will be
reduced by the amount by which the Class C
Investor Interest would have been reduced below
zero (but not by more than the excess, if any, of
the Class A Investor Default Amount for such
Monthly Period over the amount of such reduction,
if any, of the Class C Investor Interest with
respect to such Monthly Period). In the event
that such reduction would cause the Class B
Investor Interest to be a negative number, the
Class B Investor Interest will be reduced to zero
and the Class A Investor Interest will be reduced
by the amount by which the Class B Investor
Interest would have been reduced below zero (but
not by more than the excess of the Class A
Investor Default Amount, if any, for such Monthly
Period over such reductions in the Class C
Investor Interest and the Class B Investor
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<PAGE>
Interest with respect to such Monthly Period)
(such reduction, a "Class A Investor Charge-
Off"). If the Class C Investor Interest and the
Class B Investor Interest are reduced to zero,
the Certificateholders will bear directly the
credit and other risks associated with their
undivided interest in the Trust. See "Description
of the Certificates and the Pooling and Servicing
Agreement--Reallocation of Cash Flows" and "--
Defaulted Receivables; Rebates."
If, on any Transfer Date, Excess Spread not
required to pay the Class A Required Amount and
to reimburse Class A Investor Charge-Offs is less
than the Class B Required Amount, Reallocated
Principal Collections allocable to the Class C
Investor Interest for the related Monthly Period
not required to pay the Class A Required Amount
will be used to fund the remaining Class B
Required Amount. If such remaining Reallocated
Principal Collections allocable to the Class C
Investor Interest with respect to such Monthly
Period are insufficient to fund the remaining
Class B Required Amount for the related Transfer
Date, then the Class C Investor Interest (after
giving effect to reductions for any Class C
Investor Charge-Offs, Reallocated Principal
Collections and any adjustments made thereto for
the benefit of the Certificateholders) will be
reduced by the amount of such deficiency (but not
by more than the Class B Investor Default Amount
for such Monthly Period). In the event that such
reduction would cause the Class C Investor
Interest to be a negative number, the Class C
Investor Interest will be reduced to zero, and
the Class B Investor Interest will be reduced by
the amount by which the Class C Investor Interest
would have been reduced below zero (but not by
more than the excess, if any, of the Class B
Investor Default Amount for such Monthly Period
over such reduction in the Class C Investor
Interest with respect to such Monthly Period)
(such reduction, a "Class B Investor Charge-
Off"). In the event of a reduction of the Class A
Investor Interest, the Class B Investor Interest
or the Class C Investor Interest, the amount of
principal and interest available to fund payments
with respect to the Certificates and the Class B
Investor Interest will be decreased. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Reallocation of Cash
Flows" and "--Defaulted Receivables; Rebates."
Required Class C Investor The "Required Class C Investor Interest" means
Interest.................... (a) initially, $ 60,365,854 (the "Initial Class C
Investor Interest") and (b) with respect to any
Transfer Date thereafter, an amount equal to 9.0%
of the sum of the Class A Adjusted Investor
Interest and the Class B Adjusted Investor
Interest on such Transfer Date, after taking into
account payments to be made on the related
Distribution Date, and the Class C Adjusted
Investor Interest (as hereinafter defined) on the
prior Transfer Date after any adjustments made on
such Transfer Date, but not less than
$20,121,951; provided, however, that (i) if
certain reductions in the Class C Investor
Interest occur or if a Pay
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<PAGE>
Out Event occurs, the Required Class C Investor
Interest for such Transfer Date shall equal the
Required Class C Investor Interest for the
Transfer Date immediately preceding the
occurrence of such reduction or Pay Out Event;
(ii) in no event shall the Required Class C
Investor Interest exceed the sum of the unpaid
principal amount of the Certificates and the
Class B Investor Interest as of the last day of
the Monthly Period preceding such Transfer Date
after taking into account payments to be made on
the related Distribution Date; and (iii) the
Required Class C Investor Interest may be reduced
at any time to a lesser amount if the Rating
Agency Condition is satisfied. See "Description
of the Certificates and the Pooling and Servicing
Agreement--Required Class C Investor Interest."
"Rating Agency Condition" means the notification
in writing by each Rating Agency to JCPR, the
Servicer and the Trustee that a proposed action
will not result in such Rating Agency reducing or
withdrawing its then existing rating of the
certificates of any outstanding Series or Class
of a Series with respect to which it is a Rating
Agency.
If on any Transfer Date, the Class C Investor
Interest is less than the Required Class C
Investor Interest, certain Excess Spread amounts,
if available, will be used to increase the Class
C Investor Interest to the extent of such
shortfall. If on any Transfer Date the Class C
Investor Interest equals or exceeds the Required
Class C Investor Interest, any such Excess Spread
amounts will be distributed to the Class C
Interest Holder and will not be available to the
Certificateholders or the Class B Interest
Holder.
Repurchase; Final Payment
of Principal; Mandatory
Termination.................
Under the Pooling and Servicing Agreement, JCPR
has the option to repurchase the Investor
Interest on any Distribution Date on or after the
Class A Expected Final Distribution Date. The
repurchase price will be equal to 100% of the
Investor Interest plus accrued and unpaid
interest thereon through the Distribution Date on
which the repurchase occurs. In any event, if the
Investor Amount is not zero on , 2007,
final payment in respect of the Certificates will
be required to be made on such date. See
"Description of the Certificates and the Pooling
and Servicing Agreement--Repurchase; Final
Payment of Principal; Termination" and
"Description of the Receivables Purchase
Agreement--Certain Covenants."
Record Date................. The last business day of the month preceding any
Distribution Date.
Trustee..................... The Fuji Bank and Trust Company.
Tax Status.................. Skadden, Arps, Slate, Meagher & Flom LLP, special
tax counsel to JCPR, is of the opinion that,
under existing law, the Certificates will be
characterized as indebtedness for federal income
tax purposes. Under the Pooling and Servicing
Agreement, JCPR and the Certificateholders agree
to treat the Certificates as debt for income tax
purposes. See "Certain U.S. Federal Income Tax
Consequences" for additional information
concerning the application of federal income tax
laws.
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<PAGE>
ERISA Considerations........
Under regulations issued by the Department of
Labor, the Trust's assets would not be deemed
"plan assets" of an employee benefit plan holding
an interest in the Certificates if certain
conditions are met, including that interests in
such class of Certificates be held by at least
100 persons independent of JCPR and each other
upon completion of the public offering of the
Certificates. The Underwriters expect, although
no assurance can be given, that the Certificates
will be held by at least 100 such persons, and
JCPR anticipates that the other conditions of the
"publicly-offered security" exception contained
in the regulations will be met with respect to
the Certificates. No monitoring or other measures
will be taken to ensure that any such conditions
will be satisfied with respect to the
Certificates. If the Trust's assets were deemed
to be "plan assets" of such a plan, there is
uncertainty as to whether existing exemptions
from the "prohibited transaction" rules of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Internal Revenue
Code of 1986, as amended (the "Code") would apply
to all transactions involving the Trust's assets.
Accordingly, employee benefit plans contemplating
purchasing Certificates should consult their own
counsel before making such a purchase. See "ERISA
Considerations."
Certificate Rating..... It is a condition to the issuance of the
Certificates that they be rated in the highest
rating category by at least one Rating Agency.
The rating of the Certificates is based primarily
on the value of the Receivables and the terms of
the Class B Investor Interest and the Class C
Investor Interest.
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<PAGE>
RISK FACTORS
Limited Liquidity. There is currently no market for the Certificates. The
Underwriters expect, but are not obligated, to make a market in the
Certificates. There is no assurance that a secondary market will develop or,
if it does develop, that it will provide Certificate Owners with liquidity of
investment or that it will continue until the Certificates are paid in full.
Non-Recourse to JCPenney and JCP Card Bank. No Certificateholder will have
recourse to any assets of JCPenney or JCP Card Bank for payment of the
Certificates. Consequently, Certificateholders must rely solely upon payments
on the Receivables for payment of principal of and interest on the
Certificates. Should the Certificates not be paid in full on a timely basis,
Certificateholders may not look to any assets of JCPenney or JCP Card Bank to
satisfy their claims.
Certain Legal Aspects. JCPenney warrants in the Receivables Purchase
Agreement that the sale or transfer of the Receivables by it to JCPR is a
valid sale of the Receivables to JCPR, and JCPR warrants in the Pooling and
Servicing Agreement that the transfer of the Receivables by it to the Trust is
either a valid transfer of the Receivables or the grant of a security interest
in the Receivables to the Trust. JCPenney and JCPR have taken such actions as
are required to perfect the Trust's security interest in the Receivables. JCPR
warrants to the Trust that if the transfer of any of the Receivables by it is
deemed to be a grant of a security interest in the Receivables, the Trustee
will have a first priority perfected security interest therein. If, however,
the transfer of such Receivables to the Trust is deemed to create a security
interest therein, a tax or government lien on property of JCPR arising before
such Receivables came into existence may have priority over the Trust's
interest in such Receivables.
In addition, while JCPenney is the Servicer, cash collections, subject to
certain conditions, may be commingled and used for JCPenney's own benefit
prior to each Distribution Date and, in the event of the insolvency or
receivership of JCPenney or, in certain circumstances, the lapse of certain
time periods, the Trust may not have a perfected interest in such collections.
If, however, the short term debt ratings of JCPenney are reduced below A-1 or
P-1 by the applicable Rating Agency, JCPenney will commence depositing
collections directly into the Collection Account within two business days
after the date of processing.
If a bankruptcy trustee or a receiver were appointed for JCPenney or JCPR,
causing a Pay Out Event with respect to all Series then outstanding, then
pursuant to the Pooling and Servicing Agreement, new Principal Receivables
would not be transferred to the Trust and the Trustee would sell the
Receivables (unless holders of more than 50% of the principal amount of all
Series outstanding instruct otherwise), thereby causing a termination of the
Trust and a loss to certificateholders of all Series (including the
Certificateholders) if the net proceeds allocable to such Series from such
sale were insufficient to pay certificateholders (including the
Certificateholders) in full. If a bankruptcy trustee for JCPenney, JCPenney as
debtor in possession or a creditor of JCPenney were to take the view that
JCPenney and JCPR should be substantively consolidated or that the transfer of
the Receivables from JCPenney to JCPR (and therefore from JCPR to the Trust)
should be characterized as a pledge of such Receivables, then delays in
payments on the Certificates or (should the bankruptcy court rule in favor of
any such trustee, debtor in possession or creditor) reductions in such
payments could result. See "Certain Legal Aspects of the Receivables--Certain
Matters Relating to Bankruptcy."
The Accounts and the Receivables are subject to numerous federal and state
consumer protection laws that impose requirements on the making, enforcement
and collection of consumer credit extensions. Pursuant to the Pooling and
Servicing Agreement, JCPR covenants to accept retransfer from the Trust, and
pursuant to the Receivables Purchase Agreement, JCPenney agrees to repurchase
from JCPR, each Receivable that did not comply with all requirements of law at
the time it was transferred to the Trust. JCPR makes to the Trust, and
JCPenney makes to JCPR, certain other representations and warranties relating
to the validity and enforceability of the Receivables. However, it is not
anticipated that the Trustee will make any examination of the Receivables or
the records relating thereto for the purpose of establishing the presence or
absence of defects, compliance with such representations and warranties or for
any other purpose. The sole remedy if any such representation or
14
<PAGE>
warranty is breached, and such breach continues beyond the applicable cure
period, is that JCPR will be obligated to accept the retransfer of such
Receivables and JCPenney will be obligated to repurchase such Receivables from
JCPR. See "Description of the Certificates and the Pooling and Servicing
Agreement--Representations and Warranties," "Description of the Receivables
Purchase Agreement--Representations and Warranties" and "Certain Legal Aspects
of the Receivables--Consumer Protection Laws."
Application of federal and state bankruptcy and debtor relief laws could
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible. See "Description
of the Certificates and the Pooling and Servicing Agreement--Defaulted
Receivables and Rebates."
Insolvency of JCP Card Bank. In a receivership or conservatorship of JCP
Card Bank, if the conveyance of the Receivables by JCP Card Bank to JCPenney
is not treated as a sale, but is deemed to create a security interest in the
Receivables, JCPenney's interest in the Receivables may be subject to tax or
other governmental liens relating to JCP Card Bank arising before the
Receivables came into existence and to certain administrative expenses of the
receivership or conservatorship. JCP Card Bank has taken or will take certain
actions required to perfect JCPenney's interest in the Receivables.
A conservator or receiver would have the power under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") to
repudiate contracts of, and to request a stay of up to 90 days of any judicial
action or proceeding involving, JCP Card Bank. However, notwithstanding the
insolvency of, or the appointment of a receiver or conservator for, JCP Card
Bank, subject to certain qualifications, a valid perfected security interest
of JCPenney in the Receivables should be enforceable (to the extent of
JCPenney's "actual direct compensatory damages" as described below) and
payments to JCPenney with respect to the Receivables (up to the amount of such
damages) should not be subject to an automatic stay of payment or to recovery
by such a conservator or receiver. If, however, the conservator or receiver
were to assert that the security interest was unperfected or unenforceable, or
were to require JCPenney to establish its right to those payments by
submitting to and completing the administrative claims procedure established
under FIRREA, or the conservator or receiver were to request a stay of
proceedings with respect to JCP Card Bank as provided under FIRREA, delays in
payments on the Certificates and possible reductions in the amount of those
payments could occur. In the event of a repudiation of obligations by a
conservator or receiver, FIRREA provides that a claim for the repudiated
obligation is limited to "actual direct compensatory damages" (which in most
cases are expected to include the outstanding principal on the Certificates
plus interest accrued thereon to the date of payment) determined as of the
date of the appointment of the conservator or receiver. The FDIC has not
adopted a formal policy statement on payment of principal and interest on
collateralized borrowings of banks that are repudiated. JCPR believes that the
general practice of the FDIC in such circumstances is to permit the collateral
to be applied to pay the principal owed plus interest at the contract rate up
to the date of payment, together with the costs of liquidation of the
collateral if provided for in the contract. In one case involving the
repudiation by the Resolution Trust Corporation (the "RTC") of certain secured
zero-coupon bonds issued by a savings association, a United States federal
district court held that "actual direct compensatory damages" in the case of a
marketable security meant the value of the repudiated bonds as of the date of
repudiation. If that court's view were applied to determine JCPenney's "actual
direct compensatory damages" in the event a conservator or receiver of JCP
Card Bank repudiated the transfer of the Receivables to JCPenney, the amount
paid to Certificateholders could, depending upon circumstances existing on the
date of the repudiation, be less than the principal of the Certificates and
the interest accrued thereon to the date of payment.
Payments and Maturity. The Receivables may be paid at any time and there is
no assurance that there will be additional Receivables or that any particular
pattern of cardholder repayments will occur. A significant decline in the
amount of Receivables generated could result in the occurrence of a Pay Out
Event and the commencement of the Rapid Amortization Period, and a significant
decrease in the cardholder monthly payment rate could slow the accumulation of
principal during the Controlled Accumulation Period or the return of principal
during the Rapid Amortization Period, as the case may be. See "Maturity
Assumptions."
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<PAGE>
Dependence on JCPenney and its Affiliates. Because the credit cards in the
JCPenney Portfolio can only be used to purchase merchandise and services from
JCPenney and its affiliates, the Trust is completely dependent upon JCPenney
and its affiliates for the generation of Receivables. The business of
marketing merchandise and services is highly competitive. Although JCPenney is
one of the largest department store and drugstore retailers in the United
States, it has numerous competitors. Many factors enter into the competition
for the consumer's patronage, including price, quality, style, service,
product mix, convenience and credit availability. There can, therefore, be no
assurance that JCPenney and its affiliates will continue to generate
Receivables at the same rate as in prior years. In addition, changes from time
to time in the mix of products sold by JCPenney and its affiliates may also
affect the average maturity of the Receivables.
Credit Card Competition. Since JCPenney accepts American Express,
MasterCard, VISA and Discover cards as well as debit cards, the Trust depends
on the decisions of JCPenney customers to use the JCPenney credit card rather
than another credit card or payment alternative. The credit card industry is
highly competitive. Interest rates and other benefits available through third
party credit card sources may cause customers not to use or carry balances on
JCPenney credit cards, thereby affecting account balances and payment
patterns. If the rate at which JCP Card Bank generates new accounts declines
significantly, JCPR might be unable to designate additional accounts to the
Trust and a Pay Out Event could occur, resulting in payment of principal
sooner than expected, or if significant decreases in Receivables occur during
the Controlled Accumulation Period or the Rapid Amortization Period, later
than expected.
Consumer Protection Laws. The Accounts and the Receivables are subject to
numerous federal and state consumer protection laws that impose requirements
on the making, enforcement and collection of consumer credit extensions. As a
national bank, JCP Card Bank is subject to national banking laws and
applicable regulations. With respect to certain matters, however, such as
maximum finance charges and other permissible charges, JCP Card Bank's
activities are governed by the consumer credit laws of the State of Delaware
where its charter is located. In addition, some of the Accounts continue to be
subject to the consumer credit laws of the states in which the respective
cardholders reside, including limits on the annual percentage rate of finance
charges and amounts of other fees. Certain jurisdictions may attempt to
require out-of-state credit card issuers to comply with such jurisdictions'
consumer protection laws (including laws governing finance charges and fees
imposed by issuers in connection with their operations in such jurisdictions).
A successful challenge by such a jurisdiction could have an adverse impact on
JCPenney credit operations or the yield on Receivables in the Trust. JCPenney,
JCP Card Bank and the Trust may also be subject to other existing state and
federal laws relating to retail credit such as laws concerning disclosure of
credit terms in credit applications or periodic statements, credit
discrimination, unauthorized use of credit cards, telephone solicitation
practices, use of credit bureau reports, collection practices and preservation
of certain claims and defenses. Any existing laws or the failure to comply
with such laws may adversely affect the Servicer's ability to collect on the
Receivables or maintain the required level of periodic finance charges and
other fees.
From time to time, bills have been introduced which, if enacted, might
reduce the rate at which JCP Card Bank or JCPenney may impose finance charges
and fees on accounts maintained by cardholders. JCPenney and JCP Card Bank
have informed JCPR that they do not expect enactment of any state or federal
legislation which would substantially reduce finance charge revenue or impair
collections on receivables. There can be no assurance, however, that any such
legislation will not be enacted in the future. If a bill imposing a ceiling on
finance charge rates were enacted into law during the Revolving Period or the
Controlled Accumulation Period, JCPenney could be required to lower the
finance charges that it assesses on some or all of the Receivables to a level
which might constitute a Pay Out Event, thus causing the commencement of the
Rapid Amortization Period and other adverse consequences to
Certificateholders. See "Description of the Certificates and the Pooling and
Servicing Agreement--Pay Out Events."
Social, Legal and Economic Factors. Changes in credit card use and payment
patterns by cardholders may also result from a variety of social, legal and
economic factors. Economic factors, including relative interest rates offered
for various types of extensions of credit, may also be reflected in increased
defaults by cardholders.
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<PAGE>
JCPenney and JCP Card Bank are unable to determine and have no basis to
predict whether, or to what extent, social, legal or economic factors will
affect future card use or repayment patterns.
Ability to Change Terms of the Accounts. JCPenney and JCP Card Bank have the
right to determine the level of finance charges and other fees which will be
applicable from time to time to the Accounts, to alter the minimum monthly
payments required on the Accounts and to change any other terms with respect
to the Accounts as permitted by applicable law. A decrease in the level of
finance charges and other fees assessed on the Accounts would decrease the
effective yield on the Accounts and could result in the occurrence of a Pay
Out Event and the commencement of the Rapid Amortization Period. Under the
Pooling and Servicing Agreement and the Receivables Purchase Agreement,
JCPenney agrees that, except as otherwise required by law or as is deemed by
JCPenney to be necessary in order to maintain its business, based upon a good
faith assessment by it, in its sole discretion, of the nature of the
competition in its business, it will not reduce nor will JCP Card Bank reduce
the annual percentage rate of the finance charges assessed on the Receivables
or other fees on the Accounts if, as a result of such reduction, its
reasonable expectation of the Portfolio Yield (as hereinafter defined) as of
such date would be less than the Base Rate. The term "Base Rate" means the
weighted average of the Class A Certificate Rate, the Class B Rate and the
Class C Rate, plus the annualized percentage equivalent of a fraction the
numerator of which is the sum of the monthly Investor Servicing Fee and the
denominator of which is the Investor Amount as of the last day of the
preceding Monthly Period. In addition, JCPenney agrees not to change nor will
JCP Card Bank change the terms of the Accounts unless the same change is also
made applicable to the comparable segment of the portfolio of accounts with
similar characteristics serviced by it. In servicing the Accounts, the
Servicer is required to exercise the same care and apply the same policies
that it exercises in handling similar matters for its own comparable accounts.
Except as specified above, there are no restrictions on the ability of
JCPenney or JCP Card Bank to change the terms of the Accounts or other credit
card guidelines or policies, including policies on credit approval. While
JCPenney has informed JCPR that it has no current intention of decreasing nor
does JCP Card Bank have any current intention of decreasing its finance
charges, there can be no assurance that changes in applicable law, in the
marketplace or prudent business practice might not result in a determination
by JCPenney or JCP Card Bank to take actions which would change the terms of
the Accounts.
Additional Series. A Supplement delivered in connection with the issuance of
other Series may specify certain Principal Terms (as hereinafter defined)
applicable to such Series. Such Principal Terms may include methods for
determining applicable investor percentages and allocating collections,
provisions creating different or additional security or other credit
enhancement, provisions subordinating such Series to other Series or other
Series (if the Supplement relating to such other Series so permits) to such
Series and any other amendment or supplement to the Pooling and Servicing
Agreement which is made applicable only to such Series. No Supplement,
however, may change the terms of the Certificates or the terms of the Pooling
and Servicing Agreement applicable to the Certificates, except the terms
respecting the circumstances under which JCPR may be required to transfer
Additional Accounts to the Trust. See "Description of the Certificates and the
Pooling and Servicing Agreement--Exchanges" and "--Addition of Accounts." As
long as the Certificates are outstanding, a condition to the execution of any
Supplement will be that each Rating Agency shall have advised the Trustee that
the issuance of such Series will not result in the reduction or withdrawal of
their rating of any prior outstanding Series (including the Certificates). See
"Description of the Certificates and the Pooling and Servicing Agreement--
Exchanges." Any such determination by any such Rating Agency would not,
however, provide any assurance that issuance of any such additional Series
would not, in fact, have a materially adverse effect on the Certificates. The
issuance of an additional Series does not require the consent of any
Certificateholder.
Book-Entry Registration. The Certificates will initially be represented by
Certificates which will be registered in the name of Cede and will not be
registered in the names of the Certificate Owners or their nominees. Unless
and until Definitive Certificates are issued, Certificate Owners will
therefore not be recognized by the Trustee as Certificateholders, as that term
is used in the Pooling and Servicing Agreement. Until such time, Certificate
Owners will accordingly only be able to receive payments to, and exercise the
rights of,
17
<PAGE>
Certificateholders indirectly through DTC and its participating organizations,
and will receive reports and other information provided for under the Pooling
and Servicing Agreement only if, when and to the extent provided to
Certificate Owners by DTC and its participating organizations. In addition,
the ability of Certificate Owners to pledge Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such Certificates, may be limited due to the lack of a physical
certificate for such Certificates. See "Description of the Certificates and
the Pooling and Servicing Agreement--Book-Entry Registration" and "--
Definitive Certificates."
Limited Scope of Certificate Rating. The ratings assigned to the
Certificates by a Rating Agency will reflect such Rating Agency's assessment
of the likelihood that Certificateholders will receive payments of interest
and principal required to be made under the Pooling and Servicing Agreement
and will be based primarily on the value of the Receivables in the Trust and
the subordination of the Series E Investor Interests. However, any such rating
will not address the likelihood that the principal of, or interest on, any
Certificates will be paid on a scheduled date. In addition, any such rating
will not address the possibility of the occurrence of a Pay Out Event or the
possibility of the imposition of United States withholding tax with respect to
non-U.S. Certificateholders. The rating will not be a recommendation to
purchase, hold or sell Certificates, and such rating will not comment as to
the marketability of such Certificates, any market price or suitability for a
particular investor. There can be no assurance that any rating will remain for
a given period of time or that any rating will not be lowered or withdrawn
entirely by a Rating Agency if in such Rating Agency's judgment circumstances
so warrant.
JCPR will request a rating of the Certificates offered hereby by at least
one Rating Agency. There can be no assurance as to whether any rating agency
not requested to rate the Certificates will nonetheless issue a rating with
respect to the Certificates, and, if so, what such rating would be. A rating
assigned to any Certificates by a rating agency that has not been requested by
JCPR to do so may be lower than the rating assigned by a Rating Agency
pursuant to JCPR's request.
Year 2000 Compliance. The Year 2000 issue refers to many computer systems
that store and process dates using only the last two digits of the year. Such
systems, if not changed, may interpret "00" as the year "1900" instead of the
year "2000." In October 1996, JCPenney formed a companywide task force to
provide guidance to operating and support departments, and to monitor the
progress of efforts to address Year 2000 issues. The scope of this effort
includes internally developed information technology systems, and purchased
and leased software that service the Receivables. JCPenney expects that
compliance work will be substantially completed by the end of 1998.
Despite the significant efforts to address Year 2000 concerns, JCPenney
could experience disruptions to some of its operations, including those
resulting from noncompliant systems used by third party business and
governmental entities. There can be no assurance that no disruption to
JCPenney's operations will occur or that the systems of third parties with
which JCPenney deals will be timely converted. Furthermore, there can be no
assurance that such a disruption, if it occurs, or the failure to timely
convert such systems will not adversely affect JCPenney's ability to service
and collect the Receivables.
18
<PAGE>
JCPENNEY'S CREDIT CARD BUSINESS
GENERAL
The Receivables that JCPenney has sold or transferred or will transfer to
JCPR pursuant to the Receivables Purchase Agreement, and which JCPR has
transferred or will in turn transfer to the Trust pursuant to the Pooling and
Servicing Agreement, have been and will be generated from purchases (excluding
purchases of insurance other than credit insurance) charged by holders of
JCPenney credit cards. The revolving charge accounts under which the
Receivables arise were and are created by JCPenney and JCP Card Bank and
enable each cardholder to use the JCPenney credit card to purchase virtually
all types of merchandise and services sold by JCPenney and its affiliates.
JCPenney services these accounts principally through processing centers
located in Albuquerque, New Mexico, and Orlando, Florida. Accounts maintained
in Puerto Rico, which are not included in the Accounts, are serviced by a
third party in San Juan, Puerto Rico. Relations with individual cardholders
are handled at JCPenney's or JCP Card Bank's regional credit service centers.
The JCPenney credit card currently may be used to make both major purchase
charges and regular charges. Major purchase charges, which comprise less than
10% of the JCPenney Portfolio, are generally charges of certain categories of
merchandise, including furniture and jewelry, but excluding apparel. Regular
charges are all other charges. Balances due with respect to both types of
charges will be included in the Receivables. JCPenney and JCP Card Bank may
change the terms applicable to, or may eliminate, either category of charges
at any time.
Account balances are created solely by purchases of merchandise and services
from JCPenney and its affiliates. The Trust will consequently depend upon the
continued ability of JCPenney and its affiliates to generate credit sales. In
addition, since JCPenney and its affiliates accept American Express,
MasterCard, VISA, Discover and debit cards, the Trust will also depend upon
the decisions of customers to use the JCPenney credit card rather than another
credit card or payment alternative. The following table summarizes for the
periods indicated the amounts and percentages of sales of JCPenney and its
affiliates made with the JCPenney credit card and other credit cards and debit
cards currently accepted by JCPenney and such affiliates:
JCPENNEY AND AFFILIATE CREDIT SALES (1)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FISCAL YEAR (2)
------------------------------- ----------------------------------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997 1997 1996 1995
--------------- --------------- ---------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
CREDIT ELIGIBLE CREDIT ELIGIBLE CREDIT ELIGIBLE CREDIT ELIGIBLE CREDIT ELIGIBLE
SALES SALES(3) SALES SALES(3) SALES SALES(3) SALES SALES(3) SALES SALES(3)
------ -------- ------ -------- ------- -------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JCPenney Stores and Cat-
alog
JCPenney Card.......... $4,577 40.1% $5,137 44.5% $ 8,625 43.4% $ 9,110 46.9% $ 9,035 48.4%
Third party
credit/debit cards.... 2,926 25.6 2,615 22.7 4,666 23.5 4,124 21.2 3,693 19.8
------ ---- ------ ---- ------- ---- ------- ---- ------- ----
Total.................. $7,503 65.7% $7,752 67.2% $13,291 66.9% $13,234 68.1% $12,728 68.2%
====== ==== ====== ==== ======= ==== ======= ==== ======= ====
Eckerd Drugstores
JCPenney Card.......... $ 107 2.9% $ 51 3.2% $ 92 2.6% $ 93 3.8% $ 100 5.4%
====== ==== ====== ==== ======= ==== ======= ==== ======= ====
</TABLE>
- --------
(1) Includes sales with respect to commercial and Puerto Rican accounts, which
will not be included in the Accounts, as well as de minimus sales with
respect to accounts of cardholders in Mexico and Chile, whose accounts are
serviced in the United States.
(2) Fiscal year ends on the last Saturday in January of the following year.
(3) Eligible sales, with respect to any JCPenney business unit, is the amount
of the purchase price of merchandise and services purchased at such
business unit, which, at the time of purchase, can be charged to the
JCPenney credit card, excluding sales tax.
MARKETING PROGRAMS, ACCOUNT ORIGINATION, AND CREDIT GUIDELINES
The accounts in the JCPenney Portfolio have been, and are anticipated to be,
generated by (1) making account applications available at JCPenney stores,
catalog outlets, and Eckerd drugstores and in JCPenney
19
<PAGE>
catalogs; (2) oral invitations to customers in JCPenney stores or catalog
outlets; and (3) making direct mail solicitations on a preapproved credit
basis to a prescreened group of prospects based on information obtained from
credit bureaus and other entities in the business of selling customer lists.
JCPenney and JCP Card Bank do not use non-prescreened or "blind" mailings to
solicit new accounts. Before an account is opened in response to an
application, the prospective cardholder's application is reviewed for
completeness and creditworthiness. If the application is unsolicited or is
solicited in the stores or catalog outlets, a credit report issued by an
independent credit reporting agency or credit bureau is obtained and
information in such report regarding the applicant may be verified. In the
case of prescreened mailings or mailings from other list services besides
credit reporting agencies, prior to mailing, consumer credit records are
reviewed by a credit reporting agency to identify the individuals that meet
JCPenney's standards for receiving preapproved account solicitations.
All prospective cardholders, whether unsolicited or preapproved, are
evaluated through the use of computerized credit scoring systems. These
systems use statistical scoring models to enhance the ability to evaluate
applicant creditworthiness and minimize the exposure to high credit risk
individuals. These systems assign point values to the credit bureau
information of potential preapproved solicitation recipients, and assign point
values to both the application and credit bureau information of solicited and
unsolicited applicants from JCPenney stores, catalog outlets, or through the
JCPenney catalog. Point values, in turn, are based on statistical analysis of
empirical data about the performance of sample populations or applicants. The
total of the values obtained for a prospective cardholder determines both the
decision whether or not to offer or open an account and the initial credit
limit. JCPenney and JCP Card Bank may, however, change credit standards or
screening methods at any time. JCPenney and JCP Card Bank also may use scoring
models from time to time to evaluate existing accounts, modify credit limits,
or approve purchases in excess of formal credit limits.
At the present time, a cardholder's credit limit is assigned according to a
cardholder's highest permissible outstanding balance, rather than according to
the highest required minimum monthly payment that a cardholder may incur. Each
charge to an account is entered and approved at the time the charge is made
through direct communication with JCPenney's central processing system in
order to ensure that credit limits are not exceeded.
Each cardholder is subject to an agreement governing the terms and
conditions of such cardholder's account. Pursuant to each such agreement, JCP
Card Bank reserves the right to change or terminate any terms, conditions,
services or features of the related account (including increasing or
decreasing finance charges, other charges or minimum payments). See "Risk
Factors--Ability to Change Terms of the Accounts." In addition, JCPenney and
JCP Card Bank may from time to time hold special credit promotions which allow
cardholders to defer payments (in some circumstances without incurring finance
charges) for limited periods of time. The Accounts may include Principal
Receivables originated during such promotions.
LOSS AND DELINQUENCY EXPERIENCE
Efforts to collect delinquent credit card receivables are first made by
JCPenney and later made by collection agencies and attorneys retained by
JCPenney. JCPenney assigns accounts to particular collection strategies based
on the length of time open, the prior delinquency history, and the current
balance. Under JCPenney's and JCP Card Bank's current policies, JCPenney
automatically mails a reminder letter and/or statement message to any
cardholder who does not make a scheduled payment by the account billing date.
The account's collection strategy determines when additional letters will be
sent and telephone contacts with the customer will occur through JCPenney's
collection centers. However, statement messages continue on all accounts until
the accounts are brought to current status. JCPenney may also enter into
arrangements with the cardholder to extend or otherwise change the
cardholder's payment schedule, or refer the customer to a credit counseling
service. JCPenney may also refer the matter to a collection agency or
attorney. The current policy of JCPenney and JCP Card Bank is generally to
recognize losses no later than the sixth month of delinquency, although charge
offs may be made earlier or later in some circumstances. JCPenney's and JCP
Card Bank's credit evaluation, servicing and charge-off policies and
collection practices may change at any time in accordance with JCPenney's and
JCP Card Bank's business judgment and applicable law. Under the terms of the
Pooling and Servicing Agreement, any recoveries (including credit insurance
proceeds) received in respect of Receivables in charged-off Accounts, net of
the estimated expenses of collection, will be paid to the Trust.
20
<PAGE>
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for the
JCPenney Portfolio. There can be no assurance, however, that the loss and
delinquency experience for the Receivables in the future will be similar to
the historical experience set forth below:
LOSS EXPERIENCE FOR THE JCPENNEY PORTFOLIO (1)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FISCAL YEAR(2)
------------------------ ----------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997 1997 1996 1995
---------- ------------- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding (3)............. $4,021 $4,438 $4,540 $4,406 $4,307
Gross Charge Offs (4)........ 301 290 450 384 339
Recoveries, Net of Collection
Expenses.................... 58 51 75 76 74
Net Charge Offs.............. 243 239 375 308 265
Net Charge Offs as a
Percentage of Average
Receivables Outstanding
(5)......................... 6.1% 5.4% 8.3% 7.0% 6.2%
</TABLE>
- -------
(1) Includes commercial and Puerto Rican accounts, which will not be included
in the Accounts, as well as de minimus balances in accounts of cardholders
in Mexico and Chile, whose accounts are serviced in the United States.
(2) Fiscal year ends on the last Saturday in January of the following year.
(3) Average Receivables outstanding is the arithmetic average of Receivables
outstanding on the last day of each fiscal month during period indicated.
(4) Gross charge offs are charge offs before recoveries and do not include the
amount of any reductions in average Receivables outstanding for returned
goods.
(5) Percentages for the eight months ended October 3, 1998 and the eight
months ended September 27, 1997 are not annualized.
AVERAGE DELINQUENCIES AS A PERCENTAGE OF THE JCPENNEY PORTFOLIO (1)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FISCAL YEAR (2)
------------------------------------------- -----------------------------------------------------------------
OCTOBER 3, 1998 SEPTEMBER 27, 1997 1997 1996 1995
--------------------- --------------------- --------------------- --------------------- ---------------------
DELINQUENT DELINQUENT DELINQUENT DELINQUENT DELINQUENT
PAYMENT STATUS AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days
delinquent...... $163 4.1% $202 4.6% $197 4.3% $189 4.3% $179 4.2%
60-89 days
delinquent...... 65 1.6 79 1.8 77 1.7 70 1.6 64 1.5
90 days
delinquent or
more............ 97 2.4 119 2.7 120 2.6 103 2.3 82 1.9
---- --- ---- --- ---- --- ---- --- ---- ---
Total........... $325 8.1% $400 9.1% $394 8.6% $362 8.2% $325 7.6%
==== === ==== === ==== === ==== === ==== ===
</TABLE>
- -------
(1) The percentages are the result of dividing the arithmetic average of the
delinquent amounts on the last day of each fiscal month of the periods
indicated by the arithmetic average of the Receivables outstanding on the
last day of each fiscal month of the periods indicated, in each case
excluding balances arising from commercial accounts and accounts serviced
by third parties in Puerto Rico, Mexico and Chile.
(2) Fiscal year ends on the last Saturday in January of the following year.
Losses and delinquencies are affected by a number of factors including
competitive behavior and general economic and social conditions, including
consumer debt levels. JCPenney has informed JCPR that it is unable to
determine the extent to which, if any, the loss and delinquency experience
described above reflects the influence of these factors.
21
<PAGE>
THE ACCOUNTS
GENERAL
The Accounts currently consist of substantially all the United States
JCPenney credit card accounts included in Cycles One, Two, Three, and Four
(four of the 10 billing cycles for JCPenney credit card accounts). The
Accounts include Accounts originated by JCP Card Bank, in which JCPenney has
purchased the Receivables arising thereunder but do not include commercial
accounts and accounts serviced by third parties in Puerto Rico, Mexico and
Chile. Additional accounts added to such Cycles in the normal operation of
JCPenney's credit card business will generally be added on a daily basis as a
category of Additional Accounts. See "Description of the Certificates and the
Pooling and Servicing Agreement--Addition of Accounts." JCPenney credit card
accounts are grouped into billing cycles for purposes of administrative
convenience. Each billing cycle has a separate monthly billing date (which may
vary slightly from month to month) at which time the activity in the related
accounts during the month ending on such billing date is processed and billed
to cardholders. The billing dates for Cycles One, Two, Three, and Four are
generally the fourth, seventh, tenth and thirteenth days, respectively, for
each month. New accounts are assigned to billing cycles in a manner which is
intended, for purposes of administrative convenience, to equalize the number
of accounts in the billing cycles. While the selection of Accounts for
inclusion in the Trust by billing cycle is not random and Cycles One, Two,
Three, and Four vary in minor respects from the JCPenney Portfolio, the
inclusion of the Accounts, as a whole, does not represent an adverse selection
from the JCPenney Portfolio. Some of the Accounts will be recently solicited,
unseasoned Accounts and the Receivables will include delinquent Receivables
and may include obligations of cardholders who are or are about to become
bankrupt or insolvent as well as Accounts already charged off (although the
Receivables in such charged-off Accounts are considered to have a balance of
zero).
Pursuant to the Pooling and Servicing Agreement, JCPR has the right (and,
under certain circumstances, the obligation), subject to certain limitations
and conditions discussed under "Description of the Certificates and the
Pooling and Servicing Agreement--Addition of Accounts," to designate from time
to time additional qualifying JCPenney credit card accounts (which may be from
any billing cycle other than billing cycles already in the Trust) to be
included as Additional Accounts and to transfer to the Trust all Receivables
of such Additional Accounts, whether such Receivables are then existing or
thereafter created. JCPenney and JCPR currently intend that all new accounts
opened in Cycles One, Two, Three, and Four will be added as Additional
Accounts on a daily basis. Further, pursuant to the Pooling and Servicing
Agreement, JCPR has the right, subject to certain limitations and conditions
discussed under "Description of the Certificates and Pooling and Servicing
Agreement--Removal of Accounts," to designate certain Accounts to be removed
from the Trust and to require the Trustee to retransfer all Receivables in
such Removed Accounts to JCPR. Throughout the term of the Trust, the Accounts
from which the Receivables arise will generally be the same Accounts in Cycles
One, Two, Three, and Four plus any Additional Accounts and minus any Removed
Accounts. See "Description of the Certificates and the Pooling and Servicing
Agreement--Transfer of Receivables."
The Receivables arising from the Accounts as of the beginning of September
30, 1998 totaled $1,444,269,021 in Principal Receivables and $3,767,072 in
Finance Charge Receivables. See "Description of the Certificates and the
Pooling and Servicing Agreement--Investor Percentage and JCPR Percentage." As
of October 7, 1998, the Accounts with balances had an average principal
balance of $294 and an average credit limit of $1,246. See the table below
headed "Composition of Accounts by Credit Limit" and the notes thereto. The
aggregate total Principal Receivables balance as a percentage of such assumed
aggregate total credit limit was 9.0%. Billing addresses for the Accounts are
located in all 50 states and the District of Columbia and are substantially as
geographically diversified as the JCPenney Portfolio. Based on September 1998
billing cycles, the seven states with the largest outstanding aggregate
Account balances, expressed as an approximate percentage of total Account
balances, are California (9.8%), Texas (7.8%), Illinois (7.0%), Florida
(5.8%), Pennsylvania (4.6%), New York (4.6%) and Ohio (4.3%). No other state
represents more than 4.0% of the total Account balances.
22
<PAGE>
The following tables summarize the Accounts by various criteria as of
October 7, 1998. The tables exclude Defaulted Accounts and the Receivables
therein. Because the composition of the Accounts may change in the future,
these tables are not necessarily indicative of the characteristics of the
Trust at any time after October 7, 1998.
COMPOSITION OF ACCOUNTS BY PRINCIPAL ACCOUNT BALANCE
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PRINCIPAL PERCENTAGE OF TOTAL
NUMBER OF NUMBER RECEIVABLES PRINCIPAL RECEIVABLES
PRINCIPAL ACCOUNT BALANCE ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ------------------------- ---------- ----------- -------------- ---------------------
<S> <C> <C> <C> <C>
Credit Balance (1)....... 139,020 1.0% $ (3,396,429) (0.2)%
No Balance (2)........... 8,117,759 61.6% $ 0 0.0 %
$0.01 to $200.99......... 2,961,828 22.5% $ 244,219,427 16.4 %
$201.00 to $400.99....... 951,855 7.2% $ 269,982,575 18.2 %
$401.00 to $600.99....... 375,749 2.9% $ 183,712,027 12.4 %
$601.00 to $800.99....... 206,985 1.6% $ 143,082,806 9.6 %
$801.00 to $1000.99...... 126,129 1.0% $ 112,666,187 7.6 %
$1001.00 to $2000.99..... 217,036 1.6% $ 295,339,700 19.9 %
$2001.00 and over........ 80,020 0.6% $ 239,360,669 16.1 %
---------- ----- -------------- -----
Total.................. 13,176,381 100.0% $1,484,966,962 (3) 100.0 %
========== ===== ============== =====
- --------
(1) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts that currently
have a credit balance are included because Receivables may be generated
with respect thereto in the future.
(2) Accounts that currently have no balance are included because Receivables
may be generated thereunder in the future.
(3) Includes insurance premium receivables constituting less than 1% of
Principal Receivables outstanding, which will not be included in the
Trust.
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT (1)
<CAPTION>
PERCENTAGE
OF TOTAL PRINCIPAL PERCENTAGE OF TOTAL
NUMBER OF NUMBER RECEIVABLES PRINCIPAL RECEIVABLES
CREDIT LIMIT ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ------------ ---------- ----------- -------------- ---------------------
<S> <C> <C> <C> <C>
$0 to $500............... 5,995,867 45.5% $ 357,165,359 24.0%
$501 to $1,000........... 1,094,148 8.3% $ 126,165,892 8.5%
$1,001 to $1,500......... 2,070,770 15.7% $ 270,225,121 18.2%
$1,501 to $2,000......... 721,066 5.5% $ 136,469,621 9.2%
$2,001 to $2,500......... 1,612,261 12.2% $ 150,267,039 10.1%
$2,501 to $3,000......... 1,057,840 8.0% $ 156,421,777 10.5%
$3,001 to $3,500......... 75,178 0.6% $ 53,968,385 3.6%
$3,501 to $4,000......... 34,958 0.3% $ 34,931,158 2.4%
$4,001 to $4,500......... 19,495 0.1% $ 24,931,002 1.7%
$4,501 to $5,000......... 416,115 3.2% $ 123,183,542 8.3%
$5,001 and over.......... 78,683 0.6% $ 51,238,066 3.5%
---------- ----- -------------- -----
Total.................. 13,176,381 100.0% $1,484,966,962(2) 100.0%
========== ===== ============== =====
</TABLE>
- --------
(1) Credit limits are presently assigned according to a cardholder's highest
permissible outstanding balance rather than according to the highest
required minimum monthly payment a cardholder may incur.
(2) Includes insurance premium receivables constituting less than 1% of
Principal Receivables outstanding, which will not be included in the
Trust.
23
<PAGE>
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PRINCIPAL PERCENTAGE OF TOTAL
NUMBER OF NUMBER RECEIVABLES PRINCIPAL RECEIVABLES
PAYMENT STATUS ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- -------------- --------- ----------- -------------- ---------------------
<S> <C> <C> <C> <C>
Current (1)............. 4,134,277 81.7% $1,169,025,854 78.7%
1-30 days delinquent.... 637,594 12.6% $ 211,869,710 14.3%
31-60 days delinquent... 146,454 2.9% $ 49,407,557 3.3%
61-90 days delinquent... 61,949 1.2% $ 21,632,349 1.5%
91 days delinquent or
more................... 78,348 1.6% $ 33,031,492 2.2%
--------- ----- -------------- -----
Total................. 5,058,622 100.0% $1,484,966,962(2) 100.0%
========= ===== ============== =====
</TABLE>
- --------
(1) Includes Accounts on which the minimum payment has been received prior to
the first billing date following the issuance of the related bill.
(2) Includes insurance premium receivables constituting less than 1% of
Principal Receivables outstanding, which will not be included in the
Trust.
BILLING AND PAYMENTS
Monthly billing statements are sent to cardholders. Each month a cardholder
must make a minimum payment that varies in size according to the outstanding
account balance. In general, the minimum payments for regular charges are
currently $20 on balances under $100, $30 to $65 on balances between $101 and
$600, and 11% of the entire outstanding amount on balances over $600. Terms
for major purchase charges may vary from terms for regular charges. Where
permitted by law, late fees and returned check charges are generally added to
a cardholder's outstanding balance. JCPenney and JCP Card Bank may change
billing practices, including the minimum monthly payment amounts, at any time.
See "Risk Factors--Ability to Change Terms of the Accounts."
A finance charge is assessed on the Accounts. This charge is based on the
average daily balance outstanding on an Account during a monthly billing
period and is calculated by multiplying this average daily balance by the
applicable finance charge rate. Current purchase transactions and unpaid
finance charges are included in the average daily balance. Excluded from the
finance charge calculation are insurance premiums, returned payment charges,
and late payment fees. No finance charges are assessed on purchases if all
outstanding balances are paid in full by the cardholder's next billing date.
The average current finance charge rate for the Receivables is 21% per annum.
By the terms of the account agreements governing the Accounts, JCP Card Bank
may change its finance charge rates at any time. There can, therefore, be no
assurance that finance charges, fees and other charges will remain at current
levels in the future. See "Description of the Certificates and the Pooling and
Servicing Agreement--Collection and Other Servicing Procedures."
Where permitted by law, JCP Card Bank also generally charges cardholders
late fees not exceeding $20 and returned check fees not exceeding $20. JCP
Card Bank currently does not impose over-limit fees or annual fees.
Payments by cardholders to JCPenney on the Accounts are processed and
applied first to insurance premiums on insurance purchased through J. C.
Penney Direct Marketing Services, Inc. and billed to a cardholder (other than
credit insurance premiums), second to credit insurance premiums, third to
unpaid finance charges, fourth to late fees, fifth to returned check charges
and sixth to principal. Receivables in respect of insurance other than credit
insurance will not be included in the Receivables.
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<PAGE>
JCPR, JCPENNEY AND THE TRUST
JCPR was incorporated in Delaware on May 9, 1988, and is an indirect wholly-
owned subsidiary of JCPenney. JCPR was organized for the limited purposes of
purchasing accounts receivable such as the Receivables from JCPenney and its
affiliates, forming trusts such as the Trust and transferring such accounts
receivable to such trusts. The principal executive offices of JCPR are located
at 6501 Legacy Drive, Mail Stop 1318, Plano, Texas 75024. Its telephone number
is 972-431-2082.
JCPenney was founded by James Cash Penney in 1902. Incorporated in Delaware
in 1924, JCPenney is a major retailer with approximately 1,170 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
markets predominantly family apparel, jewelry, shoes, accessories, and home
furnishings. In addition, JCPenney, through its wholly-owned subsidiary,
Eckerd Corporation ("Eckerd"), operates a chain of approximately 2,740
drugstores located throughout the northeast, southeast, and Sunbelt regions of
the United States. JCPenney also has several direct marketing services
subsidiaries, the principal of which is J. C. Penney Life Insurance Company,
which market life, health, accident and credit insurance as well as a growing
portfolio of non-insurance products.
JCP Card Bank, a national banking association and a wholly-owned subsidiary
of JCPenney, was chartered by the United States Comptroller of the Currency on
July 16, 1993. JCP Card Bank is in the business of issuing credit cards, and
originating credit card accounts and accounts receivable. It issues the
JCPenney credit card, which can be used to purchase merchandise and services
from JCPenney and its affiliates. From time to time JCP Card Bank performs
other banking services and purchases and sells credit card and bankcard
receivables.
JCP Card Bank's activities are governed by the laws of the United States,
including the federal Bank Holding Company and National Bank Acts and their
accompanying regulations, and the laws of the State of Delaware. Under these
laws JCP Card Bank can engage in certain credit card operations on a national
basis and accept certain limited types of deposits. JCP Card Bank does not
make commercial loans. JCPenney and JCP Card Bank have entered into
contractual arrangements involving sales and servicing of accounts and
receivables. Under such arrangements, JCPenney acts as servicer for the
accounts in the JCPenney Portfolio. JCP Card Bank has granted to JCPenney all
of its right, title and interest in and to any receivables originated by JCP
Card Bank in Accounts which are, or will be, made part of the Trust.
The Trust was formed for this and like transactions pursuant to the Pooling
and Servicing Agreement and any Supplements thereto and prior to formation had
no assets or obligations. The Trust may not engage in any business activity
but rather receives and holds the Receivables and the other assets of the
Trust and proceeds therefrom, issues additional Series, makes payments on the
Certificates and engages in related activities. As a consequence, the Trust is
not expected to have any need for, or source of, capital resources other than
the assets of the Trust. The Trust is, however, completely dependent upon
JCPenney and its affiliates for the generation of Receivables because the
credit cards in the JCPenney Portfolio can only be used to purchase
merchandise and services from JCPenney and its affiliates. See "Risk Factors--
Dependence on JCPenney and its Affiliates." In addition, not all JCPenney
credit sales will generate Receivables. The JCPenney credit card competes with
American Express, MasterCard, VISA, Discover and debit cards for JCPenney
credit sales. See "JCPenney's Credit Card Business--General."
USE OF PROCEEDS
JCPR will apply the entire net proceeds received from the sale of the
Certificates to pay to JCPenney a portion of the purchase price of the
Receivables. JCPenney has informed JCPR that JCPenney will use such proceeds
for general corporate purposes.
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<PAGE>
MATURITY ASSUMPTIONS
The Pooling and Servicing Agreement provides that the Certificateholders
will not receive payments of principal until the earlier of the Class A
Expected Final Distribution Date or the first Distribution Date following the
Monthly Period in which a Pay Out Event shall have occurred. A "Pay Out Event"
occurs, either automatically or after specified notice, upon (a) failure of
JCPR or JCPenney to make certain payments or transfers of funds for the
benefit of Certificateholders, or to perform any other agreement in the
Pooling and Servicing Agreement or, to the extent assigned to the Trust, the
Receivables Purchase Agreement, within the time periods specified in the
Pooling and Servicing Agreement, (b) material breaches of certain
representations or warranties of JCPR or JCPenney, (c) certain insolvency
events relating to JCPR or JCPenney, (d) the occurrence of a Servicer Default
(as hereinafter defined) which would have a material adverse effect on the
Certificateholders, (e) the failure of JCPR to transfer Receivables from
Additional Accounts to the Trust within 30 days after notice from the Trustee
to JCPR that the average amount of the JCPR Amount for any 30-day period has
represented less than 10% (or such greater or lesser percentage as may be
specified in future Supplements) of the average amount of Principal
Receivables for such 30-day period, (f) the Trust becoming an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or (g) a reduction in the average Portfolio Yield (as hereinafter defined) for
any three consecutive Monthly Periods, to a rate which is less than the Base
Rate. The term "Portfolio Yield" means, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction the numerator of which is
the amount equal to (a) the sum of Finance Charge Receivables deposited in the
Finance Charge Account and allocated to the Investor Amount and investment
proceeds relating to amounts on deposit in the Principal Funding Account, less
(b) the amount of the Investor Default Amount (as hereinafter defined), in
both cases for such Monthly Period, and the denominator of which is the
Investor Amount, as of the last day of the preceding Monthly Period. The term
"Cardholder Monthly Payment Rate" means, with respect to any Monthly Period, a
fraction, the numerator of which is the total collections processed during
such Monthly Period and the denominator of which is the total Receivables at
the beginning of such Monthly Period. The term "Defaulted Account" means an
Account in which JCPenney, as Servicer, has charged off the Receivables in
accordance with its customary servicing practices and procedures. Although
JCPR believes that the likelihood of a Pay Out Event occurring is remote,
there can be no assurance that a Pay Out Event will not occur. See
"Description of the Certificates and the Pooling and Servicing Agreement--Pay
Out Events" and "Risk Factors--Payments and Maturity."
Controlled Accumulation Period. On each Transfer Date during the Controlled
Accumulation Period, an amount equal to, for each Monthly Period, the least of
(a) the Available Investor Principal Collections, (b) the applicable
"Controlled Deposit Amount," which is equal to the sum of the applicable
Controlled Accumulation Amount for such Monthly Period and the applicable
Deficit Controlled Accumulation Amount, if any, and (c) the sum of the Class A
Adjusted Investor Interest and the Class B Adjusted Investor Interest will be
deposited in the Principal Funding Account established by the Trustee until
the amount on deposit in the Principal Funding Account equals the Investor
Interest. If, for any Monthly Period, the Available Investor Principal
Collections for such Monthly Period exceed the applicable Controlled Deposit
Amount, any such excess will be paid to the Class C Interest Holder to the
extent that the Class C Investor Interest exceeds the Required Class C
Investor Interest. After the Class A Investor Interest and the Class B
Investor Interest have each been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Class C
Interest Holder on each Distribution Date until the earlier of the date the
Class C Investor Interest has been paid in full and the termination of Series
E. Amounts are expected to be available to pay the Class A Investor Interest
in full on the Class A Expected Final Distribution Date and (after the payment
of the Class A Investor Interest in full) the Class B Investor Interest on
, 2003 (the "Class B Expected Final Distribution Date"). Although it is
anticipated that collections of Principal Receivables will be available on
each Transfer Date during the Controlled Accumulation Period to make a deposit
of the applicable Controlled Deposit Amount and that the Class A Investor
Interest will be paid to the Certificateholders on the Class A Expected Final
Distribution Date and the Class B Investor Interest will be paid to the Class
B Interest Holder on the Class B Expected Final Distribution Date, no
assurance can be given in this regard.
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<PAGE>
Rapid Amortization Period. If a Pay Out Event occurs during the Controlled
Accumulation Period, the Rapid Amortization Period will commence and, to the
extent that the Class A Investor Interest has not been paid in full, the
Certificateholders will be entitled to monthly payments of principal equal to
the Available Investor Principal Collections until the earlier of the date on
which the Certificates have been paid in full and the termination of Series E.
After the Certificates have been paid in full and if the termination of Series
E has not occurred, Available Investor Principal Collections will be paid to
the Class B Interest Holder on each Distribution Date until the earlier of the
date on which the Class B Investor Interest has been paid in full and the
termination of Series E.
The Certificates are also subject to optional repurchase by JCPR. See
"Description of the Certificates and the Pooling and Servicing Agreement--
Repurchase; Final Payment of Principal; Termination."
The following table sets forth the highest and lowest cardholder monthly
payment rates for the JCPenney Portfolio during any month in the periods shown
and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening
monthly account balances during the periods shown. Payments shown in the table
include amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
CARDHOLDER MONTHLY PAYMENT RATES
FOR THE JCPENNEY PORTFOLIO
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FISCAL YEAR (1)
------------------------ -------------------
PAYMENT OCTOBER 3, SEPTEMBER 27,
RATE 1998 1997 1997 1996 1995
- ------- ---------- ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Lowest........................... 18.7% 18.5% 18.5% 19.4% 18.5%
Highest.......................... 20.3% 20.2% 21.3% 21.7% 24.0%
Average.......................... 19.6% 19.1% 19.5% 20.6% 21.2%
</TABLE>
- --------
(1) Fiscal year ends on the last Saturday in January of the following year.
The amount of collections on Receivables varies from month to month for many
reasons, including seasonal variations, general economic conditions and
consumer spending and borrowing patterns. There can be no assurance that
collections of Principal Receivables with respect to the Accounts will be
similar to the historical experience set forth above. See "Risk Factors--
Payments and Maturity."
RECEIVABLE YIELD CONSIDERATIONS
The yield per active account in the JCPenney Portfolio for each of the
periods shown is set forth in the following table. Revenues from finance
charges and fees will be affected by numerous factors, including the rates of
the finance charges on Principal Receivables, the ratio of major purchase
charges to regular charges, the amount of other fees paid by cardholders, the
percentage of cardholders who pay off their balances in full each month and do
not incur finance charges on purchases and changes in delinquency rates. See
"Risk Factors--Payments and Maturity."
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<PAGE>
JCPENNEY PORTFOLIO YIELD PER ACCOUNT (1)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED FISCAL YEAR (2)
------------------------ -------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997 1997 1996 1995
---------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average Active Account
Fees and Charges (3)..... $ 54.08 $ 51.52 $ 51.35 $ 47.18 $ 44.24
Average Account Balance
(4)...................... $267.75 $269.35 $266.10 $247.34 $237.86
Yield from Fees and
Charges (5).............. 20.2% 19.1% 19.3% 19.1% 18.6%
</TABLE>
- --------
(1) Includes commercial and Puerto Rican accounts, which will not be included
in the Accounts, as well as de minimus balances in accounts of cardholders
in Mexico and Chile, whose accounts are serviced in the United States.
(2) Fiscal year ends on the last Saturday in January of the following year.
(3) Fees and charges are comprised of finance charges, late fees and returned
check charges. Average active account fees and charges are presented net
of adjustments made pursuant to JCPenney's normal servicing procedures,
including removal of incorrect or disputed finance charges. Fees and
charges are annualized in the case of the eight-month periods ended
October 3, 1998 and September 27, 1997.
(4) Average account balances include purchases and accrued and unpaid finance
and other charges and are calculated based on the average of the account
balances on the last day of each fiscal month during the periods shown for
accounts with outstanding balances.
(5) Yields are annualized in the case of the eight-month periods ended October
3, 1998 and September 27, 1997.
The yields for the JCPenney Portfolio shown in the above table are comprised
of two components: finance charges and other fees paid by cardholders. As
payment rates decline, balances subject to finance charges tend to grow,
assuming continued purchasing activity. Accordingly, under these
circumstances, revenue from finance charges normally increases. Revenues from
finance charges also vary somewhat within a fiscal year due to the seasonal
nature of JCPenney's business. Approximately one-third of JCPenney's annual
credit sales generally occur during the JCPenney fiscal quarter ending on the
last Saturday in January. Fees billed were less than 12% of finance charges
for each of the periods shown. See "Risk Factors--Payments and Maturity."
DESCRIPTION OF THE CERTIFICATES AND THE POOLING ANDSERVICING AGREEMENT
The Certificates (and the Series E Investor Interests, which are not being
offered hereby) will be issued pursuant to the Pooling and Servicing Agreement
entered into among JCPR, as originator of the Trust and seller of the
Certificates, JCPenney, as Servicer of the Receivables, and The Fuji Bank and
Trust Company, as Trustee for the Certificateholders. (Copies of the Pooling
and Servicing Agreement and the Series E Supplement, which is a part thereof,
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.) Pursuant to the Pooling and Servicing Agreement, JCPR,
JCPenney and the Trustee may execute further Supplements thereto in order to
issue new Series, including the Series E Supplement relating to Series E. See
"Exchanges." The following summary describes certain terms of the Pooling and
Servicing Agreement and is qualified in its entirety by reference to the
Pooling and Servicing Agreement.
GENERAL
The Certificates will represent undivided interests in the Trust, including
the right to the Investor Percentage of all cardholder payments on the
Receivables in the Trust. See "--Investor Percentage and JCPR Percentage."
Each Certificate represents the right to receive monthly payments of interest
at the Class A Certificate Rate and payment of principal, to the extent of the
Class A Investor Interest, on the Class A Expected Final Distribution Date or,
in certain limited circumstances, earlier, as described herein, funded from
collections of Finance Charge Receivables, Net Recoveries and Principal
Receivables, respectively, allocated to the Class A Investor Interest and
certain other available amounts. In addition to representing the right to
payment from collections of Finance Charge Receivables, Net Recoveries and
Principal Receivables, each Certificate also represents the right to receive
payments from Excess Spread, Reallocated Principal Collections and certain
other available amounts.
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<PAGE>
The JCPR Amount is evidenced by the Exchangeable Certificate and represents
an undivided interest in the Trust, including the right to a floating
percentage ("JCPR Percentage") of all cardholder payments on the Receivables
in the Trust. See "--Investor Percentage and JCPR Percentage."
During the Revolving Period, the Investor Amount will remain constant except
in certain limited circumstances. The amount of Principal Receivables in the
Trust, however, will vary as new Principal Receivables are added to the Trust
and others are paid or removed. The JCPR Amount will fluctuate, therefore, to
reflect the changes in the amount of the Principal Receivables in the Trust.
During the Controlled Accumulation Period or the Rapid Amortization Period, as
the case may be, the Investor Amount will decline as cardholder payments of
Principal Receivables are collected, allocated among the outstanding Series
and deposited in the Principal Funding Account or distributed monthly to the
Certificateholders and JCPR (as the holder of the Exchangeable Certificate).
As a result, the JCPR Amount during the Controlled Accumulation Period or the
Rapid Amortization Period, as the case may be, will generally increase
relative to the Investor Amount to reflect the reductions in the Investor
Amount and will also change to reflect the variations in the amount of
Principal Receivables in the Trust. The JCPR Amount will be reduced as the
result of any Exchanges including the Exchange under which the Certificates
will be issued. See "--Exchanges."
The property of the Trust consists of the Receivables, all monies due or to
become due in respect thereof, all proceeds of the Receivables and proceeds of
credit insurance policies relating to the Receivables and all monies on
deposit in certain bank accounts of the Trust. The Trust is also entitled to
the benefits of any letter of credit or other form of enhancement issued or to
be issued with respect to any other Series. The Certificateholders will not be
entitled to any benefits under any such letter of credit or other form of
credit enhancement issued with respect to any other Series.
The Certificates will initially be represented by Certificates which will be
registered in the name of a nominee of DTC except as set forth below. The
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form. JCPR has been informed by
DTC that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of the Certificates. No Certificate Owner will be entitled to
receive a certificate representing such person's interest in the Certificates,
except as described under "--Definitive Certificates." Unless and until
Definitive Certificates are issued under the limited circumstances described
herein, all references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from its Participants (as hereinafter
defined), and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Certificates, as the case may be. See "--Book-Entry Registration" and "--
Definitive Certificates."
BOOK-ENTRY REGISTRATION
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel Bank, societe anonyme ("Cedel") or Euroclear (in Europe) if
they are participants in such systems, or indirectly through organizations
that are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants (as
hereinafter defined) and the Euroclear Participants (as hereinafter defined),
respectively, through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries (collectively,
the "Depositaries") which in turn will hold such positions in customers'
securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York
banking law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions among Participants through electronic book-entry charges in
accounts of its Participants,
29
<PAGE>
thereby eliminating the need for physical delivery of certificates.
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies and clearing corporations and may
include certain other organizations, some of which (and/or their
representatives) own DTC. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or
through a Cedel Participant or a Euroclear Participant to a DTC Participant
will be received with value on the DTC settlement date but will be available
in the relevant Cedel or Euroclear cash account only as of the business day
following settlement in DTC.
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest
in, Certificates may do so only through Participants or Indirect Participants.
In addition, Certificate Owners will receive all distributions of principal of
and interest on the Certificates from the Trustee through DTC and its
Participants. Under a book-entry format, Certificate Owners may experience
some delay in their receipt of payments since such payments will be forwarded
by the Trustee to Cede, as nominee for DTC. DTC will forward such payments to
its Participants which thereafter will forward them to Indirect Participants
or Certificate Owners. It is anticipated that the only "Certificateholder"
will be Cede, as nominee of DTC. Certificate Owners will not be recognized by
the Trustee as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Certificate Owners will only be permitted to exercise
the rights of Certificateholders indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations ("Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their customer Certificate Owners. Accordingly, although
Certificate Owners will not possess Certificates, the Rules provide a
mechanism by which Certificate Owners will receive payments and will be able
to transfer their interests.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates. The rules applicable to DTC and Participants are on file
with the Securities and Exchange Commission. DTC currently accepts only notes
denominated and payable in U.S. dollars.
30
<PAGE>
DTC has advised JCPR that it will take any action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account with DTC the
Certificates are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf
of Participants whose holdings include such undivided interests.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participant organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes
in accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear system on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear system is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear system. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants and has no record of or relationship with persons holding through
Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. Cedel or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Certificateholder under the
Agreement on behalf of a Cedel participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
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<PAGE>
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form to
Certificate Owners or their nominees ("Definitive Certificates"), rather than
to DTC or its nominee, only if (i) JCPR advises the Trustee in writing that
DTC is no longer willing or able properly to discharge its responsibilities as
depository with respect to the Certificates and the Trustee or JCPR is unable
to locate a qualified successor, (ii) JCPR, at its option, elects to terminate
the book-entry system through DTC with respect to the Certificates or (iii)
after the occurrence of a Servicer Default, Certificate Owners representing in
the aggregate not less than 50% of the Investor Amount advise the Trustee and
DTC through Participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interest
of the Certificate Owners.
Upon the occurrence of any one of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the Definitive Certificate representing the Certificates and receipt of
instructions for re-registration, the Trustee will issue the Certificates as
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as holders under the Pooling and Servicing
Agreement ("Holders").
Distribution of principal and interest on the Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth herein and in the Pooling and Servicing Agreement.
Interest payments and any principal payments on each Distribution Date will be
made to Holders in whose names the Definitive Certificates were registered at
the close of business on the related Record Date. Distributions will be made
by check mailed to the address of such Holder as it appears on the register
maintained by the Trustee. The final payment on any Certificate (whether a
Definitive Certificate or Certificates registered in the name of Cede
representing the Certificates), however, will be made only upon presentation
and surrender of such Certificates at the office or agency specified in the
notice of final distribution to Certificateholders. The Trustee will provide
such notice to registered Certificateholders not later than the fifth day of
the month of such final distribution.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which shall initially be the Trustee. No
service charge will be imposed for any registration of transfer or exchange,
but the Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
INTEREST DISTRIBUTIONS
Interest will accrue on the Certificates at the Class A Certificate Rate
from the Closing Date. Interest will be distributed on , 1998 and on the
15th day of each following month thereafter (or, if such 15th day is not a
business day, the next succeeding business day) (each, a "Distribution Date").
Interest payments on the Certificates on any Distribution Date will be
calculated on the outstanding principal balance of the Certificates as of the
preceding Record Date, except that interest for the first Distribution Date
will accrue at the Class A Certificate Rate on the initial outstanding
principal balance of the Certificates from the Closing Date. Interest due on
the Certificates but not paid on any Distribution Date will be payable on the
next succeeding Distribution Date together with additional interest (the
"Additional Interest") on such amount at the Class A Certificate Rate plus 2%
per annum (such amount with respect to the Certificates, the "Class A
Additional Interest"). Such Additional Interest shall accrue on the same basis
as interest on the Certificates, and shall accrue from the Distribution Date
such overdue interest became due, to but excluding the Distribution Date on
which such Additional Interest is paid. Interest payments on the Certificates
on any Distribution Date will be paid from Class A Available Funds for the
related Monthly Period and, to the extent such Class A Available Funds are
insufficient to pay such interest, from Excess Spread and Reallocated
Principal Collections (to the extent available) for such Monthly Period.
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<PAGE>
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of collections
of Finance Charge Receivables and Net Recoveries allocated to the Investor
Interest and deposited in the Finance Charge Account with respect to such
Monthly Period, (b) the investment proceeds of amounts on deposit in the
Principal Funding Account allocable to the Certificates and (c) certain other
amounts treated as Class A Available Funds pursuant to the Series E Supplement
(including, if JCPR in its discretion so elects, certain amounts on deposit in
a reserve account).
Interest will be calculated on the basis of a 360-day year comprised of
twelve 30-day months.
PRINCIPAL DISTRIBUTIONS
On each Transfer Date relating to the Revolving Period (which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation
Period or, if earlier, the Rapid Amortization Period), unless a reduction in
the Required Class C Investor Interest has occurred, collections of Principal
Receivables allocable to the Investor Interest will, subject to certain
limitations, including the allocation of any Reallocated Principal Collections
with respect to the related Monthly Period to pay the Class A Required Amount
and the Class B Required Amount, be paid to JCPR.
On each Distribution Date relating to the Controlled Accumulation Period,
the Trustee will deposit an amount equal to the least of (a) Available
Investor Principal Collections with respect to such Transfer Date, (b) the
applicable Controlled Deposit Amount and (c) the sum of the Class A Adjusted
Investor Interest and the Class B Adjusted Investor Interest in the Principal
Funding Account for distribution to Certificateholders on the Class A Expected
Final Distribution Date. Amounts in the Principal Funding Account are expected
to be available to pay the Class A Investor Interest in full on the Class A
Expected Final Distribution Date and (after payment of the Class A Investor
Interest in full) the Class B Investor Interest on the Class B Expected Final
Distribution Date. After the Class A Investor Interest and the Class B
Investor Interest have each been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Class C
Interest Holder on each Distribution Date until the earlier of the date the
Class C Investor Interest has been paid in full and the termination of Series
E. On each Transfer Date, if a reduction in the Required Class C Investor
Interest has occurred, a portion of collections of Principal Receivables
allocable to the Investor Interest will be paid to the Class C Interest Holder
to reduce the Class C Investor Interest to the Required Class C Investor
Interest.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to (a) collections of Principal Receivables
received during such Monthly Period allocable to the Investor Interest, minus
(b) the amount of Reallocated Principal Collections with respect to such
Monthly Period used to fund the Required Amount.
On each Distribution Date with respect to the Rapid Amortization Period, the
Certificateholders will be entitled to receive Available Investor Principal
Collections for the related Monthly Period in an amount up to the Class A
Adjusted Investor Interest until the earlier of the date the Certificates are
paid in full and the termination of Series E. After payment in full of the
Class A Investor Interest, the Class B Interest Holder will be entitled to
receive, on each Distribution Date with respect to the Rapid Amortization
Period, Available Investor Principal Collections for the related Monthly
Period in an amount up to the Class B Adjusted Investor Interest until the
earlier of the date the Class B Investor Interest is paid in full and the
termination of Series E. After payment in full of the Class B Investor
Interest, the Class C Interest Holder will be entitled to receive, on each
Distribution Date, Available Investor Principal Collections until the earlier
of the date the Class C Investor Interest is paid in full and the termination
of Series E.
EXCHANGES
The Pooling and Servicing Agreement provides that the Trust will issue two
types of certificates: (1) one or more Series of certificates (including the
Certificates) which are transferable and have the characteristics described
below and (2) the Exchangeable Certificate, which evidences the JCPR Amount
and which is initially held by JCPR and is generally not transferable except
for certain permitted transfers to JCPenney and its affiliates. The Pooling
and Servicing Agreement also provides that, pursuant to any one or more
Supplements, JCPR may deliver the Exchangeable Certificate to the Trustee in
exchange for one or more new Series and a reissued Exchangeable Certificate.
Under the Pooling and Servicing Agreement, JCPR may define, with respect to
any such Series: (a) its name or designation, (b) its initial principal
amount, (c) its interest rate (or formula for
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<PAGE>
the determination thereof), (d) a date on which it will begin amortization of
the principal amount thereof, (e) the percentage used to calculate monthly
servicing fees for such Series, (f) the issuer of an irrevocable letter of
credit or other form of credit enhancement with respect thereto, if any, (g)
the amount or amounts available under such letter of credit or other form of
credit enhancement, if any, (h) the outstanding principal amount, expressed as
a percentage of the initial principal amount, at which point the certificates
of such Series will be subject to or required to be repurchased by JCPR, (i)
the issuer of a repurchase letter of credit or other form of credit
enhancement with respect thereto, if any, (j) the amount, if any, available
under such repurchase letter of credit or other form of credit enhancement in
respect of any repurchase or full payment of such Series as described in
clause (n) below, (k) its base rate, (1) the minimum amount or amounts
available under such letter of credit or other form of credit enhancement, if
any, as a percentage of the outstanding principal amount of such Series, (m)
its facility fee percentage, if any, (n) any terms relating to the repurchase
or full payment of such Series, (o) its final maturity date, (p) the minimum
Cardholder Monthly Payment Rate, if any, for such Series, (q) the minimum
amount of the JCPR Amount required to be maintained as a percentage of the
amount of Principal Receivables (which percentage, subject to any limitations
specifically set forth in the Supplement relating to any then outstanding
Series, will be applicable to determine whether any pay out event, or other
similar event has occurred with respect to all Series outstanding at the time
such Supplement is executed), (r) the extent to which, if any, any portions of
payments to be made to JCPR or the holder of the Exchangeable Certificate
shall be made available for distribution to the certificateholders of such
Series and (s) any other terms permitted by the Pooling and Servicing
Agreement including, without limitation, (i) the method of determining
investor percentages for such Series, (ii) the method of allocating and paying
collections allocable to such Series, (iii) provisions creating different or
additional security or other credit enhancement for such Series, (iv)
provisions subordinating such Series to other Series or other Series (except
the Certificates) to such Series to the extent permitted in the Supplement
relating to such other Series and (v) any other amendment or supplement to the
Pooling and Servicing Agreement which is made applicable only to such Series
(all such terms, the "Principal Terms" of such Series). JCPR may offer any
such Series to the public under a prospectus or other disclosure document in
transactions either registered under the Securities Act or exempt from
registration thereunder directly, through one or more underwriters, in fixed-
price offerings or in negotiated transactions or otherwise. Any such Series
may be issued in fully registered or book-entry form in minimum denominations
determined by JCPR. Series E is the fifth Series to be issued by the Trust.
JCPR may offer, from time to time, additional Series issued by the Trust. See
"--Prior Issuance of Certificates Outstanding" with respect to the Principal
Terms of the Series B and Series C Certificates, the two outstanding Series
issued by the Trust.
The Pooling and Servicing Agreement provides that JCPR may perform Exchanges
and define Principal Terms such that each Series has a period during which
accumulation or amortization of the principal amount thereof is intended to
occur and which may have a different length and begin on a different date than
such period of any other Series. Further, events that cause the early
amortization of the principal amount of any Series in the manner generally
described under the section entitled "Controlled Accumulation Period" and
"Rapid Amortization Period" in the Prospectus Summary hereof may occur with
respect to certain Series but not with respect to other Series. Thus, certain
Series may not be accumulating principal or amortizing, while other Series are
accumulating principal or amortizing. Moreover, each Series may have the
benefit of an irrevocable letter of credit or other form of credit enhancement
issued by an issuer different from the issuer of the letter of credit with
respect to any other Series. Under the Pooling and Servicing Agreement, the
Trustee will hold each such letter of credit or other form of credit
enhancement only on behalf of the Series to which it relates. After payments
of amounts in respect of the certificates of any outstanding Series, any
remaining collections of Finance Charge Receivables with respect to any Series
will be paid to the letter of credit bank that issued the letter of credit
relating to such Series, or paid to JCPR with respect to any Series which is
initially issued without the benefit of any form of credit enhancement. The
Pooling and Servicing Agreement also provides that JCPR may specify different
interest rates and monthly servicing fees and facility fees with respect to
each Series. Finally, JCPR has the option under the Pooling and Servicing
Agreement to vary between Series the terms upon which such Series may be
repurchased by JCPR. There is no limit on the number of Exchanges that JCPR
may effect under the Pooling and Servicing Agreement. The Trust will terminate
only as provided in the Pooling and Servicing Agreement.
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<PAGE>
Under the Pooling and Servicing Agreement and pursuant to a Supplement, an
Exchange may only occur upon the satisfaction of certain conditions provided
for in the Pooling and Servicing Agreement. JCPR may perform an Exchange by
notifying the Trustee at least five business days in advance (using an
"Exchange Notice") of the date upon which the Exchange is to occur ("Exchange
Date"). Each Exchange Notice will state the names of any Series to be issued
on the related Exchange Date and, with respect to each such Series: (a) its
initial principal amount, (b) its interest rate (or formula used to determine
such rate) and (c) the issuer of the letter of credit, repurchase letter of
credit or other form of credit enhancement, if any, which is expected to
provide credit enhancement with respect to it. On such Exchange Date, the
Pooling and Servicing Agreement provides that the Trustee will only issue any
such Series upon delivery to it of the following: (a) a Supplement in form
satisfactory to the Trustee signed by JCPR and JCPenney and specifying the
Principal Terms of such Series, (b) the letter of credit, repurchase letter of
credit or other instrument providing credit enhancement, if any, (c) if a
letter of credit or other form of credit enhancement is required by the
Supplement, a reimbursement or other appropriate agreement with respect
thereto executed by JCPR and the issuer of the letter of credit or other
credit enhancement instrument, (d) letters from each Rating Agency confirming
that the issuance of such Series will not result in the withdrawal or
reduction of the rating of any prior outstanding Series, (e) an officer's
certificate of JCPR to the effect that the issuance of such Series will not,
in the reasonable judgment of JCPR, cause a pay out event or similar event
with respect to any Series or an event which, with notice or lapse of time, or
both, would cause such an event, in each case with respect to any outstanding
Series, including the Certificates, (f) an opinion of counsel to the effect
that the certificates of such Series should be characterized as indebtedness
of JCPR under existing law for federal income tax purposes and (g) the
existing Exchangeable Certificate. Upon satisfaction of such conditions, the
Trustee will cancel the existing Exchangeable Certificate and issue such
Series and a new Exchangeable Certificate, each dated the Exchange Date.
PRIOR ISSUANCE OF CERTIFICATES OUTSTANDING
The table below sets forth the principal characteristics of the Series B and
Series C Certificates, the other Series heretofore issued by the Trust and
currently outstanding. For more specific information with respect to any
Series, prospective investors should contact JCPenney. JCPenney will provide,
without charge, to any prospective purchaser of the Certificates, a copy of
the disclosure document for any outstanding previous publicly-issued Series.
Requests should be addressed to Treasurer, J. C. Penney Company, Inc., P. O.
Box 10001, Dallas, Texas 75301.
SERIES B
<TABLE>
<C> <S> <C>
Initial Investor Amount....................... $350,000,000
Certificate Rate.............................. 8.95%
Investor Amount............................... $350,000,000
Investor Percentage of Principal Receivables.. Investor Amount as of the
end of the prior month
divided by the aggregate
Principal Receivables as
of such time
Monthly Servicing Fee......................... 0.75%
Letter of Credit Bank......................... Credit Suisse, a Swiss
banking corporation
acting through its New
York branch
Remaining Letter of Credit Amount............. $42,000,000
Minimum JCPR Percentage....................... 10%
Repurchase Terms.............................. Optional repurchase of
the Series B Certificates
by JCPR on any
Distribution Date on or
after the Investor Amount
is reduced to an amount
less than or equal to
$35,000,000.
Mandatory repurchase of
the Series B Certificates
by JCPR on any
Distribution Date on or
after the Investor Amount
is reduced to an amount
less than or equal to
$21,000,000, plus the
amount, if any, then
available (but not more
than $14,000,000) under
the Letter of Credit
Commencement of Amortization Period........... May 1, 1999
</TABLE>
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<PAGE>
SERIES C
<TABLE>
<C> <S>
Initial Investor Amount....................... $375,000,000
Certificate Rate.............................. 9.625%
Investor Amount............................... $375,000,000
Investor Percentage of Principal Receivables.. Investor Amount as of the end
of the prior month divided by
the aggregate Principal
Receivables as of such time
Monthly Servicing Fee......................... 0.75%
Letter of Credit Bank......................... Credit Suisse, a Swiss banking
corporation acting through its
New York branch
Interest Exchange Contract Provider........... Credit Suisse, a Swiss banking
corporation acting through its
New York branch
Remaining Letter of Credit Amount............. $7,476,884 as of October 15,
1998
Minimum JCPR Percentage....................... 10%
Reacquisition of Receivables.................. Mandatory reacquisition of
Receivables allocable to the
Investor Amount by JCPR in an
amount equal to the excess, if
any, of the Investor Amount
over the amount available under
the Letter of Credit on any
Funding Date following the
month during which the Investor
Amount is reduced to an amount
less than or equal to
$37,500,000 and the amount
available under the Letter of
Credit is less than
$18,750,000, but only to the
extent of the available amount
of the Repurchase Letter of
Credit; in addition, if the
Investor Amount is reduced to
an amount less than $37,500,000
on the Scheduled Distribution
Date, mandatory reacquisition
of any remaining Receivables
allocable to the Investor
Amount by JCPR on the Scheduled
Distribution Date
Commencement of Accumulation Period........... December 31, 1997
Scheduled Distribution Date................... June 15, 2000
</TABLE>
TRANSFER OF RECEIVABLES
JCPR has transferred to the Trust all its right, title and interest in and
to all the Receivables in the Accounts and in and to all Receivables
thereafter created in such Accounts. See "Description of the Receivables
Purchase Agreement." On the Closing Date, JCPenney, as Servicer, will deliver
to the Trustee a certificate setting forth JCPenney's best estimate of the
aggregate amounts of the Principal Receivables and Finance Charge Receivables
as of the close of business on the day preceding the Closing Date.
In connection with the transfer of the Receivables to the Trust, JCPR has
indicated, or will indicate, in its computer files, and has caused or will
cause, as the case may be, JCPenney to indicate in its computer files as
provided in the Receivables Purchase Agreement, that the Receivables have been
sold or transferred to JCPR by JCPenney and transferred by JCPR to the Trust.
In addition, JCPR has provided or will provide to the Trustee a computer file
or a microfiche list containing a true and complete list showing each Account,
identified by account number and by total outstanding balance. JCPR has not
and will not deliver to the Trustee any other records or agreements relating
to the Accounts or Receivables. The records and agreements relating to the
Accounts and the Receivables maintained by JCPR or the Servicer have not been
and will not be segregated by JCPR or the Servicer from other documents and
agreements relating to other credit card accounts and receivables and will not
be stamped or marked to reflect the transfer of the Receivables to the Trust,
but the computer records of JCPR and JCPenney have been and will be marked to
evidence such transfers. Each of JCPR and JCPenney have filed or will file a
financing statement under the Uniform Commercial Code ("UCC") with respect to
the Receivables meeting the requirements of state law in Texas and in the
jurisdictions in which the books and records relating to the Accounts are
maintained. See "Risk Factors--Certain Legal Aspects" and "Certain Legal
Aspects of the Receivables."
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<PAGE>
Pursuant to the Pooling and Servicing Agreement, JCPR may, and under certain
circumstances and subject to certain limitations and conditions shall, require
JCPenney to designate from time to time Additional Accounts to be included as
Accounts and to sell or transfer to JCPR, pursuant to the Receivables Purchase
Agreement, all Receivables then existing and thereafter created in such
Additional Accounts. All Receivables so acquired by JCPR have been and will be
transferred by JCPR to the Trust. See "--Addition of Accounts." JCPR may also
(under certain circumstances and subject to certain limitations and
conditions) remove Accounts as described in "--Removal of Accounts."
REPRESENTATIONS AND WARRANTIES
JCPR and JCPenney each represents and warrants to the Trust to the effect
that, among other things, (a) as of the Closing Date, it is duly incorporated
and in good standing and has the authority to consummate the transactions
contemplated by the Pooling and Servicing Agreement and the Receivables
Purchase Agreement and (b) as of the date of the addition of the Receivables
of Additional Accounts, each Account was an Eligible Account (as hereinafter
defined). If any of these representations and warranties proves to have been
incorrect in any material respect when made, and continues to be incorrect for
60 days after notice to JCPR and JCPenney by the Trustee or to JCPR, JCPenney
and the Trustee by Certificateholders holding Certificates representing not
less than 25% of the Investor Amount, the Trustee or Certificateholders
holding Certificates representing not less than 25% of the Investor Amount may
give notice to JCPR and JCPenney (and to the Trustee in the latter instance)
declaring that a Pay Out Event has occurred, thereby commencing the Rapid
Amortization Period. See "--Pay Out Events."
JCPR also represents and warrants to the Trust relating to the Receivables
to the effect, among other things, that (a) as of the Closing Date, each of
the Receivables then existing is an Eligible Receivable (as hereinafter
defined) and (b) as of the date any new Receivable is created, such Receivable
is an Eligible Receivable and the representation and warranty set forth in
clause (b) in the immediately following paragraph is true and correct with
respect to such Receivable. In the event of a breach of any representation and
warranty set forth in this paragraph or the second paragraph under
"Description of the Receivables Purchase Agreement--Representations and
Warranties," within 60 days, or such longer period as may be agreed to by the
Trustee, of the earlier to occur of the discovery of such breach by JCPR or
receipt of written notice of such breach by JCPR, JCPR shall accept retransfer
of each Principal Receivable as to which such breach relates (each, an
"Ineligible Receivable") on the terms and conditions set forth below;
provided, however, that no such retransfer shall be required to be made with
respect to such Ineligible Receivable if, on any day within such 60-day period
(or such longer period as may be agreed to by the Trustee), the
representations and warranties with respect to such Ineligible Receivable
shall then be true and correct in all material respects or if the aggregate
amount of Ineligible Receivables outstanding at any time does not, in the sole
reasonable judgment of JCPR, have a material adverse effect on the interest of
the Trust in the Receivables as a whole, including the ability of the Servicer
in JCPR's sole reasonable judgment to collect the Receivables. JCPR shall
accept retransfer of each such Ineligible Receivable by directing the Servicer
to deduct the principal balance of each such Ineligible Receivable from the
aggregate amount of Principal Receivables used to calculate the amount of the
JCPR Amount. If the exclusion of an Ineligible Receivable from the calculation
of the JCPR Amount would cause the JCPR Amount to be a negative number, on the
date of retransfer of such Ineligible Receivable JCPR shall make a deposit in
the Collection Account in immediately available funds in an amount equal to
the amount by which the JCPR Amount would be reduced below zero. Such deposit
will be considered a repayment in full of the Ineligible Receivable. The
obligation of JCPR to accept retransfer of any Ineligible Receivable is the
sole remedy available to Certificateholders or the Trustee on behalf of
Certificateholders respecting any breach of the representations and warranties
set forth in this paragraph with respect to such Receivable.
JCPR also represents and warrants to the Trust to the effect, among other
things, that as of the Closing Date (a) the Pooling and Servicing Agreement
constitutes a legal, valid and binding obligation of JCPR and (b) the Pooling
and Servicing Agreement and the Receivables Purchase Agreement, collectively,
constitute a valid transfer to the Trust of all right, title and interest of
JCPR and JCPenney in and to the Receivables, whether then existing or
thereafter created in the Accounts, and the proceeds thereof (including
amounts in any of the accounts
37
<PAGE>
established for the benefit of the Certificateholders) or the grant of a first
priority perfected security interest in such Receivables (except for certain
tax liens not then due or which JCPenney or JCPR is contesting) and the
proceeds thereof (including amounts in any of the accounts established for the
benefit of the Certificateholders), which is effective as to each Receivable
upon the transfer thereof to the Trust or upon its creation, as the case may
be. If the breach of any of the representations and warranties described in
this paragraph or the third paragraph under "Description of the Receivables
Purchase Agreement--Representations and Warranties" materially adversely
affects the interests of the Certificateholders, either the Trustee or the
holders of certificates evidencing undivided interests in the Trust
aggregating not less than 25% of the investor amount of all Series, by written
notice to JCPR (and to the Trustee and the Servicer if given by the
certificateholders), may direct JCPR to accept retransfer of the Receivables
within 45 days of such notice, or within such longer period specified in such
notice. JCPR will be obligated to accept retransfer of such Receivables on a
Distribution Date occurring within such applicable period. Such retransfer
will not be required to be made, however, if at any time during such
applicable period the representations and warranties shall then be true and
correct in all material respects. The deposit amount for such retransfer will
be equal to the investor amount of all Series on the last day of the Monthly
Period preceding the Distribution Date on which the retransfer is scheduled to
be made plus an amount equal to all interest accrued but unpaid on the
certificates of each Series at the applicable certificate rates through such
last day of the Monthly Period, less the amount transferred to the
Distribution Account from the Finance Charge Account in respect of interest on
the certificates of each Series for the month ending on such last day of the
preceding Monthly Period. The payment of this deposit amount and the transfer
of all other amounts deposited for the preceding month in the Distribution
Account will be considered a prepayment in full of the investor amounts and
will be distributed upon presentation and surrender of the certificates. If
the Trustee or certificateholders give a notice as provided above, the
obligation of JCPR to make any such deposit will constitute the sole remedy
respecting a breach of the representations and warranties available to the
Trustee or the certificateholders.
An "Eligible Account" is defined to mean each Account which is payable in
United States dollars and which is serviced in any credit service center of
JCPenney which is located in the United States. An "Eligible Receivable" is
defined to mean each Receivable (a) which has arisen under an Eligible
Account, (b) which was created in compliance, in all material respects, with
all requirements of law applicable to JCPenney or JCP Card Bank, as
applicable, and JCPR and pursuant to a credit card agreement which complies in
all material respects with all requirements of law applicable to JCPenney or
JCP Card Bank, as applicable, and JCPR, (c) with respect to which all consents
or authorizations of, or registrations with, any governmental authority
required to be obtained or given by JCPenney or JCP Card Bank, as applicable,
and JCPR in connection with the creation of such Receivable or in connection
with the execution, delivery and performance by JCPenney or JCP Card Bank, as
applicable, and JCPR of the related credit card agreement have been duly
obtained or given and are in full force and effect as of the date of the
creation of such Receivable, (d) as to which, at the time of its creation,
JCPenney or JCP Card Bank, as applicable, JCPR or the Trust had good and
marketable title free and clear of all liens and security interests arising
under or through JCPenney, JCP Card Bank or JCPR (other than certain tax liens
for taxes not then due or which JCPenney or JCPR is contesting), (e) which is
the legal, valid and binding payment obligation of the related cardholder,
legally enforceable against such cardholder in accordance with its terms (with
certain bankruptcy-related exceptions) and (f) which constitutes an "account"
under Article 9 of the UCC as in effect in Texas at the time of the transfer
and any other state in which the Servicer's books and records relating to the
Account are located.
It is not required or anticipated that the Trustee make or will make any
initial or periodic general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with JCPR's representations and warranties or
for any other purpose. The Servicer, however, will deliver to the Trustee on
or before April 15 of each year, and has so delivered for each year since
1989, an opinion of counsel with respect to the validity of the security
interest of the Trust in and to the Receivables and certain other components
of the Trust.
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<PAGE>
ADDITION OF ACCOUNTS
Subject to the conditions specified below, JCPR may designate from time to
time additional qualifying JCPenney credit card accounts (which may be from
any billing cycles) ("Additional Accounts") to be included as Accounts and to
transfer to the Trust all Receivables of such Additional Accounts, whether
such Receivables are then existing or thereafter created. In addition, if,
during any period of 30 consecutive days during the Revolving Period, the JCPR
Amount averaged over that period is less than 10% of the average Principal
Receivables, JCPR will, under the Receivables Purchase Agreement, cause
JCPenney to transfer the Receivables of additional qualifying JCPenney credit
card accounts to be included as Accounts, and JCPR will purchase Receivables
in such Additional Accounts (which may be in any of JCPenney's billing cycles)
under the Receivables Purchase Agreement and transfer such Receivables to the
Trust in a sufficient amount so that the average of the JCPR Amount as a
percent of the average Principal Receivables during such 30-day period would
have, if the Receivables from such Accounts had been transferred to the Trust
as of the first day of such 30-day period, at least equalled 10%. JCPR may
reduce or increase the 10% figure set forth above in any future Supplement,
provided such figure will not be reduced below 5% as long as the Certificates
are outstanding.
Except as provided in the following paragraph, JCPR may designate Additional
Accounts only upon satisfaction of the following conditions: (i) JCPR shall
give the Trustee and the Servicer five business days notice of the proposed
addition, (ii) each Additional Account shall be an Eligible Account, (iii) if
any such Additional Account is being added (except as described in the
preceding paragraph) and such addition would cause the Principal Receivables
to exceed $50,000,000 more than the greater of (x) the amount of Principal
Receivables in the Trust on the Closing Date or (y) the amount of Principal
Receivables in the Trust when the provisions of this clause (iii) were last
complied with, such addition shall be accompanied by a letter from each Rating
Agency to the effect that such addition would not adversely affect the rating
of the Certificates, (iv) JCPR shall give the Trustee an executed transfer
agreement together with a list of such Additional Accounts, (v) JCPR shall
represent and warrant that no selection procedures believed by JCPR to be
materially adverse to the interests of the Certificateholders were used in
selecting or adding such Additional Accounts, (vi) JCPR shall represent and
warrant that the transfer of such Additional Accounts constitutes a valid
transfer to the Trust of all right, title and interest of JCPR in and to the
Receivables in such Additional Accounts, whether then existing or thereafter
created, and the proceeds thereof (including amounts in any of the accounts
established for the benefit of the Certificateholders) or the grant of a first
priority perfected security interest in such Receivables (except for certain
tax liens not then due or which JCPenney or JCPR is contesting) and the
proceeds thereof (including amounts in any of the accounts established for the
benefit of the Certificateholders), which is effective as to each Receivable
upon the transfer thereof to the Trust or upon its creation, as the case may
be, (vii) JCPR shall deliver an officer's certificate confirming the items
specified in clauses (ii) (iv), (v) and (vi) above, (viii) JCPR shall deliver
an opinion of counsel in respect of such addition in the form specified in the
Pooling and Servicing Agreement and (ix) JCPR shall notify each Rating Agency
of such proposed addition of Additional Accounts.
Additional Accounts opened in Cycles One, Two, Three or Four (or any other
billing cycle of which substantially all the Receivables have been transferred
to the Trust in the future) during the normal operation of JCPenney's credit
card business may also be added to the Trust automatically on a daily basis.
In connection with any such automatic addition of Additional Accounts, JCPR
will be required to satisfy the condition specified in clause (iv) in the
preceding paragraph within five days after the first day of the calendar month
next succeeding the calendar month in which such Additional Accounts were
added to the Accounts and the conditions specified in clauses (v) and (vi) in
the preceding paragraph as of the date any such Additional Account is added to
the Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions specified below, JCPR may, but is not obligated
to, remove from the Trust all Receivables from the Removed Accounts; provided,
however, that JCPR shall not make more than one such designation in any
Monthly Period. JCPR shall be permitted to designate and require retransfer to
it of the Receivables from Removed Accounts only upon satisfaction of the
following conditions: (i) the Principal Receivables of the Removed Accounts
shall equal or exceed 2% of the aggregate amount of the Principal
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Receivables in the Trust at such time and each Rating Agency shall have
delivered to the Trustee a letter confirming that such removal will not
adversely affect the rating of the Certificates; (ii) the removal of any
Receivables of any Removed Accounts shall not, in the reasonable belief of
JCPR, cause a pay out event or similar event with respect to any outstanding
Series, or an event which, with notice or lapse of time, or both, would
constitute such an event, with respect to any such Series; (iii) JCPR shall
have delivered to the Trustee for execution a written retransfer agreement and
a computer file, microfiche or written list containing a true and complete
list of all Removed Accounts identified by account number and the aggregate
amount of the Principal Receivables in such Removed Accounts; (iv) JCPR shall
represent and warrant that no selection procedures believed by JCPR to be
materially adverse to the interests of the Certificateholders were used in
selecting the Removed Accounts to be removed from the Trust; and (v) JCPR
shall have delivered to the Trustee an officer's certificate confirming the
items set forth in clauses (i) through (iv) above. JCPR will also have the
right to remove all Receivables in specified Accounts, without complying with
the conditions specified in clauses (i), (ii), (iv) and (v) above, in the
limited circumstances described in "--Defaulted Receivables and Rebates."
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer is responsible
for servicing and administering the Receivables in accordance with the
Servicer's policies and procedures in effect for servicing credit card
receivables comparable to the Receivables, as such policies and procedures may
be modified from time to time by the Servicer. The Servicer is not required to
maintain fidelity bond coverage insuring against losses through wrongdoing of
its officers and employees who are involved in the servicing of credit card
receivables.
TRUST ACCOUNTS
The Trustee has established in the name of the Trust three segregated trust
accounts for the benefit of the Certificateholders and certificateholders of
other Series, a "Finance Charge Account," a "Principal Account" and a
"Distribution Account," each established with a "Qualified Institution"
(defined generally as a depository institution or trust company, which may
include the Trustee, organized under the laws of the United States or any one
of the states thereof, which at all times has a certificate of deposit rating
of P-1 by Moody's Investors Service, Inc. ("Moody's") and of A-1 by Standard &
Poor's Corporation ("Standard & Poor's") and which is a member of the FDIC).
Amounts in such accounts are allocated among the various Series outstanding,
and all payments to certificateholders of a particular Series, and payments of
other amounts allocable to such Series, are paid solely out of the amounts on
deposit in such Accounts which have been allocated to that Series. The
Servicer has established and maintains, or has caused to be established and
maintained, in the name of the Trust, for the benefit of certificateholders of
all Series, a "Collection Account" (a non-interest bearing segregated account
established with a Qualified Institution). Funds in the Principal Account and
the Finance Charge Account are invested, at the direction of the Servicer, in
(i) obligations fully guaranteed by the United States of America, (ii) time
deposits in or bankers' acceptances issued by deposit or depository
institutions or trust companies, the certificates of deposit of which have the
highest rating from each of Moody's and Standard & Poor's or the long-term
unsecured debt obligations of which have one of the two highest ratings from
Moody's and Standard & Poor's, (iii) certificates of deposit having, at the
time of the Trust's investment, a rating in the highest rating category from
Moody's and Standard & Poor's, (iv) demand deposits in any depository
institution or trust company described in clause (ii) above, (v) money market
funds which have the highest rating from, or have otherwise been approved in
writing by, Moody's and Standard & Poor's, (vi) commercial paper which has the
highest rating from Moody's and Standard & Poor's and (vii) certain open end
diversified investment companies (collectively, "Permitted Investments"). Any
earnings (net of losses and investment expenses) on funds in the Finance
Charge Account or the Principal Account are paid to JCPR. The Servicer has the
revocable power to withdraw funds from the Collection Account and to instruct
the Trustee to make withdrawals and payments from the Finance Charge Account
and the Principal Account for the purpose of carrying out the Servicer's
duties under the Pooling and Servicing Agreement. The Paying Agent has the
revocable power to withdraw funds from the Distribution Account for the
purpose of making distributions to the Certificateholders. The Paying Agent
shall initially be The Chase Manhattan Bank.
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PRINCIPAL FUNDING ACCOUNT
The Trustee will establish and maintain with a Qualified Institution the
Principal Funding Account as a segregated trust account held for the benefit
of the Certificateholders, the Class B Interest Holder and the Class C
Interest Holder. During the Controlled Accumulation Period, the Trustee at the
direction of the Servicer shall transfer or cause to be transferred
collections in respect of Principal Receivables (other than Reallocated
Principal Collections) from the Principal Account to the Principal Funding
Account as described under "--Application of Collections."
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be included in Class A Available Funds and,
if applicable, Class B Available Funds.
SUBORDINATION
The Series E Investor Interests will be subordinated to the extent necessary
to fund certain payments with respect to the Certificates. In addition, the
Class C Investor Interest will be subordinated to the extent necessary to fund
certain payments with respect to the Class B Investor Interest. Certain
principal payments otherwise allocable to the Class B Investor Interest may be
reallocated to cover amounts in respect of the Certificates and the Class B
Investor Interest may be reduced if the Class C Investor Interest is equal to
zero. Similarly, certain principal payments allocable to the Class C Investor
Interest may be reallocated to cover amounts in respect of the Certificates
and the Class B Investor Interest and the Class C Investor Interest may be
reduced. To the extent the Class B Investor Interest is reduced, the
percentage of collections of Finance Charge Receivables allocated to the Class
B Investor Interest in subsequent Monthly Periods will be reduced. Moreover,
to the extent the amount of such reduction in the Class B Investor Interest is
not reimbursed, the amount of principal distributable to the Class B Interest
Holder, and the amounts available to be distributed with respect to interest
on the Class B Investor Interest, will be reduced. See "--Investor Percentage
and JCPR Percentage," "--Reallocation of Cash Flows" and "--Application of
Collections--Excess Spread."
INVESTOR PERCENTAGE AND JCPR PERCENTAGE
Pursuant to the Pooling and Servicing Agreement, with respect to each
Monthly Period the Servicer will allocate among the Investor Interest, the
investor interest for all other Series issued and outstanding and the JCPR
Amount, all amounts collected on Finance Charge Receivables, all amounts
collected on Principal Receivables and all Default Amounts with respect to
such Monthly Period. Each "Monthly Period" will be the period from and
including the first day of a calendar month to and including the last day of
such calendar month (other than the initial Monthly Period, which will
commence on and include the Closing Date and end on and include , 1998).
Collections of Finance Charge Receivables and Default Amounts at any time
(except as described in the following sentence) and collections of Principal
Receivables during the Revolving Period will be allocated to the Investor
Interest based on the Floating Investor Percentage. The "Floating Investor
Percentage" means, with respect to any Monthly Period, the percentage
equivalent of a fraction, the numerator of which is the Adjusted Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, the initial Investor
Interest), except that such numerator as applied to Finance Charge Receivables
during the Rapid Amortization Period shall be the Adjusted Investor Interest
as of the close of business on the last day preceding the commencement of the
Rapid Amortization Period, and the denominator of which is the greater of (x)
the aggregate amount of Principal Receivables as of the close of business on
the last day of the preceding Monthly Period (or with respect to the first
calendar month in the first Monthly Period, the aggregate amount of Principal
Receivables as of the close of business on the day immediately preceding the
Closing Date and with respect to the second calendar month in the first
Monthly Period, the aggregate amount of Principal Receivables as of the close
of business on the last day of the first calendar month in the first Monthly
Period) and (y) the sum of the numerators used to calculate the Investor
Percentages for allocations with respect
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to Finance Charge Receivables, Default Amounts or Principal Receivables, as
applicable, for all outstanding Series on such date of determination. Such
amounts so allocated will be further allocated between the Certificateholders,
the Class B Interest Holder and the Class C Interest Holder based on the Class
A Floating Allocation, the Class B Floating Allocation and the Class C
Floating Allocation, respectively. The "Class A Floating Allocation" means,
with respect to any Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is
equal to the Class A Adjusted Investor Interest as of the close of business on
the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, as of the Closing Date) and the denominator of which is equal
to the Adjusted Investor Interest as of the close of business on such day. The
"Class B Floating Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a
fraction, the numerator of which is equal to the Class B Adjusted Investor
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date)
and the denominator of which is equal to the Adjusted Investor Interest as of
the close of business on such day. The "Class C Floating Allocation" means,
with respect to any Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is
equal to the Class C Adjusted Investor Interest as of the close of business on
the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, as of the Closing Date) and the denominator of which is equal
to the Adjusted Investor Interest as of the close of business on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period or the Rapid Amortization Period, as the case may be, will be allocated
to the Investor Interest based on the Fixed Investor Percentage. The "Fixed
Investor Percentage" means, with respect to any Monthly Period, the percentage
equivalent of a fraction, the numerator of which is the Investor Interest as
of the close of business on the last day of the Revolving Period and the
denominator of which is the greater of (x) the aggregate amount of Principal
Receivables as of the close of business on the last day of the prior Monthly
Period and (y) the sum of the numerators used to calculate the Investor
Percentages for allocations with respect to Principal Receivables for all
outstanding Series for such Monthly Period. Such amounts so allocated will be
further allocated between the Certificateholders, the Class B Interest Holder
and the Class C Interest Holder based on the Class A Fixed Allocation, the
Class B Fixed Allocation and the Class C Fixed Allocation, respectively. The
"Class A Fixed Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a
fraction, the numerator of which is equal to the Class A Investor Interest as
of the close of business on the last day of the Revolving Period, and the
denominator of which is equal to the Investor Interest as of the close of
business on the last day of the Revolving Period. The "Class B Fixed
Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class B Investor Interest as of the close
of business on the last day of the Revolving Period, and the denominator of
which is equal to the Investor Interest as of the close of business on the
last day of the Revolving Period. The "Class C Fixed Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is equal to the
Class C Investor Interest as of the close of business on the last day of the
Revolving Period, and the denominator of which is equal to the Investor
Interest as of the close of business on the last day of the Revolving Period.
"Class A Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class A Investor Interest, minus (b)
the aggregate amount of principal payments made to Certificateholders prior to
such date, minus (c) the excess, if any, of the aggregate amount of Class A
Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date; provided, however, that the Class A
Investor Interest may not be reduced below zero.
"Class A Adjusted Investor Interest" for any date means an amount equal to
the Class A Investor Interest minus the funds on deposit in the Principal
Funding Account (in an amount not to exceed the Class A Investor Interest) on
such date.
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"Class B Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class B Investor Interest, minus (b)
the aggregate amount of principal payments made to Class B Interest Holder
prior to such date, minus (c) the aggregate amount of Class B Investor Charge-
Offs for all prior Transfer Dates, minus (d) the aggregate amount of
Reallocated Class B Principal Collections for all prior Transfer Dates for
which the Class C Investor Interest has not been reduced, minus (e) an amount
equal to the aggregate amount by which the Class B Investor Interest has been
reduced to fund the Class A Investor Default Amount on all prior Transfer
Dates as described under "--Defaulted Receivables; Rebates", and plus (f) the
aggregate amount of Excess Spread allocated and available on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Class B
Investor Interest may not be reduced below zero.
"Class B Adjusted Investor Interest" for any date means an amount equal to
the Class B Investor Interest minus the excess, if any, of the funds on
deposit in the Principal Funding Account over the Class A Investor Interest
(such excess not to exceed the Class B Investor Interest) on such date.
"Class C Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class C Investor Interest, minus (b)
the aggregate amount of principal payments made to the Class C Interest Holder
prior to such date, minus (c) the aggregate amount of Class C Charge-Offs for
all prior Transfer Dates, minus (d) the aggregate amount of Reallocated
Principal Collections for all prior Transfer Dates, minus (e) an amount equal
to the aggregate amount by which the Class C Investor Interest has been
reduced to fund the Class A Investor Default Amount and the Class B Investor
Default Amount on all prior Transfer Dates as described under "--Defaulted
Receivables; Rebates," and plus (f) the aggregate amount of Excess Spread
allocated and available on all prior Transfer Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c), (d) and
(e); provided, however, that the Class C Investor Interest may not be reduced
below zero.
"Class C Adjusted Investor Interest" for any date means an amount equal to
the Class C Investor Interest minus the excess, if any, of the funds on
deposit in the Principal Funding Account over the sum of the Class A Investor
Interest and the Class B Investor Interest (such excess not to exceed the
Class C Investor Interest) on such date.
"Adjusted Investor Interest" for any date means an amount equal to the sum
of the Class A Adjusted Investor Interest, the Class B Adjusted Investor
Interest and the Class C Adjusted Investor Interest.
The Floating Investor Percentage and the Fixed Investor Percentage are each
sometimes referred to herein as an "Investor Percentage."
The Pooling and Servicing Agreement provides that the Servicer will allocate
collections between Finance Charge Receivables and Principal Receivables using
a formula based on the aggregate amount of finance charges assessed on the
Accounts, net of any write-downs of finance charges in Defaulted Accounts,
during each monthly billing cycle. For each processing day in any monthly
billing cycle, collections in respect of the Receivables for Accounts in such
billing cycle are allocated first to Finance Charge Receivables, until the
cumulative amount thereof equals a pro rata portion of the Finance Charge
Receivables scheduled to be received during such billing cycle (calculated as
if an equal amount of Finance Charge Receivables were received on each such
processing day), and then to Principal Receivables. The Servicer may, however,
adopt another method to effect such allocation which the Servicer in good
faith believes more accurately reflects the actual amount of Finance Charge
Receivables and Principal Receivables collected. Any such estimates are
binding for all purposes on the Certificateholders, the Trustee and JCPR.
The JCPR Percentage with respect to any Monthly Period equals 100% minus the
sum of the applicable Investor Percentage for such Monthly Period and the
applicable investor percentages calculated for each Series outstanding.
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DISCOUNT OPTION
JCPR may at any time designate a specified fixed or variable percentage (the
"Discount Percentage"), which may not exceed 3% unless the Rating Agency
Condition is satisfied, of the amount of Receivables arising in the Accounts
that otherwise would have been treated as Principal Receivables to be treated
as Finance Charge Receivables. Such designation may be applicable to one or
more Series. Such designation will become effective upon satisfaction of the
requirements set forth in the Pooling and Servicing Agreement, including that
such designation shall not, in the reasonable belief of JCPR, cause a Pay Out
Event to occur. On the date of processing of any collections, the product of
the Discount Percentage and collections of Receivables that arise in the
Accounts on such day on or after the date such option is exercised that
otherwise would be Principal Receivables will be deemed collections of Finance
Charge Receivables and will be applied accordingly.
SHARED COLLECTIONS OF FINANCE CHARGE RECEIVABLES
To the extent that collections of Finance Charge Receivables allocated to a
Series are not needed to make payments to certificateholders of such Series or
other payments required in respect of such Series, such collections ("Excess
Finance Charge Collections") may be applied to cover shortfalls in amounts
payable from collections of Finance Charge Receivables allocable to one or
more other Series. Series E will be entitled to its pro rata share of any such
Excess Finance Charge Collections. There can be no assurance, however, that
such Excess Finance Charge Collections will be available to cover such
shortfalls.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class A Required Amount"), which will be equal to the amount, if any, by
which the sum of (a) Class A Monthly Interest due on the related Distribution
Date and overdue Class A Monthly Interest and Class A Additional Interest, if
any, (b) the Class A Servicing Fee for the related Monthly Period and overdue
Class A Servicing Fee, if any, and (c) the Class A Investor Default Amount, if
any, for the related Monthly Period exceeds the Class A Available Funds for
the related Monthly Period. If the Class A Required Amount is greater than
zero, Excess Spread allocated to Series E and available for such purpose will
be used to fund the Class A Required Amount with respect to such Transfer
Date. If such Excess Spread is insufficient to fund the Class A Required
Amount, first, Reallocated Class C Principal Collections and, then,
Reallocated Class B Principal Collections will be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread, are insufficient to
fund the remaining Class A Required Amount for such related Monthly Period,
then the Class C Investor Interest (after giving effect to reductions for any
Class C Charge-Offs and Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such excess (but not by more than the
Class A Investor Default Amount for such Monthly Period). In the event that
such reduction would cause the Class C Investor Interest to be a negative
number, the Class C Investor Interest will be reduced to zero, and the Class B
Investor Interest (after giving effect to reductions for any Class B Investor
Charge-Offs and any Reallocated Class B Principal Collections for which the
Class C Investor Interest was not reduced on such Transfer Date) will be
reduced by the amount by which the Class C Investor Interest would have been
reduced below zero (but not by more than the excess, if any, of the Class A
Investor Default Amount for such Monthly Period over the amount of such
reduction, if any, of the Class C Investor Interest with respect to such
Monthly Period). In the event that such reduction would cause the Class B
Investor Interest to be a negative number, the Class B Investor Interest will
be reduced to zero and the Class A Investor Interest will be reduced by the
amount by which the Class B Investor Interest would have been reduced below
zero (but not by more than the excess, if any, of the Class A Investor Default
Amount for such Monthly Period over the amount of the reductions, if any, of
the Class C Investor Interest and the Class B Investor Interest with respect
to such Monthly Period). Any such reduction in the Class A Investor Interest
will have the effect of slowing or reducing the return of principal and
interest to the Certificateholders. In such case, the Certificateholders will
bear directly the credit and other risks associated with their interests in
the Trust. See "--Defaulted Receivables; Rebates."
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class B Required Amount"), which will be equal to the sum of (a) the
amount, if any, by which the sum of (i) Class B Monthly
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Interest due on the related Distribution Date and overdue Class B Monthly
Interest and Class B Additional Interest, if any, and (ii) if JCPenney or an
affiliate thereof is no longer the Servicer, the Class B Servicing Fee for the
related Monthly Period and overdue Class B Servicing Fee, if any, exceeds the
Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class
B Required Amount is greater than zero, Excess Spread allocated to Series E
not required to pay the Class A Required Amount or reimburse Class A Investor
Charge-Offs will be used to fund the Class B Required Amount with respect to
such Transfer Date. If such Excess Spread is insufficient to fund the Class B
Required Amount, Reallocated Class C Principal Collections not required to
fund the Class A Required Amount for the related Monthly Period will be used
to fund the remaining Class B Required Amount. If such Reallocated Class C
Principal Collections with respect to the related Monthly Period are
insufficient to fund the remaining Class B Required Amount, then the Class C
Investor Interest (after giving effect to reductions for any Class C Charge-
Offs and Reallocated Principal Collections on such Transfer Date and after any
adjustments made thereto for the benefit of the Certificateholders) will be
reduced by the amount of such deficiency (but not by more than the Class B
Investor Default Amount for such Monthly Period). In the event that such a
reduction would cause the Class C Investor Interest to be a negative number,
the Class C Investor Interest will be reduced to zero, and the Class B
Investor Interest will be reduced by the amount by which the Class C Investor
Interest would have been reduced below zero (but not by more than the excess
of the Class B Investor Default Amount for such Monthly Period over the amount
of such reduction of the Class C Investor Interest), and the Class B Interest
Holder will bear directly the credit and other risks associated with its
interest in the Trust. See "--Defaulted Receivables; Rebates."
Reductions of the Class A Investor Interest or the Class B Investor Interest
described above shall be reimbursed by, and the Class A Investor Interest or
the Class B Investor Interest increased to the extent of, Excess Spread
available for such purposes on each Transfer Date. See "--Application of
Collections--Excess Spread." When such reductions of the Class A Investor
Interest and the Class B Investor Interest have been fully reimbursed,
reductions of the Class C Investor Interest shall be reimbursed until
reimbursed in full in a similar manner.
"Required Amount" for any Monthly Period means the sum of (a) the Class A
Required Amount and (b) the Class B Required Amount, each for such Monthly
Period.
"Reallocated Class B Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Class B Investor
Interest for such Monthly Period in an amount not to exceed the amount applied
to fund the Class A Required Amount, if any; provided, however, that such
amount will not exceed the Class B Investor Interest after giving effect to
any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Class C Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Class C Investor
Interest for such Monthly Period in an amount not to exceed the amount applied
to fund the Class A Required Amount and the Class B Required Amount, if any;
provided, however, that such amount will not exceed the Class C Investor
Interest after giving effect to any Class C Charge-Offs for the related
Transfer Date.
"Reallocated Principal Collections" for any Monthly Period means the sum of
(a) the Reallocated Class B Principal Collections for such Monthly Period, if
any, and (b) the Reallocated Class C Principal Collections for such Monthly
Period, if any.
APPLICATIONS OF COLLECTIONS
Allocations. The Servicer will deposit into the Collection Account, no later
than the second business day following the date of processing, any payment
collected by the Servicer on the Receivables; provided, however, that the
Servicer will generally be permitted to retain all such collections for its
own use until the business day preceding each Transfer Date so long as (i)
JCPenney is the Servicer, (ii) the short-term unsecured debt
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obligations of JCPenney are rated at least A-1 by Standard & Poor's and P-1 by
Moody's and (iii) no Servicer Default (as hereinafter defined) exists. The
Servicer will then withdraw the following amounts from the Collection Account
on the day any such deposit is made for application as indicated:
(a) an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables
will be deposited into the Finance Charge Account for the account of the
Certificates;
(b) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will be paid to JCPR (or, in certain limited
circumstances to the Class C Interest Holder); and
(c) during the Controlled Accumulation Period or the Rapid Amortization
Period, as the case may be, an amount equal to the applicable Investor
Percentage of the aggregate amount of such deposits in respect of Principal
Receivables will be deposited into the Principal Account.
After the end of each Monthly Period in which there are Net Recoveries
allocable to the Investor Amount, the amount thereof will be deposited by JCPR
in the Finance Charge Account during the Revolving Period or transferred from
the Principal Account to the Finance Charge Account during the Controlled
Accumulation Period or the Rapid Amortization Period, as the case may be. Any
amounts not paid or deposited as provided above will be paid to the holder of
the Exchangeable Certificate or the holders of certificates of other Series.
No payment will be made to JCPR pursuant to clause (b) above or to the holder
of the Exchangeable Certificate if such payment would reduce the JCPR Amount
below zero. As long as the JCPR Amount is zero, amounts which would be paid to
the holder of the Exchangeable Certificate will be reallocated among the
outstanding Series, and amounts which would be paid to the holder of the
Exchangeable Certificate will be retained until the JCPR Amount is positive or
a Pay Out Event occurs.
Payment of Interest, Fees and Other Items. On each Transfer Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class
A Available Funds, Class B Available Funds and Class C Available Funds in the
Finance Charge Account in the following priority:
(a) On each Transfer Date, an amount equal to the Class A Available Funds
will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class A Monthly
Interest and Class A Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to
Certificateholders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class A Servicing Fee,
will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount, if any,
for the related Monthly Period will be treated as a portion of
Available Investor Principal Collections and deposited into the
Principal Account for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
(b) On each Transfer Date, an amount equal to the Class B Available Funds
will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class B Monthly
Interest and Class B Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to the Class B
Interest Holder on such Distribution Date;
(ii) if JCPenney or an affiliate thereof is no longer the Servicer,
an amount equal to the Class B Servicing Fee, plus the amount of any
overdue Class B Servicing Fee, for the related Monthly Period, will be
paid to the Servicer; and
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(iii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
(c) On each Transfer Date, an amount equal to the Class C Available Funds
will be distributed in the following priority:
(i) if JCPenney or an affiliate thereof is no longer the Servicer, an
amount equal to the Class C Servicing Fee, plus the amount of any
overdue Class C Servicing Fee, for the related Monthly Period will be
paid to the Servicer; and
(ii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
"Class A Monthly Interest" with respect to any Distribution Date will equal
one-twelfth of the product of (a) the Class A Certificate Rate and (b) the
outstanding principal balance of the Certificates as of the related Record
Date; provided, however, with respect to the first Distribution Date, Class A
Monthly Interest will be equal to the interest accrued on the initial
outstanding principal balance of the Certificates at the Class A Certificate
Rate for the period from and including the Closing Date through but excluding
, 1998.
"Class B Monthly Interest" means, initially, zero. However, JCPR may,
subsequent to the issuance of the Certificates, set an interest rate for the
Class B Investor Interest, which shall not exceed the applicable U.S. Treasury
rate, based on the remaining term to maturity of the Class B Investor Interest
at the time such interest rate is set, plus 200 basis points or a floating
rate equivalent of such rate at such time (the "Class B Rate"), without the
consent of the Certificateholders.
"Class B Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class B Floating Allocation of collections
of Finance Charge Receivables and Net Recoveries allocated to the Investor
Interest and deposited in the Finance Charge Account with respect to such
Monthly Period and (b) the investment proceeds of amounts on deposit in the
Principal Funding Account allocable to the Class B Investor Interest.
"Class C Available Funds" means, with respect to any Monthly Period, an
amount equal to the Class C Floating Allocation of collections of Finance
Charge Receivables and Net Recoveries allocated to the Investor Interest with
respect to such Monthly Period.
"Excess Spread" means, with respect to any Transfer Date, an amount equal to
the sum of the amounts described in clause (a)(iv), clause (b)(iii) and clause
(c)(ii) above.
Excess Spread. On each Transfer Date, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread with respect to the related
Monthly Period, to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class A Required Amount;
provided, however, that in the event the Class A Required Amount for such
Transfer Date exceeds the amount of Excess Spread, such Excess Spread shall
be applied first to pay amounts due with respect to such Transfer Date
pursuant to clause (a)(i) above under""--Payment of Interest, Fees and
Other Items," second to pay amounts due with respect to such Transfer Date
pursuant to clause (a)(ii) above under "--Payment of Interest, Fees and
Other Items" and third to pay amounts due with respect to such Transfer
Date pursuant to clause (a)(iii) above under "--Payment of Interest, Fees
and Other Items";
(b) an amount equal to the aggregate amount of Class A Investor Charge-
Offs which have not been previously reimbursed will be deposited into the
Principal Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class B Required Amount and
will be applied first to pay amounts due with respect to such Transfer Date
pursuant to clause (b)(i) above under "--Payment of Interest, Fees and
Other Items," second to payment of amounts due with respect to such
Transfer Date pursuant to clause (b) (ii) above under
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"--Payment of Interest, Fees and Other Items" and third, the amount
remaining, up to the Class B Investor Default Amount, will be deposited
into the Principal Account and treated as a portion of Available Investor
Principal Collections for such Transfer Date as described under "--Payments
of Principal" below;
(d) if JCPenney or an affiliate thereof is the Servicer, an amount equal
to the Class B Servicing Fee, plus the amount of any overdue Class B
Servicing Fee, for the related Monthly Period will be paid to the Servicer;
(e) an amount equal to the aggregate amount by which the Class B Investor
Interest has been reduced below the initial Class B Investor Interest for
reasons other than the payment of principal to the Class B Interest Holder
(but not in excess of the aggregate amount of such reductions which have
not been previously reimbursed) will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
(f) an amount equal to the Class C Monthly Interest for such Transfer
Date, plus the amount of any Class C Monthly Interest previously due but
not distributed to the Class C Interest Holder on a prior Transfer Date,
will be distributed to the Class C Interest Holder;
(g) if JCPenney or an affiliate thereof is the Servicer, an amount equal
to the Class C Servicing Fee, plus the amount of any overdue Class C
Servicing Fee, for the related Monthly Period will be paid to the Servicer;
(h) an amount equal to the aggregate Class C Default Amount, if any, for
such Transfer Date will be deposited into the Principal Account and treated
as a portion of Available Investor Principal Collections for such Transfer
Date as described under "--Payments of Principal" below;
(i) an amount equal to the aggregate amount by which the Class C Investor
Interest has been reduced below the Required Class C Investor Interest for
reasons other than the payment of principal to the Class C Interest Holder
(but in excess of the aggregate amount of such reductions which have not
been previously reimbursed) will be deposited into the Principal Account
and treated as a portion of Available Investor Principal Collections for
such Transfer Date as described under "--Payments of Principal" below; and
(j) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (i) above shall be paid to JCPR.
"Class C Monthly Interest" means, initially, zero. However, JCPR may,
subsequent to the issuance of the Certificates, set an interest rate for the
Class C Investor Interest, which shall not exceed the applicable U.S. Treasury
rate, based on the remaining term to maturity of the Class C Investor Interest
at the time such interest rate is set, plus 200 basis points or a floating
rate equivalent of such rate at such time (the "Class C Rate"), without the
consent of the Certificateholders.
Payments of Principal. On each Transfer Date, the Trustee, acting pursuant
to the Servicer's instructions, will distribute Available Investor Principal
Collections (see "--Principal Payments" above) on deposit in the Principal
Account in the following priority:
(a) on each Transfer Date with respect to the Revolving Period, all such
Available Investor Principal Collections will be distributed or deposited
in the following priority:
(i) an amount equal to the Class C Monthly Principal will be paid to
the Class C Interest Holder; and
(ii) the balance will be paid to JCPR;
(b) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, as the case may be, all such
Available Investor Principal Collections will be deposited or distributed
in the following priority:
(i) an amount equal to Class A Monthly Principal will be deposited in
the Principal Funding Account (during the Controlled Accumulation
Period) or distributed (on the related Distribution Date) to the
Certificateholders (during the Rapid Amortization Period); and
(ii) an amount equal to Class B Monthly Principal will, after an
amount equal to the Class A Investor Interest has been deposited in the
Principal Funding Account (taking into account deposits to
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be made on such Transfer Date), be deposited in the Principal Funding
Account (during the Controlled Accumulation Period) or, after the Class
A Investor Interest has been paid in full (taking into account payments
to be made on the related Distribution Date), distributed (on the
related Distribution Date) to the Class B Interest Holder (during the
Rapid Amortization Period);
(c) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, as the case may be, in which a
reduction in the Required Class C Investor Interest has occurred, Available
Investor Principal Collections not applied to Class A Monthly Principal or
Class B Monthly Principal will be applied to reduce the Class C Investor
Interest to the Required Class C Investor Interest; and
(d) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, as the case may be, the balance of
Available Investor Principal Collections not applied pursuant to (b) and
(c) above, if any, will be paid to JCPR.
"Class A Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, as the
case may be, prior to the payment in full of the Class A Investor Interest,
will equal the least of (i) the Available Investor Principal Collections on
deposit in the Principal Account with respect to such Transfer Date, (ii) for
each Transfer Date with respect to the Controlled Accumulation Period, the
Controlled Deposit Amount for such Transfer Date and (iii) the Class A
Adjusted Investor Interest prior to any distributions with respect to such
Transfer Date.
"Class B Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, as the
case may be, beginning with the Transfer Date immediately preceding the
Distribution Date on which the Certificates will be paid in full (after taking
into account payments to be made on the related Distribution Date), will equal
the least of (i) the Available Investor Principal Collections on deposit in
the Principal Account with respect to such Transfer Date (minus the portion of
such Available Investor Principal Collections applied to Class A Monthly
Principal on such Transfer Date), (ii) for each Transfer Date with respect to
the Controlled Accumulation Period, the Controlled Deposit Amount for such
Transfer Date (minus the Class A Monthly Principal with respect to such
Transfer Date) and (iii) the Class B Adjusted Investor Interest prior to any
distributions with respect to such Transfer Date.
"Class C Monthly Principal" means (a) with respect to any Transfer Date
relating to the Revolving Period following any reduction of the Required Class
C Investor Interest pursuant to clause (iii) of the proviso in the definition
thereof, an amount equal to the lesser of (i) the excess, if any, of the Class
C Investor Interest (after giving effect to reductions for any Class C Charge-
Offs and Reallocated Principal Collections on such Transfer Date and after
giving effect to any adjustments thereto for the benefit of Certificateholders
and the Class B Interest Holder on such Transfer Date) over the Required Class
C Investor Interest on such Transfer Date and (ii) the Available Investor
Principal Collections on such Transfer Date or (b) with respect to any
Transfer Date relating to the Controlled Accumulation Period or the Rapid
Amortization Period, as the case may be, an amount equal to the lesser of (i)
the excess, if any, of the Class C Investor Interest (after giving effect to
reductions for any Class C Charge-Offs and Reallocated Principal Collections
on such Transfer Date and after giving effect to any adjustments thereto for
the benefit of Certificateholders and the Class B Interest Holder on such
Transfer Date) over the Required Class C Investor Interest on such Transfer
Date and (ii) the excess, if any, of (A) the Available Investor Principal
Collections on such Transfer Date over (B) the sum of the Class A Monthly
Principal and the Class B Monthly Principal for such Transfer Date.
"Controlled Accumulation Amount" means for any Transfer Date with respect to
the Controlled Accumulation Period, $91,666,666.67.
"Deficit Controlled Accumulation Amount" means (a) on the first Transfer
Date with respect to the Controlled Accumulation Period, the excess, if any,
of the Controlled Accumulation Amount for such Transfer Date over the amount
of Class A Monthly Principal for the related Distribution Date and (b) on each
subsequent Transfer Date with respect to the Controlled Accumulation Period,
the excess, if any, of the applicable Controlled Deposit Amount for such
subsequent Transfer Date over the amount of Class A Monthly Principal for the
related Distribution Date.
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REQUIRED CLASS C INVESTOR INTEREST
The "Required Class C Investor Interest" with respect to any Transfer Date
means (a) initially $60,365,854 and (b) thereafter on each Transfer Date an
amount equal to 9.0% of the sum of the Class A Adjusted Investor Interest and
the Class B Adjusted Investor Interest on such Transfer Date, after taking
into account payments to be made on the related Distribution Date, and the
Class C Adjusted Investor Interest on the prior Transfer Date after any
adjustments made on such prior Transfer Date, but not less than $20,121,951;
provided, however, that (i) if certain reductions in the Class C Investor
Interest are made or if a Pay Out Event occurs, the Required Class C Investor
Interest for such Transfer Date shall equal the Required Class C Investor
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event, (ii) in no event shall the Required Class C
Investor Interest exceed the sum of the unpaid principal amount of the
Certificates and the Class B Investor Interest as of the last day of the
Monthly Period preceding such Transfer Date after taking into account payments
to be made on the related Distribution Date and (iii) the Required Class C
Investor Interest may be reduced to a lesser amount at any time if the Rating
Agency Condition is satisfied.
With respect to any Transfer Date, if the Class C Investor Interest is less
than the Required Class C Investor Interest, certain Excess Spread, if
available, will be allocated to increase the Class C Investor Interest to the
extent of such shortfall.
DEFAULTED RECEIVABLES; REBATES
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating
Investor Percentage and (b) the product of (i) the excess, if any, of the
aggregate amount of Receivables in Defaulted Accounts charged off in such
Monthly Period over Recoveries collected during such Monthly Period and (ii)
1.00 minus the percentage of Receivables (other than Receivables in Defaulted
Accounts) constituting Finance Charge Receivables determined as of the last
day of such Monthly Period (the "Default Amount"). A portion of the Investor
Default Amount will be allocated to the Certificateholders (the "Class A
Investor Default Amount") on each Transfer Date in an amount equal to the
product of the Class A Floating Allocation applicable during the related
Monthly Period and the Investor Default Amount for such Monthly Period. A
portion of the Investor Default Amount will be allocated to the Class B
Interest Holder (the "Class B Investor Default Amount") on each Transfer Date
in an amount equal to the product of the Class B Floating Allocation
applicable during the related Monthly Period and the Investor Default Amount
for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class C Interest Holder (the "Class C Investor Default
Amount") on each Transfer Date in an amount equal to the product of the Class
C Floating Allocation applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Class A Available Funds, Excess Spread and
Reallocated Principal Collections available to fund such amount with respect
to the Monthly Period immediately preceding such Transfer Date as described
under "--Application of Collections--Excess Spread," the Class C Investor
Interest (after giving effect to reductions for any Class C Charge-Offs and
any Reallocated Principal Collections on such Transfer Date) will be reduced
by the amount of such excess, but not more than the lesser of the Class A
Investor Default Amount and the Class C Investor Interest (after giving effect
to reductions for any Class C Charge-Offs and any Reallocated Principal
Collections on such Transfer Date) for such Transfer Date. In the event that
such reduction would cause the Class C Investor Interest to be a negative
number, the Class C Investor Interest will be reduced to zero, and the Class B
Investor Interest (after giving effect to reductions for any Class B Investor
Charge-Offs and any Reallocated Class B Principal Collections on such Transfer
Date for which the Class C Investor Interest is not reduced) will be reduced
by the amount by which the Class C Investor Interest would have been reduced
below zero. In the event that such reduction would cause the Class B Investor
Interest to be a negative number, the Class B Investor Interest will be
reduced to zero, and the Class A Investor Interest will be reduced by the
amount by which the Class B Investor Interest would have been reduced below
zero, but not more than the Class A Investor Default Amount for such Transfer
Date (a "Class A Investor Charge-Off"), which will have the effect of slowing
or
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reducing the return of principal and interest to the Certificateholders. If
the Class A Investor Interest has been reduced by the amount of any Class A
Investor Charge-Offs, it will be reimbursed on any Transfer Date (but not by
an amount in excess of the aggregate Class A Investor Charge-Offs) by the
amount of Excess Spread allocated and available for such purpose as described
under "--Application of Collections--Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Class C
Principal Collections which are allocated and available to fund such amount
with respect to the Monthly Period preceding such Transfer Date as described
under "--Application of Collections--Excess Spread," the Class C Investor
Interest (after giving effect to reductions for any Class C Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) will be reduced by the amount of such excess but not more than the
lesser of the Class B Investor Default Amount and the Class C Investor
Interest (after giving effect to reductions for any Class C Charge-Offs and
any Reallocated Principal Collections on such Transfer Date and after giving
effect to any adjustments with respect thereto as described in the preceding
paragraph) for such Transfer Date. In the event that such reduction would
cause the Class C Investor Interest to be a negative number, the Class C
Investor Interest will be reduced to zero and the Class B Investor Interest
will be reduced by the amount by which the Class C Investor Interest would
have been reduced below zero, but not more than the Class B Investor Default
Amount for such Transfer Date (a "Class B Investor Charge-Off"). The Class B
Investor Interest will also be reduced by the amount of Reallocated Class B
Principal Collections in excess of the Class C Investor Interest (after giving
effect to reductions for any Class C Charge-Offs and any Reallocated Class C
Principal Collections on such Transfer Date) and the amount of any portion of
the Class B Investor Interest allocated to the Certificates to avoid a
reduction in the Class A Investor Interest. The Class B Investor Interest will
thereafter be reimbursed (but not in excess of the unpaid principal balance of
the Class B Investor Interest) on any Transfer Date by the amount of Excess
Spread allocated and available for that purpose as described under "--
Application of Collections--Excess Spread."
On each Transfer Date, if the Class C Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread which is allocated and
available to fund such amount as described under "--Application of
Collections--Excess Spread," the Class C Investor Interest will be reduced by
the amount of such excess but not more than the lesser of the Class C Investor
Default Amount and the Class C Investor Interest for such Transfer Date (a
"Class C Investor Charge-Off" and, together with Class A Investor Charge-Offs
and Class B Investor Charge-Offs, "Investor Charge-Offs"). The Class C
Investor Interest will also be reduced by the amount of Reallocated Principal
Collections and the amount of any portion of the Class C Investor Interest
allocated to the Certificates to avoid a reduction in the Class A Investor
Interest or to the Class B Investor Interest to avoid a reduction in the Class
B Investor Interest. The Class C Investor Interest will thereafter be
reimbursed on any Transfer Date by the amount of Excess Spread allocated and
available for that purpose as described under "--Application of Collections--
Excess Spread."
On any day that the Servicer adjusts the amount of any Principal Receivable
because of transactions occurring in respect of a rebate or refund to a
cardholder, or because such Principal Receivable was created in respect of
merchandise which was refused or returned by a cardholder or through a
fraudulent or counterfeit charge, the amount of the JCPR Amount in the Trust
will be increased or reduced, on a net basis, by the amount of the adjustment.
The JCPR Amount will also be decreased on each day on which the Receivables in
an Account are removed from the Trust because the obligor on such Account has
been transferred, at the request of such obligor, to a billing cycle of the
accounts of which are not included in the Accounts. If such reduction would
cause the JCPR Amount to be reduced below zero, JCPR shall deposit into the
Collection Account cash in the amount of such deficit.
REPURCHASE; FINAL PAYMENT OF PRINCIPAL; TERMINATION
JCPR will have the option to effect the repurchase of the Investor Interest
on any Distribution Date on or after the Class A Expected Final Distribution
Date; provided, however, that if the long-term unsecured debt obligations of
JCPenney are not rated at least Baa-3 by Moody's at the time of such
repurchase, such repurchase may only be made if the Trustee receives an
opinion of counsel to the effect that the transfer of funds by
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JCPenney to JCPR to finance such repurchase would not constitute a fraudulent
conveyance under applicable law. JCPR will, to the extent necessary, fund such
repurchase through a transfer of an interest in the Exchangeable Certificate
to JCPenney. See "Description of the Receivables Purchase Agreement--Certain
Covenants." The repurchase price of the Certificates will be equal to 100% of
the Investor Interest plus accrued and unpaid interest thereon through the
Distribution Date on which the repurchase occurs and minus amounts on deposit
on such day in respect of the Investor Interest in the Finance Charge Account,
the Principal Account, the Principal Funding Account and the Distribution
Account.
In any event, if the Investor Amount has not been reduced to zero on or
prior to , 2007, final payment in respect of the Certificates as of such
day is required to be made on such day. Any such final payment will be funded
by the proceeds of the sale, to the extent necessary, of an amount of
Receivables equal to a percentage of the Investor Amount equal to 100% plus
the lesser of the JCPR Percentage or the minimum percentage of Principal
Receivables in the Trust required to be maintained by JCPR.
The Trust will terminate on the day following the Distribution Date on which
the final payment of principal is scheduled to be made to the holders of all
Series then outstanding and the holder of the Exchangeable Certificate
consents thereto, and all right, title and interest in and to the Receivables
and other funds of the Trust (other than funds on deposit in the Distribution
Account) will be transferred to JCPR. Subject to prior termination as provided
above, the Pooling and Servicing Agreement provides that the Trust will
terminate automatically on September 5, 2088 ("Scheduled Termination Date"),
subject to extension in certain circumstances.
PAY OUT EVENTS
As described above, the Revolving Period will continue through , 2003,
unless a Pay Out Event occurs prior to such date. A Pay Out Event refers to
any of the following events:
(a) failure on the part of JCPR or JCPenney (i) to make any payment or
deposit on the date required under the Pooling and Servicing Agreement (or
within five business days after such date), (ii) to observe or perform in
any material respect the covenant of JCPR not to transfer the Receivables
except as contemplated by the Pooling and Servicing Agreement and not to
suffer certain liens to exist with respect to the Receivables or (iii) to
observe or perform in any material respect any other covenants or
agreements of JCPR or JCPenney in the Pooling and Servicing Agreement or,
to the extent assigned to the Trust, in the Receivables Purchase Agreement,
which continues unremedied for a period of 60 days after written notice
thereof from the Trustee or the holders of Certificates representing not
less than 25% of the Investor Amount;
(b) any representation or warranty made by JCPR or JCPenney in the
Pooling and Servicing Agreement or any information required to be given by
JCPR to the Trustee to identify the Accounts proves to have been incorrect
in any material respect when made and which continues to be incorrect in
any material respect for a period of 60 days (or, if such breach cannot be
cured within such time, a longer period if JCPR or JCPenney, as the case
may be, shall be proceeding diligently to cure such breach) after written
notice from the Trustee or the holders of Certificates representing not
less than 25% of the Investor Amount and as a result of which the interests
of the Certificateholders are materially and adversely affected; provided,
however, that a Pay Out Event, as provided in this clause (b), shall not be
deemed to occur thereunder if JCPR has accepted retransfer of the related
Receivable or all such Receivables, if applicable, during such period (or
such longer period as the Trustee may specify) in accordance with the
provisions thereof;
(c) certain events of bankruptcy, insolvency or receivership relating to
JCPR or JCPenney;
(d) any reduction of the average Portfolio Yield for any three
consecutive Monthly Periods to a rate which is less than the Base Rate;
(e) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(f) a failure by JCPR to transfer Receivables from Additional Accounts to
the Trust after the average JCPR Amount for any 30-day period shall
represent less than 10% (or such greater or lesser percentage as
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may be specified in any future supplement) of the average amount of
Principal Receivables for such 30-day period and such failure shall
continue unremedied for a period of 30 days after notice thereof by the
Trustee; or
(g) any Servicer Default (as hereinafter defined) occurs which would have
a material adverse effect on the Certificateholders.
In the case of any event described in clause (a) or (b), a Pay Out Event
will be deemed to have occurred only if, after any applicable grace period
described in such clauses, either the Trustee or Certificateholders evidencing
undivided interests aggregating not less than 25% of the Investor Amount, by
written notice to JCPR and the Servicer (and to the Trustee if given by the
Certificateholders), declare that a Pay Out Event has occurred as of the date
of such notice. In the case of any event described in clause (g), a Pay Out
Event will be deemed to have occurred only if either the Trustee or
Certificateholders evidencing undivided interests aggregating not less than
25% of the aggregate principal amount of all Series, by written notice to JCPR
and the Servicer (and to the Trustee if given by the Certificateholders),
declare that a Pay Out Event has occurred with respect to all Series as of the
date of such notice. In the case of any event described in clause (c) or (e),
a Pay Out Event with respect to all Series, and in the case of any event
described in clause (d) or (f), a Pay Out Event with respect to the
Certificates will be deemed to have occurred without any notice or other
action on the part of the Trustee or the Certificateholders immediately upon
the occurrence of such event. On the date on which a Pay Out Event is deemed
to have occurred, the Rapid Amortization Period will commence. In such event,
distributions of principal to the Certificateholders will begin on the first
Distribution Date following the month in which the Pay Out Event occurred. If,
because of the occurrence of a Pay Out Event, the Rapid Amortization Period
begins earlier than , 2003, Certificateholders will begin receiving
distributions of principal earlier than they otherwise would have, which may
shorten the final maturity of the Certificates.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of federal law, JCPR becomes party to any
bankruptcy or similar proceeding (other than as a claimant) and, if such
proceeding is not voluntary and is not dismissed within 90 days of its
institution, JCPR will on the date of such event immediately cease to transfer
Principal Receivables to the Trust and promptly give notice to the Trustee of
such event. Within 15 days, the Trustee will publish a notice of such event
stating that the Trustee intends to sell, dispose of or otherwise liquidate
the Receivables in a commercially reasonable manner. Unless otherwise
instructed within 90 days of the date of such publication by the holders of
certificates of all Series then outstanding representing undivided interests
aggregating more than 50% of the investor amount of all Series then
outstanding, the Trustee will sell, dispose of or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms. The proceeds from the sale, disposition or liquidation of the
Receivables will be treated as collections on the Receivables and the Investor
Percentage of such proceeds allocable to the Certificates will be distributed
to the Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicer's compensation allocable to the Investor Interest
with respect to any Transfer Date (the "Investor Servicing Fee") shall be
equal to one-twelfth of the product of (a) 2.0% (the "Servicing Fee Rate") and
(b) the Adjusted Investor Interest as of the last day of the Monthly Period
preceding such Transfer Date; provided, however, with respect to the first
Transfer Date, the Investor Servicing Fee shall be equal to $ .
The share of the Investor Servicing Fee allocable to the Certificateholders
with respect to any Transfer Date (the "Class A Servicing Fee") shall be equal
to one-twelfth of the product of (a) the Class A Floating Allocation, (b) the
Servicing Fee Rate and (c) the Adjusted Investor Interest as of the last day
of the Monthly Period preceding such Transfer Date; provided, however, that
with respect to the first Transfer Date, the Class A Servicing Fee shall be
equal to $ . The share of the Investor Servicing Fee allocable to the Class
B Interest Holder with respect to any Transfer Date (the "Class B Servicing
Fee") shall be equal to one-twelfth of the product of (a) the Class B Floating
Allocation, (b) the Servicing Fee Rate and (c) the Adjusted Investor Interest
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as of the last day of the Monthly Period preceding such Transfer Date;
provided, however, that with respect to the first Transfer Date, the Class B
Servicing Fee shall be equal to $ . The share of the Investor Servicing Fee
allocable to the Class C Interest Holder with respect to any Transfer Date
(the "Class C Servicing Fee") shall be equal to one-twelfth of the product of
(a) the Class C Floating Allocation, (b) the Servicing Fee Rate and (c) the
Adjusted Investor Interest as of the last day of the Monthly Period preceding
such Transfer Date; provided, however, that with respect to the first Transfer
Date, the Class C Servicing Fee shall be equal to $ . The remainder of the
Servicer's compensation shall be paid by JCPR or other Series (as provided in
the related Supplements). The Class A Servicing Fee shall be payable to the
Servicer solely to the extent amounts are available for distribution in
respect thereof as described under "--Application of Collections--Payment of
Interest, Fees and Other Items."
The Servicer will pay from its servicing compensation the expenses incurred
in connection with servicing the Receivables including, without limitation,
payment of the fees and disbursements of independent accountants. The
Servicer's estimated average out-of-pocket expenses incurred in connection
with the collection of Receivables that have been charged off will be netted
against recoveries of such Receivables.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon determination that performance of
its duties is no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement. The Servicer may delegate any of its servicing duties to
any person or entity that agrees to conduct such duties in accordance with
JCPenney's credit card guidelines and the Pooling and Servicing Agreement;
however, such delegation will not relieve the Servicer of its obligation to
perform such duties in accordance with the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that JCPenney, as initial
Servicer, will indemnify the Trust and the Trustee from and against any loss,
liability, expense, damage or injury suffered or sustained by them and arising
out of the activities of the Trust or the Trustee; provided, however, that
JCPenney shall not indemnify (a) the Trustee for liabilities imposed by reason
of fraud, negligence, breach of fiduciary duty or misconduct by the Trustee in
the performance of its duties under the Pooling and Servicing Agreement, (b)
the Trust or the Certificateholders for liabilities arising from actions taken
by the Trustee at the request of Certificateholders, (c) the Trust or the
Certificateholders as to any losses, claims, damages or liabilities incurred
by a Certificateholder in its capacity as an investor, including without
limitation, losses incurred as a result of defaulted Receivables or
Receivables which are written off as uncollectible or (d) the Trust or the
Certificateholders for any liabilities, costs or expenses of the Trust or the
Certificateholders arising under any tax law, including without limitation,
any federal, state or local income or franchise tax or any other tax imposed
on or measured by income (or any interest or penalties with respect thereto or
arising from a failure to comply therewith) required to be paid by the Trust
or the Certificateholders in connection with the Trust or the
Certificateholders to any taxing authority. The Pooling and Servicing
Agreement provides that neither JCPR nor the Servicer nor any of their
respective directors, officers, employees or agents is under any other
liability to the Trust, the Certificateholders or any other person for any
action taken, or for refraining from taking any action, in good faith pursuant
to the Pooling and Servicing Agreement. Neither JCPR nor the Servicer nor any
of their respective directors, officers, employees or agents is protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of JCPR, the Servicer or any such
person in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement provides that the Servicer is not under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the Pooling and Servicing Agreement and which in its
opinion may expose it to any expense or liability. The Servicer may, in its
sole discretion, undertake any such legal action which it may deem necessary
or desirable with respect to the Pooling and Servicing Agreement and the
rights and duties of the parties thereto and the interest of the
Certificateholders thereunder.
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Any entity into which, in accordance with the Pooling and Servicing
Agreement, the Servicer may be merged or consolidated or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any
entity succeeding to the business of the Servicer, upon execution of a
supplement to the Pooling and Servicing Agreement and delivery of an opinion
of counsel with respect to the compliance of the transaction with the
applicable provisions of the Pooling and Servicing Agreement, will be the
successor to the Servicer under the Pooling and Servicing Agreement.
SERVICER DEFAULTS
In the event of any Servicer Default (as hereinafter defined), either the
Trustee, or certificateholders representing undivided interests aggregating
not less than 51% of the aggregate investor amount of all Series, by written
notice to the Servicer (and to the Trustee if given by the
certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Pooling and Servicing Agreement and in and to
the Receivables and the proceeds thereof. The rights and interests of JCPR
under the Pooling and Servicing Agreement and in the JCPR Amount will not be
affected by such termination. The Trustee shall as promptly as possible
appoint a successor Servicer and, if no successor Servicer has been appointed
by the Trustee and has accepted its appointment by the time the Servicer
ceases to act as Servicer, all authority, power and obligations of the
Servicer under the Pooling and Servicing Agreement shall pass to and be vested
in the Trustee. If the Trustee is unable to obtain any bids from eligible
Servicers and JCPenney delivers an officer's certificate to the effect that it
cannot in good faith cure the Servicer Default which gave rise to a transfer
of servicing, then the Trustee shall offer JCPR the right to accept retransfer
of all the Receivables. The deposit amount for such a retransfer shall be
equal to the higher of the outstanding principal balance of the Certificates
and all certificates of other Series, plus accrued interest thereon at the
certificate rate for each Series, through the date of transfer and the average
bid price quoted by two recognized dealers for a similar security rated in the
highest rating category by a Rating Agency and having a remaining maturity
substantially similar to the maturity of such Series.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit or
any drawing under any letter of credit or other form of credit enhancement
for any other Series, or to give instructions to the Trustee to make any
withdrawal, or to give notice to the Trustee of any drawing required to be
made by the Servicer under any such letter of credit or other form of
credit enhancement, on the date the Servicer is required to do so under the
Pooling and Servicing Agreement (or within five business days after such
date);
(b) a failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the Certificateholders or the holders of
certificates of any other Series which continues unremedied for a period of
60 days after written notice by the Trustee or holders of certificates
evidencing undivided interests in the Trust aggregating not less than 25%
of the investor amount of all Series, or the delegation by the Servicer of
its duties under the Pooling and Servicing Agreement, except as
specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer in
the Pooling and Servicing Agreement, or in any certificate delivered
pursuant to the Pooling and Servicing Agreement or any Supplement, proves
to have been incorrect when made which has a material adverse effect on the
rights of the Certificateholders or the holders of certificates of any
other Series, and which continues to be incorrect in any material respect
for a period of 60 days (or, if such default cannot be cured within such
time, a longer period if the Servicer shall be proceeding diligently to
cure such default) after written notice by the Trustee or holders of
certificates evidencing undivided interests in the Trust aggregating not
less than 25% of the investor amount of all Series; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Certificateholder of record a statement prepared by the Servicer setting
forth: (a) the total amount distributed on the Certificates, (b) the amount of
the
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distribution on such Distribution Date allocable to principal on the
Certificates, (c) the amount of the distribution allocable to interest on the
Certificates, (d) the respective amounts of collections of Principal
Receivables, Finance Charge Receivables and Net Recoveries, if any, processed
during the preceding month and allocated to the Certificates, (e) the
aggregate amount of Principal Receivables and the applicable Investor Amount
as a percentage of the aggregate amount of the Principal Receivables in the
Trust as of the end of the last day of the related Monthly Period, (f) the
aggregate outstanding balance of Accounts which are one, two, three, four,
five and six or more months delinquent by class of delinquency as of the end
of the last day of such Monthly Period, (g) the Investor Default Amount for
such Monthly Period, (h) the amount of Investor Charge Offs for such Monthly
Period or the amount of reimbursements of previous Investor Charge Offs, (i)
the amount of the Investor Servicing Fee for such Monthly Period, and (j) the
Pool Factor as of the end of the last day of such Monthly Period. The "Pool
Factor" is an eight-digit decimal expressing the ratio of the Investor Amount
as of any such time to the aggregate face amount of the Certificates.
On or before January 31 of each calendar year, beginning with 1999, JCPR
will furnish to each person who at any time during the preceding calendar year
was a Certificateholder of record a statement prepared by JCPR containing the
information required to be contained in the regular monthly report to
Certificateholders, as set forth in clauses (a), (b) and (c) above aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their tax returns.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before April 15 of
each calendar year, beginning in 1999, the Servicer will cause a firm of
independent certified public accountants to furnish: (1) A report to the
effect that such firm has examined the monthly servicer's certificates for the
preceding annual period in accordance with standards established by the
American Institute of Certified Public Accountants; and (2) A report to the
effect that, in connection with their examination no matters came to the
attention of such accountants that caused them to believe that such servicing
was not conducted in compliance with specified sections of the Pooling and
Servicing Agreement, except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in
such report. The Trustee will make such reports available for inspection by
Certificateholders upon request.
The Pooling and Servicing Agreement provides for delivery to the Trustee on
or before April 15 of each calendar year, and has so delivered for each year
since 1989, of an annual statement signed by an officer of the Servicer to the
effect that the Servicer has fully performed its obligations under the Pooling
and Servicing Agreement throughout the preceding year, or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
TRANSFER OF ACCOUNTS AND ASSUMPTION OF JCPENNEY'S AND JCPR'S OBLIGATIONS
Upon the satisfaction of certain conditions, JCPenney and JCPR may transfer
all or a portion of JCPenney's or JCP Card Bank's consumer open end credit
card accounts and the receivables arising thereunder, which may include all,
but not less than all, of the Accounts and JCPenney's and JCPR's remaining
interest in the Receivables arising thereunder and in the Trust (collectively,
the "Assigned Assets"), together with all servicing functions and other
obligations under the Receivables Purchase Agreement and the Pooling and
Servicing Agreement or relating to the transactions contemplated thereby
(collectively, the "Assumed Obligations"), to another entity (the "Assuming
Entity") which may be an entity that is not affiliated with JCPenney or JCPR.
Pursuant to the Series E Supplement, following the respective final payment
dates of the Series B and Series C Certificates, JCPenney and JCPR shall be
permitted to assign, convey and transfer the Assigned Assets and the Assumed
Obligations to the Assuming Entity, without the consent or approval of
Certificateholders if the following conditions, among others, are satisfied:
(i) the Assuming Entity, the Trustee and JCPenney or JCPR, as the case may be,
shall have entered into an assumption agreement providing for the Assuming
Entity to
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assume the Assumed Obligations, including the obligations under the
Receivables Purchase Agreement and the Pooling and Servicing Agreement, as the
case may be, to transfer the Receivables arising under the Accounts to JCPR or
the Trust, as the case may be, (ii) all filings required to perfect the
interest of JCPenney, JCPR or the Trustee, as the case may be, in the
Receivables arising under such Accounts shall have been duly made and copies
thereof shall have been delivered to the Trustee, (iii) the Rating Agency
Condition, (iv) JCPenney, JCPR, or the Trustee, as the case may be, shall have
received an opinion of counsel with respect to clauses (i) and (ii) above and
as to certain other matters and (v) the Trustee shall have received an opinion
as to certain tax matters. After a permitted transfer and assumption, JCPenney
will have no further liability or obligation under the Receivables Purchase
Agreement and Pooling and Servicing Agreement, other than those liabilities
that arose prior to such transfer, and JCPenney and JCPR will remain liable
for all representations, warranties and covenants made by them prior to such
transfer.
AMENDMENTS
The Pooling and Servicing Agreement and any Supplement may be amended by
JCPR, the Servicer and the Trustee, without certificateholder consent, to cure
any ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, or to add any other provisions
with respect to matters or questions arising under the Pooling and Servicing
Agreement or any Supplement which are not inconsistent with the provisions of
the Pooling and Servicing Agreement or any Supplement. No such amendment,
however, may adversely affect in any material respect the interests of
existing certificateholders; provided, however, that any Supplement may
contain provisions permitted under "--Exchanges" above.
The Pooling and Servicing Agreement and any Supplement may also be amended
by JCPR, the Servicer and the Trustee (a) with the consent of the holders of
certificates evidencing undivided interests aggregating not less than 66 2/3%
of the investor amounts of all Series adversely affected or (b) following the
respective final payment dates of the Series B and Series C Certificates, by
satisfying the Rating Agency Condition for the purpose of adding any
provisions to, changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or any Supplement or of modifying in any
manner the rights of Certificateholders. Except as permitted pursuant to the
provisions described in "--Exchanges" above, no such amendment, however, may
(a) reduce in any manner the amount of, or delay the timing of, distributions
required to be made on any Certificate, (b) change the definition of or the
manner of calculating the Investor Amount, the Investor Percentage or the
Investor Default Amount or (c) reduce the aforesaid percentage of undivided
interests the holders of which are required to consent to any such amendment,
in each case without the consent of each Certificateholder affected thereby.
Promptly following the execution of any amendment to the Pooling and Servicing
Agreement or any Supplement, the Trustee will furnish written notice of the
substance of such amendment to each Certificateholder.
LIST OF CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of certificateholders of record representing undivided
interests in the Trust aggregating not less than 5% of the investor amount of
all Series, after having been adequately indemnified by such
certificateholders for its costs and expenses, and having given the Servicer
notice that such report has been made, the Trustee will afford such
certificateholders access during business hours to the current list of
certificateholders of the Trust for purposes of communicating with other
certificateholders with respect to their rights under the Pooling and
Servicing Agreement. See "--Book-Entry Registration" and "--Definitive
Certificates."
THE TRUSTEE
The Fuji Bank and Trust Company is the Trustee under the Pooling and
Servicing Agreement. JCPR, the Servicer and their respective affiliates may
from time to time enter into normal banking and trustee relationships with the
Trustee and its affiliates. The Trustee, JCPR, the Servicer and any of their
respective affiliates may hold certificates in their own names. In addition,
for purposes of meeting the legal requirements of certain local
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jurisdictions, the Trustee shall have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Pooling and Servicing Agreement shall be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or,
in any jurisdiction in which the Trustee shall be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Trustee.
The Trustee may resign at any time, in which event JCPR will be obligated to
appoint a successor Trustee. JCPR may also remove the Trustee if the Trustee
ceases to be eligible to continue as such under the Pooling and Servicing
Agreement or if the Trustee becomes insolvent. In such circumstances, JCPR
will be obligated to appoint a successor Trustee. Any resignation or removal
of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
The Receivables transferred to the Trust by JCPR were acquired by JCPR from
JCPenney pursuant to the Receivables Purchase Agreement entered into between
JCPR, as purchaser of the Receivables, and JCPenney, as seller of the
Receivables. (A copy of the Receivables Purchase Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.)
Under the Receivables Purchase Agreement, JCPenney has agreed to sell or
transfer the Receivables then existing and thereafter created in specified
Accounts to JCPR. Pursuant to the Pooling and Servicing Agreement, all such
Receivables are immediately transferred by JCPR to the Trust, and JCPR has
assigned its rights in, to and under the Receivables Purchase Agreement with
respect to such Receivables to the Trust. The following summary describes
certain terms of the Receivables Purchase Agreement and is qualified in its
entirety by reference to the Receivables Purchase Agreement.
SALE OR TRANSFER OF RECEIVABLES
Pursuant to the Receivables Purchase Agreement, JCPenney has sold or
transferred to JCPR all its right, title and interest in and to (i) all of the
Receivables in the Accounts and all of the Receivables thereafter created in
such Accounts and (ii) the Receivables in each Additional Account added from
time to time to the Accounts as of the date of such addition, whether such
Receivables shall then be existing or shall thereafter be created. The
purchase price of the purchased Receivables is the face amount thereof as of
the time of sale and is payable by JCPR in cash or, at the election of JCPR,
by assigning to JCPenney an interest in JCPR's interest in the Trust,
including JCPR's interest in the Exchangeable Certificate, or a combination
thereof. A portion of the transferred Receivables has been contributed by
JCPenney to the capital of JCPR.
In connection with the sale or transfer of the Receivables to JCPR, JCPenney
has or will indicate in its computer files that the Receivables have been sold
or transferred to JCPR by JCPenney and that such Receivables have been
transferred by JCPR to the Trust. In addition, JCPenney has or will provide to
JCPR a computer file or a microfiche list containing a true and complete list
showing each Account, identified by account number and by total outstanding
balance on the applicable cut-off date. The records and agreements relating to
the Accounts and Receivables are not segregated by JCPenney from other
documents and agreements relating to other credit card accounts and
receivables and are not stamped or marked to reflect the sale or transfer of
the Receivables to JCPR, but the computer records of JCPenney are or will be
marked to evidence such sale or transfer. JCPenney has filed a UCC financing
statement meeting the requirements of state law in Texas and in each of the
jurisdictions in which the books and records relating to the Accounts are
maintained with respect to the Receivables in the Accounts and will similarly
file with respect to the Receivables in new Additional Accounts. See "Risk
Factors--Certain Legal Aspects" and "Certain Legal Aspects of the
Receivables."
Pursuant to the Receivables Purchase Agreement, JCPenney will, if JCPR is
required to cause JCPenney to designate Additional Accounts under the Pooling
and Servicing Agreement, designate Additional Accounts to be included as
Accounts under the Receivables Purchase Agreement. JCPenney and JCPR may also
agree from time
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to time to designate Additional Accounts under the Receivables Purchase
Agreement. Additional Accounts will also be automatically included as Accounts
when added to Cycles One, Two, Three or Four in the normal operation of
JCPenney's credit card business. JCPR may require JCPenney to repurchase
Accounts designated as Removed Accounts pursuant to the Pooling and Servicing
Agreement. See "Description of the Certificates and the Pooling and Servicing
Agreement--Removal of Accounts." The purchase price for accounts so designated
will be an amount equal to the total recorded unpaid principal balance
thereof.
REPRESENTATIONS AND WARRANTIES
JCPenney represents and warrants to JCPR to the effect that, among other
things, (a) as of the Closing Date, it is duly incorporated and in good
standing and that it has the authority to consummate the transactions
contemplated by the Receivables Purchase Agreement and (b) as of the Addition
Date (or as of the date of the addition of Additional Accounts), each Account
was an Eligible Account.
JCPenney also represents and warrants to JCPR relating to the Receivables to
the effect, among other things, that (a) as of the Closing Date, each of the
Receivables then existing is an Eligible Receivable and (b) as of the date any
new Receivable is created, such Receivable is an Eligible Receivable and the
representation and warranty set forth in clause (b) in the immediately
following paragraph is true and correct with respect to such Receivable. In
the event of a breach of any representation and warranty set forth in this
paragraph which results in the requirement that JCPR accept retransfer of each
Ineligible Receivable as to which such breach relates pursuant to the Pooling
and Servicing Agreement, then JCPenney shall repurchase such Ineligible
Receivable from JCPR on the date of such retransfer. The purchase price for
such Ineligible Receivable shall be the face amount thereof, of which at least
the amount of any cash deposit required to be made by JCPR under the Pooling
and Servicing Agreement in respect of the retransfer of such Ineligible
Receivable shall be paid in cash.
JCPenney also represents and warrants to JCPR to the effect, among other
things, that as of the Closing Date (a) the Receivables Purchase Agreement
constitutes a legal, valid and binding obligation of JCPenney and (b) the
Receivables Purchase Agreement constitutes a valid sale or transfer to JCPR of
all right, title and interest of JCPenney in and to the Receivables, whether
then existing or thereafter created in the Accounts and the proceeds thereof
which is effective as to each Receivable upon the creation thereof. If the
breach of any of the representations and warranties described in this
paragraph results in the obligation of JCPR under the Pooling and Servicing
Agreement to accept retransfer of the Trust portfolio, JCPenney will
repurchase the Receivables retransferred to JCPR for an amount of cash equal
to the amount of cash JCPR is required to deposit under the Pooling and
Servicing Agreement in connection with such retransfer.
JCPenney has also agreed to indemnify JCPR and to hold JCPR harmless from
and against any and all losses, damages and expenses (including reasonable
attorneys' fees) suffered or incurred by JCPR if the foregoing representations
and warranties are materially false.
CERTAIN COVENANTS
In the Receivables Purchase Agreement, JCPenney covenants to perform its
obligations under the credit card agreements relating to the Accounts and
JCPenney's policies and procedures relating to the Accounts unless the failure
to do so would not have a material adverse effect on the rights of the Trust,
as assignee of the Receivables, or the certificateholders of the Trust. In
that regard, JCPenney and its affiliates may change the terms and provisions
of such credit card agreements or policies and procedures in any respect
(including, without limitation, the calculation of the amount, or the timing,
of charge offs), so long as any such changes are made applicable to comparable
segments of the revolving credit accounts owned and serviced by JCPenney which
have characteristics the same as, or substantially similar to, the Accounts.
JCPenney also covenants that, except as required by law or as JCPenney shall
deem necessary in order for JCPenney to maintain its business on a competitive
basis based on a good faith assessment by JCPenney of the nature of its
competition in its business, JCPenney will not reduce the finance charges or
other fees, if any,
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assessed in respect of the Accounts if, as a result of such reduction, in
JCPenney's reasonable expectation the Portfolio Yield as of the time of such
reduction would be less than the highest of the base rates of all Series then
outstanding.
JCPenney further covenants that, if JCPR becomes obligated to effect the
mandatory repurchase of the Certificates pursuant to the provisions of the
Pooling and Servicing Agreement described in the first paragraph under
"Description of the Certificates and the Pooling and Servicing Agreement--
Repurchase; Final Payment of Principal; Termination," JCPenney will provide
JCPR with any funds necessary for JCPR to effect such mandatory repurchase
through the purchase of an interest in JCPR's interest in the Trust.
In addition, JCPenney expressly acknowledges and consents to JCPR's
assignment of its rights relating to the Receivables under the Receivables
Purchase Agreement to the Trustee for the benefit of the Certificateholders.
JCPenney also agrees, for the benefit of the Trustee, that any amounts payable
by JCPenney to JCPR pursuant to the Receivables Purchase Agreement that are to
be paid by JCPR to the Trustee for the benefit of the Certificateholders will
be paid by JCPenney, on behalf of JCPR, directly to the Trustee.
TERMINATION
The Receivables Purchase Agreement will terminate immediately after the
Trust terminates. In addition, if pursuant to certain provisions of Federal
law, JCPenney becomes party to any bankruptcy or similar proceeding (other
than as a claimant) and, if such proceeding is not voluntary and is not
dismissed within 90 days of its institution, JCPenney will immediately cease
to sell or transfer Receivables to JCPR and promptly give notice of such event
to JCPR and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
JCPenney has sold or transferred the Receivables to JCPR and JCPR has
transferred the Receivables to the Trust. JCPenney warrants to JCPR that the
sale or transfer constitutes a valid sale or transfer to JCPR of all right,
title and interest of JCPenney in and to the Receivables, and JCPR warrants to
the Trustee that its transfer constitutes a valid transfer to the Trust of all
right, title and interest of JCPR in and to the Receivables, except for the
interest of JCPR as holder of the Exchangeable Certificate. JCPR further
warrants to the Trust that if the transfer of the Receivables to the Trust
does not constitute a valid transfer of the Receivables, it constitutes a
grant of a security interest to the Trust in and to the Receivables. JCPR also
warrants to the Trust that, if the transfer of Receivables to the Trust is
deemed to create a security interest under the UCC, there exists a valid,
subsisting and enforceable first priority perfected security interest in the
Receivables in existence at the time of the formation of the Trust in favor of
the Trust and a valid, subsisting and enforceable first priority perfected
security interest in the Receivables created thereafter in favor of the Trust
on and after their creation (except for certain tax liens), in each case until
termination of the Trust. For a discussion of the Trust's rights arising from
a breach of these warranties, see "Description of the Certificates and the
Pooling and Servicing Agreement--Representations and Warranties."
JCPenney warrants to JCPR, and JCPR warrants to the Trust, that the
Receivables are "accounts" for the purposes of the UCC. Both the sale or
transfer of accounts and the transfer of accounts as security for an
obligation are treated under the UCC as creating a security interest therein
and are subject to its provisions, and in either case the filing of
appropriate financing statements is required to perfect the interests of JCPR
and the Trust in the Receivables. Therefore, financing statements covering the
Receivables in the Accounts have been, and in new Additional Accounts will be,
filed under the UCC to protect JCPR and the Trust.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables could have an interest in Receivables
with priority over the Trust's interest. Under the Receivables Purchase
Agreement, however, JCPenney warrants, and under the Pooling and Servicing
Agreement, JCPR warrants, that JCPenney or JCPR, as the case may be, has sold
or transferred the Receivables to JCPR or the
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Trust, as the case may be, free and clear of the lien of any third party. In
addition, JCPenney and JCPR covenant that JCPenney or JCPR, as the case may
be, will not sell, pledge, assign, transfer or grant any lien on any
Receivable (or any interest therein) other than to JCPR or the Trust, as the
case may be. A tax or other government lien on property of JCPenney or JCPR
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable.
CERTAIN MATTERS RELATING TO BANKRUPTCY
JCPR does not and will not engage in any activities except purchasing
accounts receivable from JCPenney, forming trusts, transferring such accounts
receivable to such trusts and engaging in activities incident to, or necessary
or convenient to accomplish, the foregoing. JCPR has no intention of filing a
voluntary petition under the United States Bankruptcy Code or any similar
applicable state law so long as JCPR is solvent and does not reasonably
foresee becoming insolvent.
The voluntary or involuntary application for relief under the United States
Bankruptcy Code or any similar applicable state law with respect to JCPenney
should not necessarily result in a similar voluntary application with respect
to JCPR so long as JCPR is solvent and does not reasonably foresee becoming
insolvent either by reason of JCPenney's insolvency or otherwise. Counsel has
advised JCPenney and JCPR that (i) a voluntary application for relief under
the United States Bankruptcy Code or any similar applicable state law with
respect to JCPR may not lawfully be filed without the prior consent of all
directors of JCPR including its independent director, (ii) subject to certain
assumptions (including the assumption that separateness and corporate
formalities are observed by JCPenney and JCPR), the assets and liabilities of
JCPR should not be substantively consolidated with the assets and liabilities
of JCPenney in the event of an application for relief under the United States
Bankruptcy Code with respect to JCPenney and (iii) subject to certain
assumptions (including the assumptions that separateness and corporate
formalities are observed by JCPenney and JCPR and there has been no
substantive consolidation of the assets and liabilities of those entities),
the sale and transfer of Receivables in the Accounts by JCPenney to JCPR
constitutes a valid sale and transfer and, therefore, such Receivables in the
Accounts should not be property of JCPenney in the event of the filing of an
application for relief by or against JCPenney under the United States
Bankruptcy Code. If, however, a bankruptcy trustee for JCPenney, JCPenney as
debtor in possession or a creditor of JCPenney were to take the view that
JCPenney and JCPR should be substantively consolidated or that the transfer of
the Receivables in the Accounts from JCPenney to JCPR (and therefore from JCPR
to the Trust) should be recharacterized as a pledge of such Receivables in the
Accounts, then delays in payments on the Certificates or (should the
bankruptcy court rule in favor of any such trustee, debtor in possession or
creditor) reductions in such payments could result.
CONSUMER PROTECTION LAWS
The relationship between a cardholder and a credit card issuer is
extensively regulated by federal and state consumer protection laws. With
respect to the JCPenney credit card, the most significant federal laws are
those included in the Federal Consumer Credit Protection Act. These laws
require, among other things, extension of credit without regard to
impermissible personal attributes (such as race or sex), disclosure of credit
costs both before credit is extended and thereafter in each monthly account
statement, timely response to claimed billing errors and prompt application of
payments and credits against an outstanding account balance. The Trust may be
liable for certain violations of consumer protection laws that apply to the
Receivables, either as assignee from JCPenney and JCPR with respect to
obligations arising before transfer of the Receivables to the Trust or as the
party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert such violations by way of set
off against the obligation to pay the amount of Receivables owing. JCPR has
agreed to accept from the Trust, and JCPenney has agreed to accept from JCPR,
the retransfer of all Receivables that have been written off and that were not
created in compliance in all material respects with the requirements of such
laws. For a discussion of the Trust's rights in the case of Receivables that
are not created in compliance in all material respects with applicable laws,
see "Description of the Certificates and the Pooling and Servicing Agreement--
Representations and Warranties."
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
Receivables being written off as uncollectible. See "Description of the
Certificates and the Pooling and Servicing Agreement--Defaulted Receivables
and Rebates."
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing certain anticipated U.S. federal
income tax aspects of the purchase, ownership and disposition of the
Certificates, is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), proposed, temporary and final Treasury
regulations thereunder, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly
retroactively. This discussion does not address every aspect of the federal
income tax laws that may be relevant to Certificate Owners in light of their
personal investment circumstances or to certain types of Certificate Owners
subject to special treatment under the federal income tax laws (for example,
banks and life insurance companies). PROSPECTIVE INVESTORS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL
AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY,
OR OTHER TAXING JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to JCPenney
and JCPR ("Special Tax Counsel") will, upon issuance of the Certificates,
advise JCPR based on the assumptions and qualifications set forth in the
opinion that the Certificates will be treated as indebtedness for federal
income tax purposes. However, opinions of counsel are not binding on the
Internal Revenue Service (the "IRS") and there can be no assurance that the
IRS could not successfully challenge this conclusion.
JCPR expresses in the Pooling and Servicing Agreement its intent that for
federal, state and local income or franchise tax purposes, the Certificates
will be indebtedness secured by the Receivables. JCPR agrees and each
Certificateholder and Certificate Owner, by acquiring an interest in a
Certificate, agrees or will be deemed to agree to treat the Certificates of
such Series as indebtedness for federal, state and local income or franchise
tax purposes.
In general, the determination of whether for federal income tax purposes a
transaction constitutes a sale of property or a loan, the repayment of which
is secured by the property, is based upon the economic substance of the
transaction rather than its form or the manner in which it is labeled.
Although the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale
of property or a secured indebtedness for federal income tax purposes, the
primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property
and has obtained the benefits of ownership thereof. As set forth in its
opinion, Special Tax Counsel will analyze and rely on several factors in
reaching its opinion that the weight of the benefits and burdens of ownership
of the Receivables has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. Special Tax Counsel will advise that the
rationale of those cases will not apply to the transaction evidenced by a
Series of Certificates, because the form of the transaction, as reflected in
the operative provisions of the documents, either is not inconsistent with the
characterization of the Certificates of such Series as debt for federal income
tax purposes or otherwise makes the rationale of those cases inapplicable to
this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, Special Tax Counsel will advise JCPR that the
Certificates will constitute indebtedness for federal income tax purposes, and
accordingly, interest thereon will be includible in income by Certificate
Owners as ordinary income when received (in the case of a cash basis taxpayer)
or accrued (in the case of an accrual basis taxpayer) in accordance with their
respective methods of tax accounting. Interest received on the Certificates
may also constitute "investment income" for purposes of certain limitations of
the Code concerning the deductibility of investment interest expense.
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While it is not anticipated that the Certificates will be issued at a
greater than de minimus discount, under applicable Treasury regulations (the
"Regulations") the Certificates may nevertheless be deemed to have been issued
with original issue discount ("OID"). This could be the case, for example, if
interest payments are not treated as "qualified stated interest" because the
IRS determines that (i) no reasonable legal remedies exist to compel timely
payment and (ii) the Certificates do not have terms and conditions that make
the likelihood of late payment (other than a late payment that occurs within a
reasonable grace period) or nonpayment a remote contingency. Applicable
regulations provide that, for purposes of the foregoing test, the possibility
of nonpayment due to default, insolvency, or similar circumstances, is
ignored. Although this provision does not directly apply to the Certificates
(because they have no actual default provisions), JCPR intends to take the
position that, because nonpayment can occur only as a result of events beyond
its control (principally, loss rates and payment delays on the Receivables
substantially in excess of those anticipated), nonpayment is a remote
contingency. Based on the foregoing, JCPR intends to take the position that
interest payments on the Certificates constitute qualified stated interest.
If, however, interest payments were not classified as "qualified stated
interest," all of the taxable income to be recognized with respect to the
Certificates would be includible in ordinary income as OID but would not be
includible again when the interest is actually received.
If the Certificates are in fact issued at a greater than de minimus discount
or are treated as having been issued with OID under the Regulations, the
following rules will apply. The excess of the "stated redemption price at
maturity" of a Certificate over the original issue price (in this case, the
initial offering price at which a substantial amount of the Certificates are
sold to the public) will constitute OID. A Certificate Owner must include OID
in income as interest over the term of the Certificate under a constant yield
method. In general, OID must be included in ordinary income in advance of the
receipt of cash representing that income. In the case of a debt instrument as
to which the repayment of principal may be accelerated as a result of the
prepayment of other obligations securing the debt instrument (a "Prepayable
Instrument"), the periodic accrual of OID is determined by taking into account
both the prepayment assumptions used in pricing the debt instrument and the
prepayment experience. If this provision applies to a Class of Certificates
(which is not clear), the amount of OID which will accrue in any given
"accrual period" may either increase or decrease depending upon the actual
prepayment rate. Accordingly, each Certificate Owner should consult its own
tax advisor regarding the impact to it of the OID rules if the Certificates
are issued with OID. Under the Regulations, a holder of a Certificate issued
with de minimus OID must include such OID in ordinary income proportionately
as principal payments are made on a Class of Certificates.
A Certificate Owner who purchases a Certificate at a discount from its
adjusted issue price may be subject to the "market discount" rules of the
Code. These rules provide, in part, for the treatment of gain attributable to
accrued market discount as ordinary income upon the receipt of partial
principal payments or on the sale or other disposition of the Certificates,
and for the deferral of interest deductions with respect to debt incurred to
acquire or carry the market discount Certificate.
A Certificate Owner who purchases a Certificate for an amount in excess of
the sum of all amounts payable on such Certificate after the purchase date
other than payment of qualified stated interest (the "Remaining Redemption
Amount") shall be considered to have purchased the Certificates at a premium.
Such Certificate Owner may generally elect to amortize such premium (as an
offset to interest income), using a constant yield method, over the remaining
term of the Certificate.
A subsequent Certificate Owner who purchases a Certificate that was issued
with OID for an amount less than or equal to the Remaining Redemption Amount
but in excess of the Certificate adjusted issue price (any such excess being
"acquisition premium") generally is permitted to reduce the daily portion of
OID otherwise includible in such Certificate Owner's taxable income.
SALE OR OTHER DISPOSITION OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of a Certificate measured
by the difference between (i) the amount of cash and the fair market value of
any property received (other than amounts attributable to, and taxable as,
accrued interest) and (ii) the
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Certificate Owner's tax basis in the Certificate (as increased by any OID or
market discount previously included in income by the holder and decreased by
any deductions previously allowed for amortizable bond premium and by any
payments reflecting principal or OID received with respect to such
Certificate). Subject to the market discount rules discussed above and to the
one-year holding requirement for long-term capital gain treatment, any such
gain or loss generally will be long-term capital gain; provided that the
Certificates were held as capital assets; and provided, further, that if the
rules applicable to Prepayable Instruments apply, any OID not previously
accrued will be treated as ordinary income. The maximum ordinary income tax
rate for individuals, estates, and trusts exceeds the maximum long-term
capital gains rate for such taxpayers. In addition, capital losses generally
may be used only to offset capital gains.
TAX CHARACTERIZATION OF THE TRUST
The Pooling and Servicing Agreement permits the issuance of Classes of
Certificates that are treated for federal income tax purposes either as
indebtedness or as an interest in a partnership. Accordingly, the Trust could
be characterized either as (i) a security device to hold Receivables securing
the repayment of the Certificates of all Series or (ii) a partnership in which
JCPR and certain classes of Certificateholders are partners, and which has
issued debt represented by the other Class or Classes of Certificates. In
connection with the issuance of Certificates of any Series, Special Tax
Counsel will render an opinion to JCPR, based on the assumptions and
qualifications set forth therein, that under then current law, the issuance of
the Certificates of such Series will not cause the Trust to be characterized
for federal income tax purposes as an association (or publicly traded
partnership) taxable as a corporation. The assumptions and qualifications set
forth in such opinion will include the qualification that the opinion is
limited to the issuance of the Certificates of such Series by the Trust and an
assumption that any secondary transactions entered into with respect to any
Class of Certificates (such as the deposit of Certificates into a second trust
and the issuance of securities out of that trust) will not adversely affect
the federal income tax status of the Trust.
The opinion of Special Tax Counsel with respect to Certificates and the
Trust will not be binding on the courts or the IRS. It is possible that the
IRS could assert that, for purposes of the Code, the transaction contemplated
by this Prospectus constitutes a sale of the Receivables (or an interest
therein) to the Certificate Owners of one or more Series or Classes and that
the proper classification of the legal relationship between JCPR and some or
all of the Certificate Owners or Certificateholders of one or more Series
resulting from the transaction is that of a partnership (including a publicly
traded partnership), a publicly traded partnership taxable as a corporation,
or an association taxable as a corporation. JCPR currently does not intend to
comply with the federal income tax reporting requirements that would apply if
any Classes of Certificates were treated as interests in a partnership or
corporation.
If the Trust were treated in whole or in part as a partnership in which some
or all Certificate Owners of one or more Series were partners, that
partnership could be classified as a publicly traded partnership taxable as a
corporation. A partnership will be classified as a publicly traded partnership
taxable as a corporation if equity interests therein are traded on an
"established securities market," or are "readily tradeable" on a "secondary
market" or its "substantial equivalent" unless certain exceptions apply. One
such exception would apply if the Trust is not engaged in a "financial
business" and 90% or more of its income consists of interest and certain other
types of passive income. Because Treasury regulations do not clarify the
meaning of a "financial business" for this purpose, it is unclear whether this
exception applies. JCPR has taken and intends to take measures designed to
reduce the risk that the Trust could be classified as a publicly traded
partnership taxable as a corporation by reason of trading of interests in the
Trust other than the Certificates and other certificates with respect to which
an opinion is rendered that such certificates constitute debt for federal
income tax purposes. However, there can be no assurance that the Trust could
not become a publicly traded partnership, because certain of the actions
necessary to comply with such exceptions are not fully within the control of
JCPR.
If a transaction were treated as creating a partnership between JCPR and the
Certificate Owners or Certificateholders of one or more Series, the
partnership itself would not be subject to federal income tax (unless it were
to be characterized as a publicly traded partnership taxable as a
corporation); rather, the partners of such
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partnership, including the Certificate Owners or Certificateholders of such
Series, would be taxed individually on their respective distributive shares of
the partnership's income, gain, loss, deductions and credits. The amount and
timing of items of income and deductions of a Certificate Owner could differ
if the Certificates were held to constitute partnership interests, rather than
indebtedness. Moreover, unless the partnership were treated as engaged in a
trade or business, an individual's share of expenses of the partnership would
be miscellaneous itemized deductions that, in the aggregate, are allowed as
deductions only to the extent they exceed two percent of the individual's
adjusted gross income, and would be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeded certain limits. As
a result, the individual might be taxed on a greater amount of income than the
stated rate on the Certificates. Finally, if the partnership were a publicly
traded partnership that qualifies for exemption from taxation as a
corporation, all or a portion of any taxable income allocated to a Certificate
Owner that is a pension, profit-sharing or employee benefit plan or other tax-
exempt entity (including an individual retirement account) may, under certain
circumstances, constitute "unrelated business taxable income" which generally
would be taxable to the holder under the Code. Partnership characterization
also may have adverse state and local income or franchise tax consequences for
a Certificate Owner.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Certificate Owners, possibly including
Certificate Owners of a Series or Class that is treated as indebtedness. Such
classification may also have adverse state and local tax consequences that
would reduce amounts available for distribution to Certificate Owners. Cash
distributions to the Certificate Owners (except any Series or Class not
recharacterized as an equity interest in an association) generally would be
treated as dividends for tax purposes to the extent of such deemed
corporation's earnings and profits.
RECENT LEGISLATION
Certain provisions of the Code provide for the creation of a new type of
entity for federal income tax purposes, the "financial asset securitization
trust" ("FASIT"). However, although these provisions were effective September
1, 1997, many technical issues concerning FASITs must be addressed by Treasury
regulations which have not yet been issued. Although transition rules permit
an entity in existence on August 31, 1997, such as the Trust, to elect FASIT
status, at the present time it is not clear how outstanding interests of such
an entity would be treated subsequent to such an election. The Pooling and
Servicing Agreement may be amended in accordance with the provisions thereof
to provide that JCPR may cause a FASIT election to be made for the Trust if
JCPR delivers to the Trustee an opinion of counsel to the effect that, for
federal income tax purposes, (i) the issuance of FASIT regular interests will
not adversely affect the tax characterization as debt of Certificates of any
outstanding Series or Class that were characterized as debt at the time of
their issuance, (ii) following such issuance the Trust will not be deemed to
be an association (or publicly traded partnership) taxable as a corporation
and (iii) such issuance will not cause or constitute an event in which gain or
loss would be recognized by any Certificateholder or the Trust.
FOREIGN INVESTORS
As set forth above, it is expected that Special Tax Counsel will render an
opinion, upon issuance, that the Certificates will be treated as debt for U.S.
federal income tax purposes. The following information describes the U.S.
federal income tax treatment of investors that are not U.S. persons ("Foreign
Investors") if the Certificates are treated as debt. The term "Foreign
Investor" means any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is includible in gross income for U.S. federal
income tax purposes, regardless of its source or (iv) a trust if a U.S. court
is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons have the authority to control all substantial
decisions of such trust.
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Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (x) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business in
the United States or (y) the Foreign Investor and each securities clearing
organization bank, or other financial institution that holds the Certificates
on behalf of the customer in the ordinary course of its trade or business, in
the chain between the Certificate Owner and the U.S. person otherwise required
to withhold the U.S. tax, complies with applicable identification requirements
and, in addition (i) the non-U.S. Certificate Owner does not actually or
constructively own 10 percent or more of the total combined voting power of
all classes of stock of JCPR entitled to vote (or of a profits or capital
interest of a trust characterized as a partnership), (ii) the non-U.S.
Certificate Owner is not a controlled foreign corporation that is related to
JCPR (or a trust treated as a partnership) through stock ownership, (iii) the
non-U.S. Certificate Owner is not a bank receiving interest described in Code
Section 881(c)(3)(A), (iv) such interest is not contingent interest described
in Code Sections 881(c)(4) and 871(h)(4) and (v) the non-U.S. Certificate
Owner does not bear certain relationships to any holder of the Exchangeable
Certificate other than JCPR or any holder of the Certificates of any Series
not properly characterized as debt. Applicable identification requirements
generally will be satisfied if there is delivered to a securities clearing
organization (i) IRS Form W-8 signed under penalties of perjury by the
Certificate Owner, stating that the Certificate Owner is not a U.S. person and
providing such Certificate Owner's name and address, (ii) IRS Form 1001,
signed by the Certificate Owner or such Certificate Owner's agent, claiming
exemption from withholding under an applicable tax treaty, or (iii) IRS Form
4224 signed by the Certificate Owner or such owner's agent, claiming exemption
from withholding of tax on income effectively connected with the conduct of a
trade or business in the United States; provided that in any such case (x) the
applicable form is delivered pursuant to applicable procedures and is properly
transmitted to the United States entity otherwise required to withhold tax and
(y) none of the entities receiving the form has actual knowledge that the
Certificate Owner is a U.S. person.
On October 6, 1997, the Department of Treasury issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. federal income tax on gain realized upon the sale,
exchange, or redemption of a Certificate; provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States, (ii) in the case of a Certificate Owner that is an individual, such
Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or redemption occurs,
and (iii) in the case of gain representing accrued interest, the conditions
described in the second preceding paragraph are satisfied.
If the interests of the Certificate Owner were reclassified as interests in
a partnership (not taxable as a corporation), such recharacterization could
cause a Foreign Investor to be treated as engaged in a trade or business in
the United States. In such event the Certificate Owner would be required to
file a federal income tax return and, in general, would be subject to federal
income tax, including branch profits tax in the case of a Certificateholder
that is a corporation, on its net income from the partnership. Further, the
partnership would be required, on a quarterly basis, to pay withholding tax
equal to the sum, for each foreign partner, of such foreign partner's
distributive share of "effectively connected" income of the partnership
multiplied by the highest rate of tax applicable to that foreign partner. The
tax withheld from each foreign partner would be credited against such foreign
partner's U.S. federal income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
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STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of the Trust, the
Certificates, or the Certificate Owners under state tax laws. Prospective
investors are urged to consult their own tax advisors regarding state and
local tax treatment of the Trust and the Certificates, and the consequences of
purchase, ownership or disposition of the Certificates under any state or
local tax law.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. ERISA
also imposes certain duties on persons who are fiduciaries of plans subject to
ERISA and prohibits certain transactions between a plan and parties in
interest with respect to such plans. Under ERISA, any person who exercises any
discretionary authority or discretionary control respecting management of a
plan or exercises any authority or control respecting the management or
disposition of the assets of a plan is considered to be a fiduciary of such
plan (subject to certain exceptions not here relevant). A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
Subject to the considerations set forth below, it is presently expected that
the Certificates will be eligible for purchase by a Benefit Plan.
PLAN ASSETS ISSUES
Plan fiduciaries must determine whether the acquisition and holding of the
Certificates and the operations of the Trust would result in direct or
indirect prohibited transactions if Benefit Plans that purchase the
Certificates are deemed to own an interest in the underlying assets of the
Trust. There may also be an improper delegation of the responsibility to
manage Benefit Plan assets if Benefit Plans that purchase the Certificates are
deemed to own an interest in the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Certificates,
the Trust could be deemed to hold plan assets unless one of the exceptions
under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Certificates are
equity interests, the Final Regulation contains an exception that provides
that if a Benefit Plan acquires a "publicly-offered security," the issuer of
the security is not deemed to hold plan assets. A publicly-offered security is
a security that is (i) freely transferrable, (ii) part of a class of
securities that is owned by 100 or more investors independent of the issuer
and of one another and (iii) is either (A) part of a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act or (B) sold to the
plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the Exchange
Act within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. In addition, the Final Registration
provides that if a Benefit Plan invests in an "equity interest" of an entity
that is neither a "publicly-offered security" nor a security issued by an
investment company registered under the Investment Company Act, the Benefit
Plan's assets include both the equity interest and an undivided interest in
each of the entity's underlying assets, unless it is established that equity
participation by "benefit plan investors" is not "significant" or that another
exception applies.
67
<PAGE>
Under the Final Regulation, equity participation in an entity by "benefit
plan investors" is "significant" on any date if, immediately after the most
recent acquisition of any equity interest in the entity (other than a
publicly-offered class of equity), 25% or more of the value of any class of
equity interests in the entity (other than a publicly-offered class) is held
by "benefit plan investors." For purposes of this determination, the value of
equity interests held by a person (other than a benefit plan investor) that
has discretionary authority or control with respect to the assets of the
entity or that provides investment advice for a fee with respect to such
assets (or any affiliate of such person) is disregarded. The term "benefit
plan investor" is defined in the Final Regulation as (a) any employee benefit
plan (as defined in Section 3(3) of ERISA), whether or not it is subject to
the provisions of Title I of ERISA, (b) any plan described in Section
4975(e)(1) of the Code and (c) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity.
It is anticipated that interests in the Certificates will meet the criteria
of publicly-offered securities as set forth above. The Underwriters expect
(although no assurances can be given) that interests in the Certificates
offered hereby will be held by at least 100 independent investors at the
conclusion of the offering; there are no restrictions imposed on the transfer
of interests in the Certificates; and interests in the Certificates will be
sold as part of an offering pursuant to an effective registration statement
under the Securities Act and then will be timely registered under the Exchange
Act.
If interests in the Certificates fail to meet the criteria of publicly-
offered securities or investment by benefit plan investors becomes significant
and the Trust's assets are deemed to include assets of Benefit Plans that are
Certificateholders, transactions involving the Trust and "parties in interest"
or "disqualified persons" with respect to such plans might be prohibited under
Section 406 of ERISA and Section 4975 of the Code unless an exemption is
applicable. Thus, for example, if a participant in any Benefit Plan is a
cardholder of one of the Accounts, under DOL interpretations, the purchase of
interests in Certificates by such plan could constitute a prohibited
transaction. In addition, JCPR, JCPenney or the Underwriter may be considered
to be a party in interest, disqualified person or fiduciary with respect to an
investing Benefit Plan. Accordingly, an investment by a Benefit Plan in
Certificates may be a prohibited transaction under ERISA and the Code unless
such investment is subject to a statutory or administrative exemption. Five
class exemptions issued by the DOL that could apply in such event are DOL
Prohibited Transaction Exemption ("PTE") 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
91-38 (Class Exemption for Certain Transaction Involving Bank Collective
Investment Funds), 90-1 (Class Exemption for Certain Transactions Involving
Insurance Company Pooled Separate Accounts), 95-60 (Class Exemption for
Certain Transactions Involving Insurance Company General Accounts) and 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House Asset
Managers). There is no assurance that these exemptions, even if all of the
conditions specified therein are satisfied, or any other exemption will apply
to all transactions involving the Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN CONSIDERING THE
PURCHASE OF INTERESTS IN CERTIFICATES SHOULD CONSULT THEIR OWN COUNSEL AS TO
WHETHER THE ASSETS OF THE TRUST WHICH ARE REPRESENTED BY SUCH INTERESTS WOULD
BE CONSIDERED PLAN ASSETS, AND WHETHER, UNDER THE GENERAL FIDUCIARY STANDARDS
OF INVESTMENT PRUDENCE AND DIVERSIFICATION, AN INVESTMENT IN CERTIFICATES IS
APPROPRIATE FOR THE BENEFIT PLAN TAKING INTO ACCOUNT THE OVERALL INVESTMENT
POLICY OF THE BENEFIT PLAN AND THE COMPOSITION OF THE BENEFIT PLAN'S
INVESTMENT PORTFOLIO. In addition, fiduciaries should consider the
consequences that would apply if the Trust's assets were considered plan
assets, the applicability of exemptive relief from the prohibited transaction
rules and whether all conditions for such exemptive relief would be satisfied.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
Insurance companies considering the purchase of Certificates should consult
their own employee benefits counsel or other appropriate counsel with respect
to the United States Supreme Court's decision in John Hancock Mutual Life
Insurance Co. v. Harris Trust & Savings Bank, 114 S. Ct. 517 (1993) ("John
Hancock") and the
68
<PAGE>
applicability of PTE 95-60. In John Hancock, the Supreme Court held that
assets held in an insurance company's general account may be deemed to be
"plan assets" under certain circumstances; however, PTE 95-60 may exempt some
or all of the transactions that could occur as the result of the acquisition
and holding of the Certificates by an insurance company general account from
the penalties normally associated with prohibited transactions. Accordingly,
investors should analyze whether John Hancock and PTE 95-60 or any other
exemption may have an impact with respect to their purchase of the
Certificates.
In addition, insurance companies considering the purchase of Certificates
using assets of general accounts should consult their own employee benefits
counsel or other appropriate counsel with respect to the effect of the Small
Business Job Protection Act of 1996 which added a new Section 401(c) of ERISA
relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the DOL
is required to issue final regulations (the "General Account Regulations")
with respect to insurance policies issued on or before December 31, 1998, that
are supported by an insurer's general account. The General Account Regulations
are intended to provide guidance on which assets held by the insurer
constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulations and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or Federal criminal
law, until the date that is 18 months after the General Account Regulations
become final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 of the Code may result on the
basis of a claim that the assets of the general account of an insurance
company constitute the plan assets of any Benefit Plan. The DOL has recently
issued proposed regulations under Section 401(c). It should be noted that if
the General Account Regulations are adopted substantially in the form in which
proposed, the General Account Regulations may not exempt the assets of
insurance company general accounts from treatment as "plan assets" after
December 31, 1998. The plan asset status of insurance company separate
accounts is unaffected by new Section 401(c) of ERISA, and separate account
assets continue to be treated as the plan assets of any Benefit Plan invested
in a separate account. Plan investors considering the purchase of Certificates
on behalf of an insurance company general account should consult their legal
advisors regarding the effect of the General Account Regulations on such
purchase.
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between JCPR and the Underwriters named below (the "Underwriters"), JCPR has
agreed to sell to the Underwriters, and each of the Underwriters has severally
agreed to purchase, the principal amount of the Certificates set forth
opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF CERTIFICATES
------------ ----------------
<S> <C>
Credit Suisse First Boston Corporation...................... $
Bear, Stearns & Co. Inc..................................... $
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... $
------------
Total..................................................... $550,000,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Certificates
offered hereby if any of the Certificates are purchased.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids with respect to the
Certificates in accordance with Regulation M under the Exchange Act. Over-
allotment transactions involve syndicate sales in excess of the offering size,
which create a syndicate short position. Stabilizing transactions permit bids
to purchase the Certificates so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Certificates
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such over-allotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Certificates to be higher than they
would otherwise be in the absence of such transactions. Neither JCPR nor the
Underwriters represent that the Underwriters will engage in any such
transactions or that such transactions, once commenced, will not be
discontinued without notice at any time.
JCPR has been advised by the Underwriters that they propose initially to
offer the Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
% of the principal amount of the Certificates. The Underwriters may allow,
and such dealers may reallow, concessions not in excess of % of the principal
amount of the Certificates to certain brokers and dealers. After the initial
public offering, the public offering price and other selling terms may be
changed by the Underwriters.
The Underwriting Agreement provides that JCPR will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and/or commercial banking
transactions with JCPenney, JCPR and their respective affiliates. In addition,
the Underwriters may from time to time take positions in the Certificates and
other certificates issued by the Trust.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for JCPenney and JCPR by Charles R. Lotter, Executive Vice
President, Secretary and General Counsel of JCPenney. As of October 31, 1998,
Mr. Lotter owned 38,422 shares of Common Stock and Common Stock voting
equivalents of JCPenney, including shares credited to his account under the
Company's Savings and Profit Sharing Retirement Plan and Savings, Profit-
Sharing and Stock Ownership Plan. As of October 31, 1998 he had outstanding
options to purchase 64,000 shares of Common Stock.
In addition, certain legal matters relating to the Federal tax consequences
of the issuance of the Certificates will be passed upon by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York, Special Tax Counsel for
JCPenney and JCPR. Certain legal matters relating to the issuance of the
Certificates will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
70
<PAGE>
INDEX OF KEY TERMS
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ----
<S> <C>
Accounts................................................................... 3
Addition Date.............................................................. 4
Additional Accounts........................................................ 5
Additional Interest........................................................ 32
Adjusted Investor Interest................................................. 43
Assigned Assets............................................................ 56
Assumed Obligations........................................................ 56
Assuming Entity............................................................ 56
Available Investor Principal Collections................................... 33
Base Rate.................................................................. 17
Benefit Plans.............................................................. 67
Cardholder Monthly Payment Rate............................................ 26
Cede....................................................................... 6
Cedel...................................................................... 29
Cedel Participants......................................................... 31
Certificate Owners......................................................... 1
Certificateholders......................................................... 3
Certificates............................................................... 1
Class A Additional Interest................................................ 32
Class A Adjusted Investor Interest......................................... 42
Class A Available Funds.................................................... 33
Class A Certificate Rate................................................... 1
Class A Expected Final Distribution Date................................... 1
Class A Fixed Allocation................................................... 42
Class A Floating Allocation................................................ 42
Class A Investor Charge-Off................................................ 10
Class A Investor Default Amount............................................ 49
Class A Investor Interest.................................................. 3
Class A Monthly Interest................................................... 47
Class A Monthly Principal.................................................. 49
Class A Required Amount.................................................... 9
Class A Servicing Fee...................................................... 53
Class B Adjusted Investor Interest......................................... 43
Class B Available Funds.................................................... 47
Class B Expected Final Distribution Date................................... 26
Class B Fixed Allocation................................................... 42
Class B Floating Allocation................................................ 41
Class B Interest Holder.................................................... 3
Class B Investor Charge-Off................................................ 11
Class B Investor Default Amount............................................ 50
Class B Investor Interest.................................................. 3
Class B Monthly Interest................................................... 47
Class B Monthly Principal.................................................. 49
Class B Rate............................................................... 47
Class B Required Amount.................................................... 9
Class B Servicing Fee...................................................... 53
Class C Adjusted Investor Interest......................................... 43
Class C Available Funds.................................................... 47
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ----
<S> <C>
Class C Fixed Allocation................................................... 42
Class C Floating Allocation................................................ 42
Class C Interest Holder.................................................... 3
Class C Investor Charge-Off................................................ 51
Class C Investor Default Amount............................................ 50
Class C Investor Interest.................................................. 3
Class C Monthly Interest................................................... 48
Class C Monthly Principal.................................................. 49
Class C Rate............................................................... 48
Class C Servicing Fee...................................................... 54
Closing Date............................................................... 7
Code....................................................................... 13
Collection Account......................................................... 7
Collateral Charge-Off...................................................... 51
Commission................................................................. 2
Controlled Accumulation Amount............................................. 49
Controlled Accumulation Period............................................. 8
Controlled Deposit Amount.................................................. 8
Cooperative................................................................ 31
Default Amount............................................................. 49
Defaulted Account.......................................................... 26
Definitive Certificates.................................................... 32
Deficit Controlled Accumulation Amount..................................... 8
Depositaries............................................................... 29
Discount Percentage........................................................ 44
Distribution Date.......................................................... 1
DOL........................................................................ 67
DTC........................................................................ 6
Eligible Account........................................................... 38
Eligible Receivable........................................................ 38
ERISA...................................................................... 13
Euroclear.................................................................. 31
Euroclear Operator......................................................... 31
Euroclear Participants..................................................... 31
Excess Finance Charge Collections.......................................... 44
Excess Spread.............................................................. 47
Exchange................................................................... 6
Exchange Act............................................................... 2
Exchange Date.............................................................. 35
Exchange Notice............................................................ 35
FASIT...................................................................... 65
FDIC....................................................................... 4
Final Regulation........................................................... 67
Finance Charge Receivables................................................. 4
FIRREA..................................................................... 15
Fixed Investor Percentage.................................................. 42
Floating Investor Percentage............................................... 41
Foreign Investors.......................................................... 65
General Account Regulations................................................ 68
Holders.................................................................... 32
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ----
<S> <C>
Indirect Participants...................................................... 30
Ineligible Receivable...................................................... 37
Initial Class C Investor Interest.......................................... 11
Investment Company Act..................................................... 52
Investor Amount............................................................ 3
Investor Default Amount.................................................... 50
Investor Interest.......................................................... 3
Investor Percentage........................................................ 43
Investor Servicing Fee..................................................... 53
IRA........................................................................ 67
IRS........................................................................ 62
JCP Card Bank.............................................................. 3
JCPenney................................................................... 1
JCPenney credit card accounts.............................................. 3
JCPenney Portfolio......................................................... 3
JCPR....................................................................... 1
JCPR Amount................................................................ 4
JCPR Percentage............................................................ 29
Monthly Period............................................................. 41
Moody's.................................................................... 40
Net Recoveries............................................................. 7
New Regulations............................................................ 66
OID........................................................................ 63
Participants............................................................... 29
Pay Out Event.............................................................. 26
Permitted Investments...................................................... 40
Pool Factor................................................................ 56
Pooling and Servicing Agreement............................................ 1
Portfolio Yield............................................................ 26
Prepayable Instrument...................................................... 63
Principal Funding Account.................................................. 8
Principal Funding Investment Proceeds...................................... 41
Principal Receivables...................................................... 4
Principal Terms............................................................ 34
PTE........................................................................ 68
Qualified Institution...................................................... 40
Rapid Amortization Period.................................................. 9
Rating Agency Condition.................................................... 12
Reallocated Class B Principal Collections.................................. 45
Reallocated Class C Principal Collections.................................. 45
Reallocated Principal Collections.......................................... 45
Receivables................................................................ 1
Receivables Purchase Agreement............................................. 5
Recoveries................................................................. 4
Regulations................................................................ 62
Remaining Redemption Amount................................................ 63
Removed Accounts........................................................... 5
Required Amount............................................................ 10
Required Class C Investor Interest......................................... 11
Revolving Period........................................................... 7
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NO.
- ---- ----
<S> <C>
RTC........................................................................ 15
Rules...................................................................... 30
Scheduled Termination Date................................................. 52
Securities Act............................................................. 2
Series..................................................................... 1
Series B Certificates...................................................... 4
Series C Certificates...................................................... 4
Servicer................................................................... 1
Servicer Default........................................................... 55
Servicing Fee Rate......................................................... 53
Series E................................................................... 6
Series E Investor Interests................................................ 1
Special Tax Counsel........................................................ 61
Standard & Poor's.......................................................... 40
Supplement................................................................. 6
Terms and Conditions....................................................... 31
Transfer Date.............................................................. 8
Trust...................................................................... 1
Trustee.................................................................... 1
UCC........................................................................ 36
Underwriters............................................................... 70
</TABLE>
74
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY JCPENNEY, JCPR OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF JCPENNEY AND JCPR SINCE SUCH DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 14
JCPenney's Credit Card Business............................................ 19
The Accounts............................................................... 22
JCPR, JCPenney and the Trust............................................... 25
Use of Proceeds............................................................ 25
Maturity Assumptions....................................................... 26
Receivable Yield Considerations............................................ 27
Description of the Certificates and the Pooling and Servicing Agreement.... 28
Description of the Receivables Purchase Agreement.......................... 58
Certain Legal Aspects of the Receivables................................... 60
Certain U.S. Federal Income Tax Consequences............................... 62
State and Local Taxation................................................... 67
ERISA Considerations....................................................... 67
Underwriting............................................................... 70
Legal Matters.............................................................. 70
Index of Key Terms......................................................... 71
</TABLE>
-----------
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
JCP MASTER
CREDIT CARD TRUST
$550,000,000
% Class A Asset Backed Certificates, Series E
JCP RECEIVABLES, INC.
Originator
J. C. PENNEY COMPANY, INC.
Servicer
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee................................................. $ 162,250
Printing and Engraving........................................... 100,000*
Trustee's Fee.................................................... 20,000*
Legal Fees and Expenses.......................................... 100,000*
Blue Sky Fees and Expenses....................................... 20,000*
Accountants' Fees and Expenses................................... 40,000*
Rating Agency Fees............................................... 250,000*
Miscellaneous Fees............................................... 7,750*
----------
Total.......................................................... $ 700,000*
==========
</TABLE>
--------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
JCPR's Certificate of Incorporation contains a limitation of liability
provision under which a director will not be personally liable to JCPR or its
stockholders for monetary damages resulting from breaches of his fiduciary
duty of care as a director, subject to certain limitations.
The Bylaws of JCPR provide that JCPR shall indemnify an officer or director
to the fullest extent permitted by the Delaware General Corporation Law.
Section 145 thereof permits indemnification of an officer or director upon a
determination that such officer or director has met the applicable standard of
conduct. Under Section 145, such officer or director is required to have acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of JCPR and, with respect to any criminal action,
without reasonable cause to believe his conduct was unlawful. Section 145 does
not authorize indemnification, in actions brought by or in the right of a
corporation, against judgments, fines or amounts paid in settlement, nor does
it provide for indemnification of expenses incurred in the defense or
settlement of claims as to which a director or officer is adjudged to be
liable to JCPR unless specifically authorized by the Delaware Court of
Chancery or the court in which such action is brought.
In addition, JCPenney has purchased directors' and officers' liability
insurance coverage for amounts which JCPR is required or permitted to pay as
indemnification of its directors and certain of its officers, and which
insures such directors and officers against certain liabilities which might by
incurred by them in such capacities and for which they are not entitled to
indemnification by JCPR.
Furthermore, JCPR and JCPenney, as well as their directors and officers, may
be entitled to indemnification by any underwriters named in the Prospectus
against certain civil liabilities under the Securities Act under agreements
entered into among JCPR, JCPenney and such underwriters.
ITEM 15. RECENT SALES OF UNRESTRICTED SECURITIES
None
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
1 --Form of Underwriting Agreement.*
3.1 --Certificate of Incorporation of JCPR is incorporated by reference
from Exhibit 3.1 to the Registrant's Registration Statement on Form S-
1 (File No. 33-22093).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
3.1(a) --Amendment dated September 9, 1988 to Certificate of Incorporation
of JCPR is incorporated by reference from Exhibit 3.1(a) to the
Registrant's Registration Statement on Form S-1 (File No. 33-
22093).
3.2 --Bylaws of JCPR are incorporated by reference from Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (File No. 33-
22093).
3.2(a) --Amendment dated May 19, 1995 to Bylaws of JCPR.**
4.1 --Master Pooling and Servicing Agreement dated as of September 5,
1988.*
4.1(a) --Amendment No. 1 to Master Pooling and Servicing Agreement dated as
of October 15, 1997 is incorporated by reference from Exhibit 4.1
to the Registrant's Form 8-K dated October 15, 1997 and filed with
the Commission on November 12, 1997.
4.1(b) --Form of Series E Supplement to Master Pooling and Servicing
Agreement.*
4.2 --Form of Series E Certificate.*
4.3 --Receivables Purchase Agreement dated as of September 5, 1988.*
4.3(a) --Amendment No. 1 to Receivables Purchase Agreement dated as of
October 15, 1997 is incorporated by reference from Exhibit 4.2 to
the Registrant's Form 8-K dated October 15, 1997 and filed with the
Commission on November 12, 1997.
5 --Opinion of Charles R. Lotter, Esq. with respect to legality.*
8 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, with respect
to tax matters.*
23.1 --Consent of Charles R. Lotter, Esq. (included in Exhibit 5).*
23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8).*
24 --Power of Attorney*
</TABLE>
--------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Plano, State of Texas, on November 18, 1998.
JCP RECEIVABLES, INC.
As Originator of the Trust and as
Registrant
/s/ C. A. Walther
By: _________________________________
C. A. WALTHER
President
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
M. S. Rich* Chairman of the Board; November 18, 1998
______________________________________ Director
M. S. RICH
/s/ C. A. Walther President (principal November 18, 1998
______________________________________ executive and financial
C. A. WALTHER officer); Director
Annette Williams* Secretary and Treasurer November 18, 1998
______________________________________ (principal accounting
ANNETTE WILLIAMS officer)
R. S. Funk* Director November 18, 1998
______________________________________
R. S. FUNK
J. J. Occhiogrosso* Director November 18, 1998
______________________________________
J. J. OCCHIOGROSSO
S. A. Saggese* Director November 18, 1998
______________________________________
S. A. SAGGESE
</TABLE>
*By: /s/ C. A. Walther
- ---------------------------------
C. A. WALTHER, ATTORNEY IN FACT
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 --Form of Underwriting Agreement.*
3.1 --Certificate of Incorporation of JCPR is incorporated by reference
from Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1 (File No. 33-22093).
3.1(a) --Amendment dated September 9, 1988 to Certificate of Incorporation of
JCPR is incorporated by reference from Exhibit 3.1(a) to the
Registrant's Registration Statement on Form S-1 (File No. 33-22093).
3.2 --Bylaws of JCPR are incorporated by reference from Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 (File No. 33-22093).
3.2(a) --Amendment dated May 19, 1995 to Bylaws of JCPR.**
4.1 --Master Pooling and Servicing Agreement dated as of September 5,
1988.*
4.1(a) --Amendment No. 1 to Master Pooling and Servicing Agreement dated as
of October 15, 1997 is incorporated by reference from Exhibit 4.1 to
the Registrant's Form 8-K dated October 15, 1997 and filed with the
Commission on November 12, 1997.
4.1(b) --Form of Series E Supplement to Master Pooling and Servicing
Agreement.*
4.2 --Form of Series E Certificate.*
4.3 --Receivables Purchase Agreement dated as of September 5, 1988.*
4.3(a) --Amendment No. 1 to Receivables Purchase Agreement dated as of
October 15, 1997 is incorporated by reference from Exhibit 4.2 to the
Registrant's Form 8-K dated October 15, 1997 and filed with the
Commission on November 12, 1997.
5 --Opinion of Charles R. Lotter, Esq. with respect to legality.*
8 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, with respect to
tax matters.*
23.1 --Consent of Charles R. Lotter, Esq. (included in Exhibit 5).*
23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8).*
24 --Power of Attorney*
</TABLE>
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* Previously filed.
** Filed herewith.
<PAGE>
EXHIBIT 3.2(a)
Adopted by:
Action by Unanimous Written Consent
of Board of Directors in Lieu of Annual Meeting
Dated: May 19, 1995
RESOLVED that Article VIII of the Bylaws be, and it hereby is, amended by
adding the following two sentences thereto:
Notwithstanding any other provision of this Article VIII or the laws of the
State of Delaware to the contrary, no such person shall be entitled to
indemnification or the advancement of expenses pursuant to this Article VIII
with respect to any action, suit, or proceeding, or part thereof, brought or
made by such person against the Corporation, unless such indemnification or
advancement of expenses (i) is due to such person pursuant to the specific
provisions of any agreement in writing between such person and the Corporation
approved by the Corporation's Board of Directors or (ii) has been approved in
writing in advance of the commencement of such action, suit, or proceeding, or
part thereof, by or at the direction of the Corporation's Board of Directors.
Any indemnification or advancement of expenses pursuant to this Article VIII
shall only be made in the specific case by a separate determination made (i) by
a majority vote of the directors who are not parties to such action, suit, or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the Corporation's stockholders, as to entitlement
to advancement of expenses and/or indemnification, as the case may be.
