<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-64649
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
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(2)
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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.
(2)A registration fee of $295 was paid in connection with the initial filing
of this Registration Statement on September 29, 1998.
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 12, 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
Interest.................... The "Required Class C Investor Interest" means
(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 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).
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>
--------
* Filed herewith.
** Previously filed.
(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. 1 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 12, 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. 1 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 12, 1998
______________________________________ Director
M. S. RICH
/s/ C. A. Walther President (principal November 12, 1998
______________________________________ executive and financial
C. A. WALTHER officer); Director
Annette Williams* Secretary and Treasurer November 12, 1998
______________________________________ (principal accounting
ANNETTE WILLIAMS officer)
R. S. Funk* Director November 12, 1998
______________________________________
R. S. FUNK
J. J. Occhiogrosso* Director November 12, 1998
______________________________________
J. J. OCCHIOGROSSO
S. A. Saggese* Director November 12, 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).
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>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
EXHIBIT 1
JCP Master Credit Card Trust
JCP RECEIVABLES, INC.
J. C. PENNEY COMPANY, INC.
UNDERWRITING AGREEMENT
____________ __, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
As Representative of the Underwriters
named in Schedule A hereto
Eleven Madison Avenue
New York, New York 10010
Dear Sirs:
1. Introductory. JCP Receivables, Inc., a Delaware corporation ("JCPR"),
proposes to sell $________ aggregate principal amount of __% Class A Asset
Backed Certificates, Series E (the "Certificates") issued by JCP Master Credit
Card Trust (the "Trust"). The Certificates will be issued pursuant to a Master
Pooling and Servicing Agreement among JCPR, J. C. Penney Company, Inc., as
servicer ("JCPenney"), and The Fuji Bank and Trust Company, as trustee (the
"Trustee"), dated as of September 5, 1988, as amended as of October 15, 1997, as
supplemented by the Series E Supplement with respect to the Certificates
(together, the "Pooling and Servicing Agreement") (references to the Pooling and
Servicing Agreement herein may, as the context requires, include all supplements
thereto, including the Series E Supplement). $______ aggregate principal amount
of Class B Investor Interest, Series E (the "Class B Investor Interest") and
$_______ aggregate principal amount of Class C Investor Interest, Series E (the
"Class C Investor Interest") will also be issued pursuant to the Pooling and
Servicing Agreement. The Class B Investor Interest and the Class C Investor
Interest are expected to be initially retained by JCPR. JCPR has entered into a
Receivables Purchase Agreement with JCPenney,
<PAGE>
as seller of the Receivables, dated as of September 5, 1988, as amended as of
October 15, 1997 (together with any supplements thereto, the "Receivables
Purchase Agreement"), which provides for the sale of Receivables (as defined
below) by JCPenney to JCPR. Each Certificate will represent a specified
percentage Undivided Interest in the Trust. To the extent not defined herein,
capitalized terms used herein have the meanings assigned in the Pooling and
Servicing Agreement.
JCPR and JCPenney agree with Credit Suisse First Boston Corporation,
as representative (the "Representative") of the underwriters named in Schedule A
hereto (the "Underwriters") as follows:
2. Representations and Warranties of JCPR. JCPR represents and warrants
to, and agrees with, the Underwriters that:
(a) A registration statement on Form S-1 (Registration No. 333-64649)
relating to the Certificates, including a form of prospectus, has been filed
with, and has been declared effective by, the Securities and Exchange Commission
(the "Commission"). If any post-effective amendment to such registration
statement has been filed with the Commission prior to the execution and delivery
of this Agreement, the most recent such amendment has been declared effective by
the Commission. For purposes of this Agreement, "Effective Time" means the date
and time as of which such registration statement, or the most recent post-
effective amendment thereto, if any, was declared effective by the Commission,
and "Effective Date" means the date of the Effective Time. Such registration
statement, as amended at the Effective Time, including all information deemed to
be a part thereof as of the Effective Time pursuant to paragraph (b) of Rule
430A ("Rule 430A") under the Securities Act of 1933, as amended (the "Act"), is
hereinafter referred to as the "Registration Statement," and the form of
prospectus relating to the Certificates, as filed pursuant to paragraph (1) or
(4) of Rule 424(b) ("Rule 424(b)") under the Act, is hereinafter referred to as
the "Prospectus."
(b) On any Effective Date, the Registration Statement conformed in
all material respects to the requirements of the Act and the published rules and
regulations of the Commission (the "Rules and Regulations"), and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. On the date of this Agreement, the Registration Statement and the
Prospectus conform, and at the time of filing of the Prospectus pursuant to Rule
424(b) such documents will conform, in all material respects to the requirements
of the Act and the Rules and
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Regulations, and none of such documents includes, and on the Closing Date (as
defined below) the Prospectus will not include, any untrue statement of a
material fact, or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
two preceding sentences do not apply to statements in or omissions from either
of such documents based upon written information furnished to JCPR by the
Underwriters for use therein.
(c) Upon payment therefor as provided herein, the Certificates will
have been duly authorized and (assuming their due authentication by the Trustee)
will have been validly issued and will conform in all material respects to the
description thereof in the Prospectus, and will be entitled to the benefits of
the Pooling and Servicing Agreement.
(d) The issue and sale of the Certificates and the compliance by JCPR
with all of the provisions of the Certificates, the Pooling and Servicing
Agreement, the Receivables Purchase Agreement and this Agreement will not
conflict with or result in any breach which would constitute a material default
under, or, except as contemplated by the Pooling and Servicing Agreement, result
in the creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of JCPR, material to JCPR, pursuant to the terms of any
indenture, loan agreement or other agreement or instrument for borrowed money to
which JCPR is a party or by which JCPR may be bound or to which any of the
property or assets of JCPR may be bound or to which any of the property or
assets of JCPR, material to JCPR, is subject, nor will such action result in any
material violation of the provisions of the Certificate of Incorporation, as
amended, or Bylaws of JCPR or, to the best of JCPR's knowledge, any statute or
any order, rule or regulation applicable to JCPR of any court or any Federal,
state or other regulatory authority or other governmental body having
jurisdiction over JCPR, and no consent, approval, authorization or other order
of, or filing with, any court or any such regulatory authority or other
governmental body is required for the issue and sale of the Certificates except
as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and securities laws of the various states and
other jurisdictions in which the Underwriters will offer and sell Certificates
and except for the filing of any financing statement required to perfect the
Trust's interest in the Receivables.
(e) To the best of JCPR's knowledge, the compliance by JCPenney with
all of the provisions of the Pooling and Servicing Agreement and the
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<PAGE>
Receivables Purchase Agreement will not conflict with or result in any breach
which would constitute a material default under, or, except as contemplated by
the Pooling and Servicing Agreement and the Receivables Purchase Agreement,
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of JCPenney or any subsidiary thereof, material to
JCPenney and its subsidiaries (whether or not consolidated) considered as a
whole, pursuant to the terms of any indenture, loan agreement or other agreement
or, except as contemplated by the Receivables Purchase Agreement, instrument for
borrowed money to which JCPenney, JCPR or any Affiliate thereof is a party or by
which JCPenney, JCPR or any Affiliate thereof may be bound or to which any of
the property or assets of JCPenney, JCPR or any Affiliate thereof may be bound
or to which any of the property or assets of JCPenney, JCPR or any Affiliate
thereof, material to JCPenney, JCPR or any Affiliate thereof (whether or not
consolidated) considered as a whole, is subject, nor will such action result in
any material violation of the provisions of the Restated Certificate of
Incorporation or the Bylaws of JCPenney or, to the best of JCPR's knowledge, any
statute or any order, rule or regulation applicable to JCPenney of any court or
any Federal, state or other regulatory authority or other governmental body
having jurisdiction over JCPenney.
(f) The Principal Receivables conveyed by JCPR to the Trust under the
Pooling and Servicing Agreement had an aggregate outstanding balance determined
as of September 30, 1998 in accordance with the Pooling and Servicing Agreement
of not less than $1,444,269,021.
(g) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and the Trust is not required to be registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
3. Purchase, Sale, Payment and Delivery of Certificates. On the basis of
the representations, warranties and covenants herein contained, JCPR agrees to
sell to the Underwriters, and the Underwriters agree, severally and not jointly,
to purchase from JCPR the respective principal amounts of the Certificates set
forth in Schedule A hereto opposite the names of the Underwriters. Such
Certificates are to be purchased by the Underwriters at a purchase price of
_____% of the principal amount thereof plus accrued interest, if any, from
________ __, 1998.
4
<PAGE>
JCPR will deliver the Certificates to the Representative against
payment of the purchase price by wire transfer of immediately available funds to
the account of JCPR at the office of JCPenney in Plano, Texas at 10:00 A.M.,
C.S.T., on _________ __, 1998 or at such other time not later than seven full
business days thereafter as the Representative and JCPR determine, such time
being herein referred to as the "Closing Date." The Certificates so to be
delivered shall be represented by one or more definitive certificates registered
in the name of Cede & Co., as nominee for The Depository Trust Company. JCPR
shall make such definitive certificates representing the Certificates available
for inspection by the Underwriters at least 24 hours prior to the Closing Date.
4. Offering by Underwriters. It is understood that after the
Registration Statement becomes effective the Underwriters propose to offer the
Certificates for sale to the public (which may include selected dealers) as set
forth in the Prospectus. The Underwriters may offer the Certificates to certain
dealers at the price to public of __% of the principal amount thereof less
concessions not in excess of __% of the principal amount thereof. The
Underwriters may allow, and such dealers may reallow, concessions not in excess
of __% of the principal amount of the Certificates.
5. Covenants of JCPR and JCPenney. JCPR, and where specified, JCPenney,
covenant with the Underwriters, with respect to the Certificates, that:
(a) JCPR will file the Prospectus with the Commission pursuant to
Rule 424(b) within the time periods specified by Rule 424(b) and Rule 430A; JCPR
will advise you at least 24 hours prior to the filing of any amendment of or
supplement to the Registration Statement or the Prospectus; and JCPR will advise
you promptly of the effectiveness of any such amendment of or supplement to the
Registration Statement or Prospectus, of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for any additional information, of the receipt by JCPR of any notification with
respect to the suspension of qualification of the Certificates for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
and of the institution by the Commission of any stop order proceeding in respect
of the Registration Statement, and will use their best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its lifting,
if issued.
5
<PAGE>
(b) If, at any time when a prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Registration Statement or the Prospectus to comply with the Act, JCPR promptly
will prepare and file with the Commission (subject to the provisions of
paragraph (a) of this Section) an amendment or supplement which will correct
such statement or omission or effect such compliance.
(c) Not later than 90 days after the end of the 12-month period
beginning at the end of the fiscal quarter of the Trust during which the Closing
Date occurs, JCPR will cause the Trust to make generally available to the
Certificateholders an earnings statement or statements of the Trust covering
such 12-month period which will satisfy the provisions of Section 11(a) of the
Act.
(d) JCPR will furnish to you copies of the Registration Statement
(one of which, to be delivered to your counsel, will be signed and will include
all exhibits), each related preliminary prospectus, the Prospectus and all
amendments and supplements to such documents, in each case as soon as available
and in such quantities as you reasonably request. JCPR will pay the expenses of
printing or other production of all documents relating to the offering.
(e) JCPR will use its best efforts to arrange for the qualification
of the Certificates for sale and the determination of the Certificates for sale
and the determination of their eligibility for investment under the laws of
such jurisdictions as the Representative reasonably designates and will
diligently endeavor to continue such qualifications in effect so long as
required for the distribution of the Certificates; provided, however, that JCPR
shall not be required to register or qualify, or to maintain qualification, as a
foreign corporation nor, except as to matters and transactions relating to the
offer or sale of the Certificates, consent to service of process generally in
any state.
(f) For a period from the date of this Agreement until the retirement
of the Certificates, (i) JCPenney will furnish to you copies of each certificate
and the annual statements of compliance relating to the Certificates delivered
to the Trustee pursuant to Article III of the Pooling and Servicing Agreement
and the annual independent certified public accountant's servicing reports
furnished to the
6
<PAGE>
Trustee pursuant to Article III of the Pooling and Servicing Agreement, by
first-class mail as soon as practicable after such statements and reports are
furnished to the Trustee and (ii) on each Determination Date or as soon
thereafter as practicable, JCPenney shall give notice substantially in the form
of Schedule B hereto by telex or telecopy to you of the Pool Factor as of the
related Record Date.
(g) So long as any of the Certificates are outstanding, JCPR or
JCPenney, as the case may be, will furnish you by first-class mail as soon as
practicable, all documents (A) distributed, or caused to be distributed, by
JCPR or JCPenney to the Certificateholders, (B) filed, or caused to be filed, by
JCPR with the Commission pursuant to the Exchange Act, any order of the
Commission thereunder or pursuant to a "no-action" letter from the staff of the
Commission and (C) from time to time in the possession of JCPR or JCPenney
concerning the Trust as you may reasonably request.
(h) JCPR will pay all expenses incident to the performance of its
obligations under this Agreement and will reimburse the Underwriter for any
reasonable expenses (including reasonable fees and disbursements of counsel)
incurred by the Underwriters in connection with qualification of the
Certificates for sale and determination of their eligibility for investment
under the laws of such jurisdictions as the Representative reasonably designates
and the printing and memoranda relating thereto, for any fees charged by
investment rating agencies for the rating of the Certificates, and for
reasonable expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
(i) To the extent, if any, that the rating provided with respect to
the Certificates by Moody's Investors Service, Inc. ("Moody's") and/or Standard
& Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's") is conditional upon the furnishing of documents or the
taking of any other action by JCPR, agreed upon on or prior to the Closing Date,
JCPR shall furnish such documents and take any such other action.
(j) JCPR will not offer, sell, contract to sell or otherwise dispose
of any additional Series other than the Series represented by the Certificates,
the Class B Investor Interest and the Class C Investor Interest without the
prior written consent of the Underwriters, which shall not be unreasonably
withheld, for a period of 15 days from the date of this Agreement.
7
<PAGE>
6. Conditions of the Obligations of the Underwriters. The obligations of
the Underwriters to purchase and pay for the Certificates will be subject to the
accuracy of the representations and warranties on the part of JCPR herein, to
the accuracy of the statements of officers of JCPR made pursuant to the
provisions hereof, to the performance by JCPR and JCPenney of their obligations
hereunder and to the following additional conditions precedent:
(a) The Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this Agreement;
and, prior to the Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of JCPR or the
Underwriters, shall be contemplated by the Commission.
(b) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
JCPR, JCPenney or JCPenney Card Bank, National Association ("JCP Card Bank")
which, in your reasonable judgment, materially impairs the investment quality of
the Certificates; (ii) any downgrading in the rating of the debt securities of
JCPR or JCPenney to below investment grade by Moody's or Standard & Poor's;
(iii) any suspension or limitation of trading in securities generally on the New
York Stock Exchange, excluding any such suspension or limitation of trading
resulting from the application of the "circuit breaker" rules of the New York
Stock Exchange unless such rules shall have been applied on more than one day
subsequent to the execution and delivery of this Agreement, or any setting of
minimum prices for trading on such exchange; (iv) any banking moratorium
declared by Federal, New York or Delaware authorities; or (v) the United States
shall be engaged in hostilities which have resulted in a declaration of a
national emergency or a declaration of war by Congress; any of which events set
forth in clauses (i) through (v), in your reasonable judgment, renders it
inadvisable to proceed with the public offering or the delivery of the
Certificates.
(c) The Underwriters shall have received an opinion of C. R. Lotter,
General Counsel for JCPR and JCPenney, addressed to the Underwriters, dated the
Closing Date and satisfactory in form to the Representative and counsel for the
Underwriters to the effect that:
8
<PAGE>
(i) JCPR has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, has corporate
power and authority to own its property, conduct its business as described
in the Prospectus, enter into and perform its obligations under this
Agreement, the Receivables Purchase Agreement and the Pooling and Servicing
Agreement and execute the Certificates and is duly qualified as a foreign
corporation and in good standing in Texas, which is the only state in which
JCPR currently conducts business. JCPR has full power and authority to
authorize, issue and sell the Certificates as contemplated by this
Agreement.
(ii) This Agreement has been duly authorized, executed and
delivered by JCPenney and JCPR and, assuming the due authorization,
execution and delivery thereof by the Underwriters, constitutes a legal,
valid and binding obligation of each of JCPenney and JCPR enforceable
against each of JCPenney and JCPR in accordance with its terms (subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles); provided, however, that such
counsel need not express any opinion concerning the enforceability of the
provisions in Section 7 of this Agreement concerning indemnification or
contribution in respect of violations of Federal or state securities laws.
(iii) The Receivables Purchase Agreement has been duly
authorized, executed and delivered by JCPR and JCPenney and constitutes a
legal, valid and binding obligation of each of JCPenney and JCPR
enforceable against each of JCPenney and JCPR in accordance with its terms
(subject, as to enforcement of remedies, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles).
(iv) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by JCPR and JCPenney and, assuming that
such agreement was duly authorized, executed and delivered by the
9
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Trustee, constitutes a legal, valid and binding obligation of each of
JCPenney and JCPR enforceable against each of JCPenney and JCPR in
accordance with its terms (subject, as to enforcement of remedies, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles).
(v) The certificates representing the Certificates have been
duly authorized and executed, and assuming due authentication thereof by
the Trustee in accordance with the Pooling and Servicing Agreement, were
validly issued to JCPR by the Trust, are entitled to the benefits of the
Pooling and Servicing Agreement and are enforceable in accordance with
their terms (subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles). When such Certificates are delivered to the Underwriters by
JCPR against payment therefor in accordance with this Agreement, the
Underwriters will have, assuming that the Underwriters have no notice of
any adverse claim, valid and marketable title thereto, free and clear of
any liens, security interests or encumbrances.
(vi) No consent, approval, authorization or order of, or filing
with, any court or governmental agency or body is required in connection
with the execution, delivery and performance by JCPR of this Agreement, the
Pooling and Servicing Agreement or the Receivables Purchase Agreement, or
in connection with the issuance by the Trust or sale by JCPR of the
Certificates, except such as have been obtained under the Act and such as
may be required under state blue sky laws and the filing of Uniform
Commercial Code financing statements.
(vii) The issue and sale of the Certificates and the execution
and delivery of this Agreement, the Receivables Purchase Agreement and the
Pooling and Servicing Agreement, and the consummation of the transactions
contemplated hereby and thereby and the fulfillment of the terms hereof and
thereof, will not result in a breach or violation of, or constitute a
default under, any statute, rule, regulation or order of any governmental
agency or body
10
<PAGE>
or any court having jurisdiction over JCPR or the Trust or any of their
property, the Certificate of Incorporation, as amended, or Bylaws of JCPR
or to the best of such counsel's knowledge, any agreement or instrument to
which JCPR is a party or by which the Trust or JCPR is bound or to which
any of the property of JCPR is subject.
(viii) The Certificates, the Receivables Purchase Agreement and
the Pooling and Servicing Agreement conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(ix) The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act and the Trust is not, and the
issuance and sale of the Certificates in the manner contemplated by the
Pooling and Servicing Agreement and the Underwriting Agreement will not
cause the Trust to be, required to be registered under the Investment
Company Act.
(x) The Registration Statement has become effective under the
Act, the filing of the Prospectus pursuant to Rule 424(b) thereunder has
been made and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or threatened under the Act.
(xi) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations (except as to the financial data contained therein,
as to which such counsel need not express any opinion).
(xii) Such counsel does not know of any pending or threatened
action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator against JCPR or the Trust which would
be required to be disclosed in the Registration Statement or Prospectus and
which is not disclosed therein.
11
<PAGE>
(xiii) Such counsel does not know of any contracts or documents
of a character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed.
In passing on the Registration Statement and the Prospectus, such
counsel may assume the correctness and completeness of the statements made or
included therein by JCPR and may take no responsibility therefor except as
specified in paragraph (vii) above and except insofar as such statements relate
to such counsel. However, in the course of the preparation by JCPR of the
Registration Statement, such opinion shall state that such counsel had
conferences with certain officers of JCPR and such counsel's discussions in the
above-mentioned conferences did not disclose to such counsel any information
that gave such counsel reason to believe that the Registration Statement, at the
time it became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except in each case as to the financial
data included therein, as to which such counsel need not express any opinion).
In rendering such opinion counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of New York,
the State of Delaware (as to its General Corporation Law) and the United States,
to the extent deemed proper and stated in such opinion, upon the opinion of
other counsel of good standing believed by such counsel to be reliable and
acceptable to you and your counsel, and (B) as to matters of fact, to the extent
deemed proper and as stated therein, on certificates of responsible officers of
the Trust, JCPR, JCPenney and public officials. References to the Prospectus in
this paragraph (c) include any supplements thereto.
(d) On or prior to the date of this Agreement, KPMG Peat Marwick,
independent certified public accountants for JCPenney and JCPR, shall have
furnished to the Underwriters a letter or letters, dated as of the date of this
Agreement, in form and substance satisfactory to the Representative and counsel
for the Underwriters, (i) confirming that they are certified independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations, (ii) stating in effect that they have performed certain specified
procedures as a result of which they have determined that certain
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information of an accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived from the general
accounting records of the Trust, JCPenney and JCPR) set forth in the
Registration Statement and the Prospectus (and any supplement thereto),
including the information set forth under the captions "JCPENNEY'S CREDIT CARD
BUSINESS", "THE ACCOUNTS", "MATURITY ASSUMPTIONS" and "RECEIVABLE YIELD
CONSIDERATIONS" in the Prospectus, agrees with the accounting records of the
Trust, JCPenney and JCPR, excluding any questions of legal interpretation, and
(iii)(a) in their opinion, the consolidated financial statements and schedules
covered by their opinion therein comply in form in all material respects with
the applicable accounting requirements of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and (b) on the
basis of procedures (but not an examination made in accordance with generally
accepted auditing standards) consisting of a reading of the latest unaudited
consolidated condensed financial statements of JCPenney and its consolidated
subsidiaries and certain other specified means, nothing has come to their
attention that would cause them to believe that such unaudited consolidated
condensed financial statements (A) do not comply in form in all material
respects with the applicable accounting requirements of the Exchange Act or (B)
are not in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited consolidated finan cial
statements and certain other matters.
(e) The Underwriters shall have received from KPMG Peat Marwick, a
letter, dated as of the Closing Date, in form and substance satisfactory to the
Representative and counsel for the Underwriters, to the effect that confirms the
items stated by them in clauses (i) and (iii) of paragraph (d) of this Section
6.
(f) The Underwriters shall receive evidence satisfactory to the
Representative and counsel for the Underwriters that, on or before the Closing
Date, UCC-1 financing statements have been or are being filed in the offices of
the Secretaries of State of Texas and such other jurisdictions as its counsel
deems appropriate reflecting the interest of the Trust in the Receivables now
existing and hereafter created in the Accounts, all monies due and to become due
with respect thereto, all proceeds thereof and Insurance Proceeds relating
thereto, and all of JCPR's rights, remedies, powers and privileges with respect
to such Receivables under the Receivables Purchase Agreement.
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(g) The Underwriters shall have received an opinion from Skadden,
Arps, Slate, Meagher & Flom LLP, stating in effect that the Certificates would
be treated as debt of JCPR for Federal income tax purposes.
(h) The Underwriters shall have received from Donohoe, Jameson &
Carroll, P.C., special counsel to JCPR and JCPenney, a favorable opinion, dated
the Closing Date and satisfactory in form to the Representative and counsel for
the Underwriters to the effect that:
(i) If the Pooling and Servicing Agreement and the Receivables
Purchase Agreement constitute a valid transfer of all right, title and
interest of JCPR in, to and under the Receivables existing at the Closing
Date and thereafter created in the Accounts designated therein and, when
added pursuant to Section 2.6(c) of the Pooling and Servicing Agreement and
designated in a transfer agreement in the form of Exhibit E to the
Pooling and Servicing Agreement, the Additional Accounts designated
therein, all monies due or to become due with respect thereto, all proceeds
thereof and Insurance Proceeds relating thereto and all of JCPR's rights,
remedies, powers and privileges with respect to such Receivables under the
Receivables Purchase Agreement, then, assuming the accuracy of the Uniform
Commercial Code searches and the officer's certificates of JCPR and
JCPenney, the Trustee will acquire all right, title and interest of JCPR in
each such item free and clear of any Lien or interest of any person
claiming through or under JCPR except for (i) Liens permitted under Section
2.5(b) of the Pooling and Servicing Agreement and (ii) the rights of others
as specified in paragraph (ii) below.
(ii) If the Pooling and Servicing Agreement and the Receivables
Purchase Agreement do not constitute a valid transfer of all right, title
and interest of JCPR in, to and under the Receivables existing at the
Closing Date and thereafter created in the Accounts designated therein and,
when added pursuant to Section 2.6(c) of the Pooling and Servicing
Agreement and designated in a transfer agreement in the form of Exhibit E
to the Pooling and Servicing Agree-
14
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ment, the Additional Accounts designated therein, all monies due or to
become due with respect thereto, all proceeds thereof and Insurance
Proceeds relating thereto and all of JCPR's rights, remedies, powers and
privileges with respect to such Receivables under the Receivables Purchase
Agreement, then the Pooling and Servicing Agreement and the Receivables
Purchase Agreement create a valid security interest in favor of the
Trustee, for the benefit of the holders of the Certificates, in each such
item and, based upon the UCC-1 financing statements having been filed,
assuming the due and proper filing thereof in the filing offices specified
in such opinion, and assuming the accuracy and completeness of the Uniform
Commercial Code searches and the officer's certificates of JCPR and
JCPenney, create a first priority perfected security interest in each such
item, except Liens permitted by Section 2.5(b) of the Pooling and Servicing
Agreement. Such counsel need not express any opinion, however, as to
JCPenney's, JCPR's or the Trustee's title to the Receivables or with
respect to the following possible interests or rights in the Receivables or
limitations on such security interest: (a) security interests for the
perfection of which no filing is required under Section 9.302(a) of the
Uniform Commercial Code; (b) security interests afforded temporary
perfection status without filing under Section 9.312 of the Uniform
Commercial Code; (c) the perfection of security interests in proceeds to
the extent that the same ceases in accordance with or under the
circumstances specified in Section 9.306 of the Uniform Commercial Code;
(d) security interests, liens, transactions or rights not governed by the
Uniform Commercial Code, or, absent compliance with the Federal Assignment
of Claims Act, in respect of Receivables arising under contracts with the
United States government; (e) the priority of any security interest as
against any claim or lien in favor of the United States government or any
agency or instrumentality thereof (including, without limitation, Federal
tax liens or liens under the Employee Retirement Income Security Act of
1974, as amended); (f) rights and interests of any lien creditors which
have instituted proceedings for attachment, execution or other action
against the Receivables in the Accounts prior to the Closing Date; (g) any
prior security interests in the Receivables in the Accounts which have been
improperly filed; and (h) in the event of the filing of a bankruptcy
petition with respect to JCPR, any liens on after-acquired property of JCPR
created by the Pooling and Servicing Agreement will be subject to Section
552 of the United States Bankruptcy Code.
15
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(iii) Except for the filing of continuation statements pursuant
to Section 9.403 of the Uniform Commercial Code with respect to the UCC-1
financing statements, no additional Uniform Commericial Code filing is
necessary to maintain the perfection of the security interest of the
Trustee in all right, title and interest of JCPR in, to, and under the
Receivables existing at the Closing Date and thereafter created in the
Accounts designated in the Pooling and Servicing Agreement and, when added
pursuant to Section 2.6(c) of the Pooling and Servicing Agreement and
designated in a transfer agreement in the form of Exhibit E to the Pooling
and Servicing Agreement, the Additional Accounts designated therein, all
monies due or to become due with respect thereto, all proceeds thereof
(including Insurance Proceeds relating thereto) and all of JCPR's rights,
remedies, powers and privileges with respect to such Receivables under the
Receivables Purchase Agreement against third parties.
In passing on the Registration Statement and the Prospectus, such
counsel may assume the correctness and completeness of the statements made or
included therein by JCPR and may take no responsibility therefor except insofar
as such statements relate to such counsel.
Such counsel shall deliver, or cause to be delivered, to the
Underwriters such additional opinions addressing the transfers or grantings of
security interests by JCPR to the Trustee effected by the Pooling and Servicing
Agreement as may be required by each Rating Agency rating the Certificates.
In rendering such opinion counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of Texas, the
State of Delaware (as to its General Corporation Law) and the United States, to
the extent deemed proper and stated in such opinion, upon the opinion of other
counsel of good standing believed by such counsel to be reliable and acceptable
to you and your counsel, and (B) as to matters of fact, to the extent deemed
proper and as stated therein, on certificates of responsible officers of the
Trust, JCPR, JCPenney and
16
<PAGE>
public officials. References to the Prospectus in this paragraph (h) include any
supplements thereto.
(i) The Underwriters shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Underwriters, such opinion or opinions,
dated the Closing Date, with respect to the organization of JCPR, the validity
of the Certificates, the Registration Statement, the Prospectus and other
related matters as you may require, and JCPR shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(j) The Underwriters shall have received a certificate, dated the
Closing Date, of the President and a principal financial or accounting officer
of JCPR in which each such officer, to the best of his or her knowledge after
reasonable investigation, shall state that the representations and warranties of
JCPR in this Agreement are true and correct in all material respects on and as
of the Closing Date, that JCPR has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date, the representations and warranties of JCPR in the Pooling and
Servicing Agreement are true and correct as of the dates specified in the
Pooling and Servicing Agreement, that no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are threatened by the Commission and that the
Prospectus has been filed with the Commission pursuant to Rule 424(b) within the
applicable time period prescribed for such filing by the Rules and Regulations.
(k) The Underwriters shall have received an opinion of C. R. Lotter,
Executive Vice President, Secretary and General Counsel of JCPenney, addressed
to the Underwriter, dated the Closing Date and satisfactory in form to the
Representative and counsel for the Underwriters to the effect that:
(i) JCPenney has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation and in good standing in each
jurisdiction in which the performance of its obligations under this
Agreement, the Receivables Purchase Agreement and the Pooling and Servicing
Agreement would require such qualification.
17
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(ii) This Agreement, the Receivables Purchase Agreement and the
Pooling and Servicing Agreement have been duly authorized, executed and
delivered by JCPenney.
(iii) No consent, approval, authorization or order of, or filing
with, any court or governmental agency or body is required in connection
with the execution, delivery and performance by JCPenney of this Agreement,
the Pooling and Servicing Agreement or the Receivables Purchase Agreement,
except such as may be required under the Act or state blue sky laws.
(iv) The execution and delivery of this Agreement, the
Receivables Purchase Agreement and the Pooling and Servicing Agreement, and
the consummation of the transactions contemplated thereby and the
fulfillment by JCPenney of the terms thereof, will not result in a breach
or violation of, or constitute a default under, any statute, rule,
regulation or order of any governmental agency or body or any court having
jurisdiction over JCPenney or any of its property, the Restated Certificate
of Incorporation or Bylaws of JCPenney or any material agreement or
instrument to which JCPenney is a party or by which JCPenney is bound or to
which any of the property of JCPenney is subject.
(l) The Underwriters shall have received an opinion of Kramer, Levin,
Naftalis & Frankel, counsel to the Trustee, addressed to the Underwriters, dated
the Closing Date and satisfactory in form and substance to the Representative
and counsel for the Underwriters to the effect that:
(i) The Trustee is a banking corporation duly incorporated,
validly existing and in good standing under the laws of the State of New
York with full power and authority (corporate and other) to own its
properties and conduct its business, as presently conducted by it, and to
enter into and perform its obligations under the Pooling and Servicing
Agreement.
(ii) The Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Trustee, and, assuming that such
agreement is a legally effective and enforceable obligation of each of the
other parties thereto, constitutes the legal, valid and
18
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binding agreement of the Trustee, enforceable against the Trustee in
accordance with its terms, except as the enforceability thereof may be (a)
limited by bankruptcy, insolvency, reorganization, moratorium, liquidation
or other similar laws of general applicability affecting the enforceability
of creditors' rights generally and (b) subject to general principles of
equity (regardless of whether considered in proceedings in equity or at
law) as well as concepts of reasonableness, good faith and fair dealing.
(iii) The certificates representing the Certificates have been
duly authenticated by the Trustee under the Pooling and Servicing
Agreement.
(iv) Neither the execution nor the delivery by the Trustee of
the Pooling and Servicing Agreement nor the consummation of any of the
transactions by the Trustee contemplated under any provision thereof
requires the consent or approval of, the giving of notice to, or the
registration with, or the taking of any other action with respect to, any
governmental authority or agency under any existing Federal or New York law
governing the banking or trust powers of the Trustee.
(m) The Underwriter shall have received evidence satisfactory to the
Underwriter that the Certificates shall be rated AAA by Standard & Poor's and/or
Aaa by Moody's.
7. Indemnification and Contribution.
(a) JCPR and JCPenney will jointly and severally indemnify and hold
harmless each Underwriter and each person, if any, who controls such Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which
19
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they were made, not misleading; and will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) JCPR and JCPenney will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
made in any of such documents in reliance upon and in conformity with written
information furnished to JCPR by any Underwriter for use therein and (ii) the
indemnity agreements contained in this paragraph (a) with respect to any such
related preliminary prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) if at or prior to
the written confirmation of the sale of the Certificates to any person asserting
any such losses, claims, damages, liabilities or expenses a copy of the
Prospectus (or the Prospectus as so amended or supplemented) was not sent or
delivered to such person and the untrue statement of a material fact contained
in such related preliminary prospectus was corrected in the Prospectus (or the
Prospectus as so amended or supplemented). This indemnity agreement will be in
addition to any liability which JCPR or JCPenney may otherwise have.
(b) Each Underwriter will indemnify and hold harmless JCPR and
JCPenney, each of their directors, each of their officers who have signed the
Registration Statement and each person, if any, who controls JCPR or JCPenney
within the meaning of the Act, against any losses, claims, damages or
liabilities to which JCPR or JCPenney or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
JCPR by such Underwriter for use therein; and will reimburse any legal or other
expenses reasonably incurred by JCPR or JCPenney or any such director, officer
or controlling person in connection with investigating or defending any
20
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such loss, claim, damage, liability or action. This indemnity agreement will be
in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there has been a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If recovery is not available under the foregoing indemnification
provisions of this Section, for any reason other than as specified therein, the
parties entitled to indemnification by the terms thereof shall be entitled to
contribution for liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Act. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative benefits received by each party from the
offering of the Certificates (taking into account the portion of the proceeds of
the offering realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances. JCPR, JCPenney and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation. Neither an
Underwriter nor any person controlling such Underwriter shall be
21
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obligated to make contribution hereunder which in the aggregate exceeds the
total public offering price of the Certificates purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required to pay in
respect of the same claim or any substantially similar claim.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Certificates hereunder and the aggregate
principal amount of the Certificates which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
principal amount of the Certificates, the Representative may make arrangements
satisfactory to JCPR for the purchase of such Certificates by other persons,
including any of the Underwriters, but if no such arrangements are made by the
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
Certificates which such defaulting Underwriters agreed but failed to purchase.
If any Underwriter or Underwriters so default and the aggregate principal amount
of Certificates with respect to which such default or defaults occur is more
than 10% of the total principal amount of the Certificates and arrangements
satisfactory to the Representative and JCPR for the purchase of such
Certificates by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or JCPR, except as provided in Section 9 hereof. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
JCPR, JCPenney and the Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation,
or statement as to the results thereof, made by or on behalf of any Underwriter,
JCPR or JCPenney or any of their respective officers or directors or any
controlling person, and will survive delivery of and payment for the
Certificates. If for any reason the purchase of the Certificates by the
Underwriters pursuant to this Agreement is not consummated, JCPR shall remain
responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of JCPR, JCPenney and the Underwriters
pursuant to Section 7 shall remain in effect. If for any reason the purchase of
the Certificates by the Underwriters is not consummated other than solely
because of the occurrence of any event specified in clauses (iii), (iv) or (v)
of Section 6(b), JCPR and JCPenney will reimburse the Underwriters for all out-
of-pocket expenses (including fees and disbursement of counsel) reasonably
incurred by them in connection with the offering of the Certificates.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
them c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New
York, New York 10010, Attention: Michael B. Raynes, and if sent to JCPR or
JCPenney as the case may be will be mailed, delivered or telegraphed and
confirmed to JCPR, 6501 Legacy Drive, Mail Stop 1318, Plano, Texas 75024,
Attention: President and to JCPenney, 6501 Legacy Drive, Plano, Texas 75024,
Attention: Treasurer.
11. Successors. This Underwriting Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
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12. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
23
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon
it will become a binding agreement among JCPR, JCPenney and the Underwriters in
accordance with its terms.
Very truly yours,
JCP RECEIVABLES, INC.
By
-----------------------------------------
Name: C. A. Walther
Title: President
J. C. PENNEY COMPANY, INC.
By
-----------------------------------------
Name: R. B. Cavanaugh
Title: Vice President and Treasurer
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
As Representative of the Underwriters
named in Schedule A hereto
By
-----------------------------------
Name: Michael B. Raynes
Title: Director
24
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SCHEDULE A
UNDERWRITERS
$________ aggregate principal amount of __%
Class A Asset Backed Certificates, Series E
Underwriter Principal Amount
Credit Suisse First Boston Corporation....... $
--------
.......
-------------------------------------- --------
.......
-------------------------------------- --------
<PAGE>
SCHEDULE B
FORM OF SERVICER'S CERTIFICATE
CREDIT SUISSE FIRST BOSTON CORPORATION
As Representative of the Underwriters
Eleven Madison Avenue
New York, New York 10010
Attention:
Re: Pooling and Servicing Agreement dated as of September 5, 1988, as
amended as of October 15, 1997, as supplemented by the Series E
Supplement, dated as of _______ __, 1998 (together, the "Pooling and
Servicing Agreement") among JCP Receivables, Inc., J. C. Penney
Company, Inc. and The Fuji Bank and Trust Company, as Trustee
--------------------------------------------------------------------
Determination Date to which this Certificate
relates: __________, ____
Applicable Record Date: __________, ____
1. The undersigned Servicing Officer does hereby certify that
the Pool Factor is ____________________________.
2. Capitalized terms used in this Certificate shall have the
same meanings as in the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand as of the above-
referenced Determination Date.
J. C. PENNEY COMPANY, INC.,
as Servicer
By
-----------------------------------------
Servicing Officer
<PAGE>
EXHIBIT 4.1
================================================================================
JCP RECEIVABLES, INC.
and
J. C. PENNEY COMPANY, INC.
Servicer
and
THE FUJI BANK AND TRUST COMPANY
Trustee
on behalf of the Certificateholders
of the JCP Master Credit Card Trust
================================================================================
MASTER
POOLING AND SERVICING AGREEMENT
Dated as of September 5, 1988
================================================================================
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS; ESTIMATIONS
Section 1.1 Definitions........................................................1
Section 1.2 Other Definitional Provisions.....................................20
Section 1.3 Estimation of Finance Charge Receivables; Daily Allocation
of Collections....................................................20
ARTICLE II
TRANSFER OF RECEIVABLES; ISSUANCE OF CERTIFICATES
Section 2.1 Transfer of Receivables...........................................23
Section 2.2 Acceptance by Trustee.............................................25
Section 2.3 Representations and Warranties of JCPR Relating to JCPR...........25
Section 2.4 Representations and Warranties of JCPR Relating to the
Agreement and any Supplement and the Receivables..................27
Section 2.5 Covenants of JCPR.................................................32
Section 2.6 Addition of Accounts..............................................34
Section 2.7 Removal of Accounts...............................................38
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters Relating to
the Servicer......................................................40
Section 3.2 Servicing Compensation............................................41
Section 3.3 Representations and Warranties of the Servicer....................42
Section 3.4 Reports and Records for the Trustee; Bank Account Statements......44
Section 3.5 Annual Servicer's Certificate.....................................45
Section 3.6 Annual Independent Public Accountants' Servicing Report...........45
Section 3.7 Tax Treatment.....................................................46
Section 3.8 Notices to JCPenney...............................................46
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Certificateholders......................................46
Section 4.2 Establishment of Investor Accounts................................47
Section 4.3 Collections and Allocations.......................................49
Section 4.4 Defaulted Accounts................................................52
Section 4.5 Monthly Payments..................................................52
Section 4.6 Payment of Certificate Interest with respect to each Series.......55
Section 4.7 Payment of Certificate Principal with respect to each Series......55
Section 4.8 Adjustments for Miscellaneous Credits.............................56
Section 4.9 JCPR's or Servicer's Failure to Make a Deposit or Payment.........57
Section 4.10 Letter of Credit..................................................57
ARTICLE V
DISTRIBUTIONS AND REPORTS
TO INVESTOR CERTIFICATEHOLDERS
Section 5.1 Distributions.....................................................58
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Section 5.2 Monthly Certificateholders' Statement.............................58
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates..................................................60
Section 6.2 Authentication of Certificates....................................61
Section 6.3 Registration of Transfer and Exchange of Certificates ............61
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates.................63
Section 6.5 Persons Deemed Owners.............................................63
Section 6.6 Appointment of Paying Agent.......................................64
Section 6.7 Access to List of Certificateholders' Names and Addresses.........64
Section 6.8 Authentication Agent..............................................65
Section 6.9 Book-Entry Certificates for any Series............................67
Section 6.10 Notices to Clearing Agency of any Series..........................68
Section 6.11 Definitive Certificates for any Series Initially Issued as
Book-Entry Certificates...........................................68
Section 6.12 Delivery of Exchangeable Certificate, etc.........................69
ARTICLE VII
OTHER MATTERS RELATING TO JCPR
Section 7.1 Liability of JCPR.................................................73
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, JCPR, etc.........................................73
Section 7.3 Limitation on Liability of JCPR...................................73
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer.........................................74
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer......................................74
Section 8.3 Limitation on Liability of the Servicer and Others................74
Section 8.4 Indemnification of the Trust and the Trustee......................75
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Section 8.5 The Servicer Not to Resign......................................75
Section 8.6 Access to Certain Documentation and Information
Regarding the Receivables.......................................76
Section 8.7 Delegation of Duties............................................76
Section 8.8 Examination of Records..........................................76
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events..................................................77
Section 9.2 Additional Rights Upon the Occurrence of Certain Events.........79
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults...............................................80
Section 10.2 Trustee to Act; Appointment of Successor........................82
Section 10.3 Notification to Certificateholders..............................84
Section 10.4 Waiver of Past Defaults.........................................85
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee...............................................85
Section 11.2 Certain Matters Affecting the Trustee...........................87
Section 11.3 Trustee Not Liable for Recitals In Certificates.................89
Section 11.4 Trustee May Own Certificates....................................89
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses.................89
Section 11.6 Eligibility Requirements for Trustee............................90
Section 11.7 Resignation or Removal of Trustees..............................90
Section 11.8 Successor Trustee...............................................91
Section 11.9 Merger or Consolidation of Trustee..............................91
Section 11.10 Appointment of Co-Trustee or Separate Trustee...................91
Section 11.11 Tax Returns.....................................................93
Section 11.12 Trustee May Enforce Claims Without Possession of
Certificates....................................................93
Section 11.13 Suits for Enforcement...........................................94
Section 11.14 Rights of Certificateholders to Direct Trustee..................94
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Section 11.15 Representations and Warranties of Trustee.......................94
Section 11.16 Maintenance of Office or Agency.................................95
Section 11.17 Requests for Agreement..........................................95
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.............................................95
Section 12.2 Repurchase and Final Maturity Date of Investor Certificates
with Respect to Any Series.......................................96
Section 12.3 Final Distributions..............................................98
Section 12.4 JCPR's Termination Rights........................................99
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment........................................................99
Section 13.2 Protection of Right, Title and Interest to Trust................101
Section 13.3 Limitation on Rights of Certificateholders......................102
Section 13.4 Governing Law...................................................103
Section 13.5 Notices.........................................................103
Section 13.6 Severability of Provisions......................................103
Section 13.7 Assignment......................................................103
Section 13.8 Certificates Nonassessable and Fully Paid.......................104
Section 13.9 Further Assurances..............................................104
Section 13.10 No Waiver; Cumulative Remedies..................................104
Section 13.11 Counterparts....................................................104
Section 13.12 Third-Party Beneficiaries.......................................104
Section 13.13 Actions by Certificateholders...................................104
Section 13.14 Merger and Integration..........................................105
Section 13.15 JCPenney as Servicer for JCPR...................................105
Section 13.16 Payments to JCPR................................................105
Section 13.17 Headings........................................................105
</TABLE>
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EXHIBITS
Exhibit A: Form of Investor Certificate
Exhibit B: Form of Exchangeable Certificate
Exhibit C: Form of Supplement
Exhibit D: Form of Receivables Purchase Agreement
Exhibit E: Form of Transfer Agreement of Receivables in Additional
Accounts
Exhibit F: Form of Initial Report
Exhibit G: Form of Monthly Servicer's Certificate
Exhibit H: Form of Annual Servicer's Certificate
Exhibit I: Form of Monthly Payment Instructions and Notification
to the Trustee
Exhibit J: Form of Monthly Certificateholders' Statement
Exhibit K: Form of Opinion of Counsel with Respect to
Additional Accounts
Exhibit L: Form of Annual Opinion of Counsel
Exhibit M: Credit Card Agreement
Exhibit N: Form of Depository Agreement
Exhibit O: Form of Retransfer Agreement
Exhibit P: Form of Opinion with Respect to Amendments
SCHEDULES
Schedule 1 List of Accounts
Schedule 2 List of Investor Accounts
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MASTER POOLING AND SERVICING AGREEMENT, dated as of September 5, 1988, by
and among JCP RECEIVABLES, INC., a Delaware corporation ("JCPR"), J. C. PENNEY
COMPANY, INC., a Delaware corporation ("JCPenney"), as Servicer, and THE FUJI
BANK AND TRUST COMPANY, a banking corporation organized and existing under the
laws of New York.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties and for the benefit of
the Certificateholders:
ARTICLE I
DEFINITIONS; ESTIMATIONS
Section 1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Account" shall mean each JCPenney credit card account in one of JCPenney's
Cycles which is an Eligible Account on the Cut Off Date, which is established
pursuant to a Credit Card Agreement and which is identified by account number
and by Receivable balance as of the Cut Off Date and shall also include
Additional Accounts (which may be in the same or different JCPenney Cycles) as
of each Addition Date identified in each computer file or microfiche list
delivered to the Trustee by JCPR pursuant to Section 2.6. The term "Account"
shall also be deemed to refer to an Additional Account, but only from and after
the Addition Date with respect thereto, and the term "Account" shall be deemed
to refer to any Removed Account prior to but not after the Removal Date with
respect thereto.
"Addition Date" shall mean, with respect to any Additional Accounts, the
date five Business Days after the period or date when such Additional Accounts
are required or permitted to be added as Accounts pursuant to subsections 2.6(a)
or (b) or the date such Additional Account is added as an Account pursuant to
subsection 2.6(c).
"Additional Accounts" shall mean the Accounts dedicated to the Trust in
accordance with the procedures set forth in Section 2.6.
"Adjusted Investor Amount" shall mean, on any date of determination when
used with respect to any Series, an amount equal to (a) the Investor Amount for
such Series on such date, minus (b) the amount, if any, to be deposited into the
Distribution Account
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for the benefit of such Series on the next succeeding Transfer Date pursuant to
subsection 4.5(b), plus (c) the amount, if any, to be deposited into the
Distribution Account on the next succeeding Transfer Date pursuant to subsection
4.5(c) for such Series.
"Affiliate" of any specified Person, shall mean any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Aggregate Adjusted Investor Amount" shall mean the sum of the Adjusted
Investor Amounts with respect to all Series of Investor Certificates then issued
and outstanding.
"Aggregate Investor Amount" shall mean the sum of the Investor Amounts with
respect to all Series of Investor Certificates then issued and outstanding.
"Aggregate Investor Percentages" shall mean the sum of the Investor
Percentages with respect to all Series of Investor Certificates then issued and
outstanding; provided, however, that the Aggregate Investor Percentage shall
never at any given time be greater than 100%.
"Agreement" shall mean this Master Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
"Amortization Commencement Date" shall, with respect to any Series, be the
date specified in the Supplement relating to such Series.
"Amortization Period" shall mean, with respect to any Series, the period
following the Revolving Period.
"Applicants" shall have the meaning specified in Section 6.7.
"Authorized Newspapers" shall mean each newspaper of general circulation in
Now York, New York, or in any other place specified by JCPR, printed in the
English
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language and customarily published on each Business Day, whether or not
published on Saturdays, Sundays or holidays.
"Available L/C Amount" shall mean, with respect to any Series, the amount
available to be drawn under the Letter of Credit relating to such Series, if
any, from time to time, as provided by the relevant Letter of Credit.
"Average Principal Receivables" shall mean, for any specified period, an
amount equal to (a) the sum of the aggregate amount of Principal Receivables at
the end of each day during such period divided by (b) the number of days in such
period.
"Bankruptcy Event" shall have the meaning specified in Section 9.2.
"Base Rate" shall mean, with respect to any Series, the Certificate Rate
for such Series plus the annualized percentage equivalent of a fraction the
numerator of which is the sum of (a) the Investor Monthly Servicing Fee for such
Series and (b) the Investor Monthly Facility Fee for such Series, and the
denominator of which is the Investor Amount for such Series as of the last day
of the preceding Monthly Period.
"Book-Entry Certificates" shall mean certificates evidencing a beneficial
interest in any Series of Investor Certificates, ownership and transfers of
which shall be made through book entries by a Clearing Agency as described in
Section 6.9 and as specified in Section 6.12; provided, that after the
occurrence of a condition whereupon book-entry registration and transfer are no
longer permitted and Definitive Certificates are to be issued to the Certificate
Owners, such Certificates shall no longer be "Book-Entry Certificates."
"Business Day" shall mean each day which is neither a Saturday, a Sunday
nor any other day on which banking institutions or trust companies in the State
or City of New York or the State of Texas are authorized or obligated by law or
required by executive order or government decree to be closed.
"Cardholder Monthly Payment Rate" shall mean, 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.
"Carry-Over Finance Charge Amount" shall have the meaning specified in
subsection 1.3(iii).
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<PAGE>
"Certificate" shall mean any one of any Series of Investor Certificates or
the Exchangeable Certificate.
"Certificateholder" or "Holder" shall mean the Person in whose name a
Certificate is registered in the Certificate Register.
"Certificate Interest" shall mean interest payable in respect of the
Investor Certificates pursuant to Section 4.6.
"Certificate Owner" shall mean, with respect to a Book-Entry Certificate,
the Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the books of a Person maintaining an account
with such Clearing Agency (directly or as an indirect participant, in accordance
with the rules of such Clearing Agency).
"Certificate Principal" shall mean principal payable in respect of the
Investor Certificates pursuant to Section 4.7.
"Certificate Rate" shall mean, with respect to any Series, the percentage
per annum (or the percentage determined using the formula for determining such
percentage) stated in the applicable Supplement, calculated in each case on the
basis of a 360-day year consisting of twelve 30-day months provided that, if so
provided in the applicable Supplement, in the case of the Monthly Period in
which such Series is first issued, such rate shall be calculated for the number
of actual days from the date specified in such Supplement.
"Certificate Register" shall mean the register maintained pursuant to
Section 6.3, providing for the registration of the Certificates and transfers
and exchanges thereof.
"Clearing Agency" shall mean, with respect to any Series, an organization
registered as a "clearing agency" pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the date of issuance
of such Series of Certificates.
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<PAGE>
"Collections" shall mean all payments (including Insurance Proceeds and
Recoveries) received by the Servicer in respect of the Receivables, in the form
of cash, checks, wire transfers, ATM transfers or other form of payment in
accordance with the Credit Card Agreement in effect from time to time on any
Receivable. A Collection processed on an Account (other than a Defaulted
Account) in excess of the aggregate amount of Receivables in such Account as of
the Date of Processing of such Collection shall be deemed to be a payment in
respect of Principal Receivables to the extent of such excess.
"Collection Account" shall have the meaning specified in Section 4.2.
"Collections Deposit Day" shall mean the Business Day next preceding a
Transfer Date.
"Corporate Trust Office" shall mean the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which office at the date of the execution of this Agreement is located at One
World Trade Center, 92nd Floor, New York, N.Y. 10048, Attn: Corporate Trust
Department.
"Credit Adjustment" shall have the meaning specified in Section 4.8(a).
"Credit Card Agreement" shall mean the JCPenney Retail Installment Credit
Agreement (Revolving Credit Agreement), JCPenney form 2218, attached as Exhibit
M, or a variant thereof reflecting a particular state's usury and retail
installment sales laws, as such agreement may be amended, modified or otherwise
changed from time to time.
"Credit Card Guidelines" shall mean JCPenney's policies and procedures
relating to the operation of its credit card business, including, without
limitation, the policies and procedures for determining the creditworthiness of
credit card customers, the extension of credit to credit card customers, the
terms on which repayments are required to be made, and relating to the
maintenance of credit card accounts and collection of credit card receivables,
as such policies and procedures may be amended from time to time.
"Credit Insurance" shall mean life, accident, health, disability or other
insurance of an Obligor to JCPenney to insure payment of any amount owing by
such Obligor under an Account and which proceeds of such insurance are payable
to JCPenney upon such Obligor's death or disability.
"Cut Off Date" shall mean September 5, 1988.
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<PAGE>
"Cycle" shall mean, with respect to any Account, the monthly billing cycle
for such Account as determined in accordance with the Credit Card Guidelines as
in effect on the date of this Agreement.
"Cycle Billing Date" shall mean, with respect to any Account, the date on
which bills are processed for the Cycle which includes such Account.
"Daily Series Finance Charge Allocation" shall, with respect to any Series,
have the meaning specified in subsection 4.3(b)(i).
"Daily Series Principal Allocation" shall, with respect to any Series, have
the meaning specified in subsection 4.3(b)(ii).
"Date of Collection" shall mean any date during any Monthly Period that
Collections are processed by the Servicer.
"Date of Processing" shall mean, with respect to any transaction, the date
on which such transaction is first recorded on the Servicer's computer master
file of accounts (without regard to the effective date of such recordation).
"Debtor Relief Laws" shall mean the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments, or similar debtor relief laws from time to time in effect affecting
the rights of creditors generally.
"Default Amount" shall mean, with respect to any Monthly Period, the result
of multiplying (i) the excess, if any, of the aggregate amount of Receivables in
Defaulted Accounts charged off during such Monthly Period over Recoveries
collected during such Monthly Period times (ii) 1.00 minus the percentage of
Receivables (other than Receivables in Defaulted Accounts) constituting Finance
Charge Receivables determined as of the end of the last day of such Monthly
Period in accordance with subsection 1.3.
"Defaulted Account" shall mean each Account with respect to which, in
accordance with the Credit Card Guidelines or the Servicer's customary and usual
servicing procedures for servicing credit card receivables comparable to the
Receivables, the Servicer has charged off the Receivables in such Account as
uncollectible; an Account shall become a Defaulted Account on the day on which
such Receivables are
6
<PAGE>
recorded as charged off on the Servicer's computer master file of accounts
(regardless of whether such Receivables are charged off before or after the Cut
Off Date or Addition Date of such Account, as the case may be).
"Deficiency Amount" shall have the meaning specified in Section 4.5(a).
"Definitive Certificates" shall have the meaning specified in Section 6.9.
"Depository Agreement" shall mean, with respect to any Series, the
agreement among JCPR, the Trustee and the initial Clearing Agency, with respect
to such Series substantially in the form attached hereto as Exhibit N.
"Determination Date" shall mean the seventh calendar day prior to each
Transfer Date.
"Distribution Account" shall have the meaning specified in subsection
4.2(c).
"Distribution Date" shall mean, with respect to any Series, the fifteenth
day of the month after the month such Series is first issued and the fifteenth
day of each calendar month thereafter, or, if any such fifteenth day is not a
Business Day, the next succeeding Business Day.
"Drawing Date" shall have the meaning specified in Section 4.5.
"Eligible Account" shall mean, as of the Cut Off Date (or, with respect to
Additional Accounts, as of the relevant Notice Date in respect of Additional
Accounts added pursuant to subsection 2.6 (a) or (b) or as of the date such
Account is added to a Cycle in respect of Additional Accounts added pursuant to
subsection 2.6(c)) each Account:
(a) which is payable in United States dollars; and
(b) which is serviced in any credit service center of JCPenney
which is located in the United States.
"Eligible Receivable" shall mean each Receivable:
(a) which has arisen under an Eligible Account;
7
<PAGE>
(b) which was created in compliance, in all material respects,
with all Requirements of Law applicable to JCPenney and JCPR and pursuant to a
Credit Card Agreement which complies, in all material respects, with all
Requirements of Law applicable to JCPenney and JCPR;
(c) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by JCPenney and JCPR in
connection with the creation of such Receivable or the execution, delivery and
performance by JCPenney and JCPR of the Credit Card Agreement pursuant to which
such Receivable was created, have been duly obtained, effected or given and are
in full force and effect as of such date of creation;
(d) as to which, at the time of the creation of such Receivable,
JCPenney, JCPR or the Trust had good and marketable title thereto free and clear
of all Liens arising under or through JCPenney or JCPR (other than Liens
permitted pursuant to subsection 2.5(b));
(e) which is the legal, valid and binding payment obligation of
the Obligor thereon, enforceable against such Obligor in accordance with its
terms, except as such enforceability may be limited by applicable Debtor Relief
Laws, and except as such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity); and
(f) which constitutes an "account" under and as defined in
Article 9 of the UCC as then in effect in any state where the Servicer's chief
executive offices or books and records relating to the Receivables are located.
"Exchange" shall mean the procedure described under Section 6.12.
"Exchangeable Certificate" shall mean the certificate executed by JCPR and
authenticated by the Trustee, substantially in the form of Exhibit B and
exchangeable as provided in Section 6.12 for one or more Series of Investor
Certificates and a reissued Exchangeable Certificate.
"Exchange Date" shall have the meaning, with respect to any Series issued
pursuant to an Exchange, specified in Section 6.12.
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<PAGE>
"Exchange Notice" shall have the meaning, with respect to any Series issued
pursuant to an Exchange, specified in Section 6.12.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Facility Fee Percentage" shall mean, with respect to any Series, the
percentage stated in the applicable Supplement.
"Final Maturity Date" shall mean, with respect to any Series of
Certificates, the final maturity date stated in the applicable Supplement.
"Final Trust Termination Date" shall have the meaning specified in Section
12.1(a).
"Finance Charge" shall mean Periodic Finance Charges, late charges,
returned check fees and Special Fees.
"Finance Charge Account" shall have the meaning specified in subsection
4.2(b).
"Finance Charge Collections" shall, with respect to any Series, have the
meaning specified in subsection 4.5(a).
"Finance Charge Receivables" shall mean Receivables, if any, created in
respect of Finance Charges, excluding any such Receivables in Defaulted
Accounts.
"FSLIC" shall mean the Federal Savings and Loan Insurance Corporation.
"Governmental Authority" shall mean the United States of America, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Ineligible Receivable" shall have the meaning specified in subsection
2.4(d).
"Initial Closing Date" shall have the meaning specified in subsection
3.4(a).
"Initial Investor Amount" shall mean, with respect to any Series, the
amount stated in the applicable Supplement.
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<PAGE>
"Insurance Proceeds" shall mean any amounts paid to the Servicer pursuant
to any Credit Insurance policies covering any Obligor with respect to
Receivables under such Obligor's Account.
"Insurance Receivables" shall mean all Receivables payable by Obligors for
purchase of insurance other than Receivables for Credit Insurance.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Investor Account" shall mean each of the Finance Charge Account, the
Principal Account and the Distribution Account.
"Investor Amount" shall mean, on any date of determination, when used with
respect to any Series, an amount equal to (a) the Initial Investor Amount, minus
(b) the aggregate amount of payments of Certificate Principal paid to the
Investor Certificateholders of such Series pursuant to Section 4.7 prior to such
date of determination, minus (c) the amount on deposit in the Principal Account
for the account of such Series and the amount of Collections processed as of the
end of the day prior to such date of determination for deposit in the Principal
Account for the account of such Series but which have not yet been deposited
into the Principal Account, minus (d) the excess, if any, of the aggregate
amount of Investor Charge Offs with respect to such Series, over Investor Charge
Offs with respect to such Series reimbursed to such Series pursuant to
subsection 4.5(c) prior to such date of determination.
"Investor Certificateholder" shall mean the Holder of record of an Investor
Certificate.
"Investor Certificates" shall mean any one of the certificates executed by
JCPR and authenticated by the Trustee substantially in the form of Exhibit A.
"Investor Charge Off" shall, with respect to any Series, have the meaning
specified in subsection 4.4(b).
"Investor Default Amount" shall mean, with respect to each Series and for
any Monthly Period, an amount equal to the product of (i) the Default Amount for
such Monthly Period times (ii) the applicable Investor Percentage for such
Series at the beginning of such Monthly Period.
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<PAGE>
"Investor Monthly Facility Fee" shall, with respect to each Series, have
the meaning specified in Section 4.10.
"Investor Monthly Servicing Fee" shall, with respect to each Series, have
the meaning specified in Section 3.2.
"Investor Net Recoveries" shall mean, with respect to any Series and for
any Monthly Period, an amount equal to the product of (i) the Net Recoveries for
such Monthly Period times (ii) the applicable Investor Percentage for such
Series at the end of the last day of such Monthly Period.
"Investor Percentage" shall mean, with respect to any Series on any date of
determination (unless otherwise specified in the applicable Supplement) when
used with respect to Principal Receivables, Finance Charge Receivables, Investor
Net Recoveries and Receivables in Defaulted Accounts, the percentage equivalent
of a fraction the numerator of which shall be the Investor Amount for such
Series at the end of the last day of the prior Monthly Period and the
denominator of which shall be the aggregate amount of Principal Receivables as
of the and of such day, provided that, as of the end of any day that the
Investor Amount for any Series is reduced to zero, the Investor Percentage of
such Series shall be reduced to zero for each day following such date, provided
further, that if such Investor Amount subsequently increases above zero, the
applicable Investor Percentage shall be calculated without regard to the
foregoing proviso.
"JCPenney" shall mean J. C. Penney Company, Inc., a Delaware corporation.
"JCPR" shall mean JCP Receivables, Inc., a Delaware corporation.
"JCPR Amount" shall mean, on any date of determination, the aggregate
amount of Principal Receivables at the end of the day immediately prior to such
date of determination, minus the Aggregate Investor Amount at the end of such
day.
"JCPR Percentage" shall mean, on any date of determination, when used with
respect to Principal Receivables, Finance Charge Receivables, Net Recoveries and
Receivables in Defaulted Accounts, the percentage equivalent of a fraction equal
to one minus the fraction calculated on such date with respect to such
categories of Receivables in accordance with the definition of Aggregate
Investor Percentage; provided, however, that the JCPR Percentage shall never be
less than zero.
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<PAGE>
"L/C Drawing" shall mean any drawing made under a Letter of Credit.
"Letter of Credit" shall mean, with respect to any Series, the letter of
credit, surety arrangement, guaranty contract, or other form of credit
enhancement facility, if any, (other than any Repurchase Letter of Credit)
issued by a bank or other financial institution, obtained by JCPR in accordance
with the applicable Supplement. More than one Letter of Credit may be issued
with respect to any Series for the purposes specified in such Supplement.
"Letter of Credit Agreement" shall mean, with respect to any Series, the
agreement between JCPR, JCPenney and the Letter of Credit Bank, if any, with
respect to the related Letter of Credit for such Series.
"Letter of Credit Bank" shall mean, with respect to any Series, the issuer
of the applicable Letter of Credit.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever, including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement under the Uniform Commercial Code (other than any such
financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing; provided, however, that any
assignment pursuant to Section 7.2 shall not be deemed to constitute a Lien.
"Mandatory Repurchase Amount" shall mean, with respect to any Series, the
amount specified, or determined in accordance with a formula or percentage
specified, in the Supplement relating to such Series.
"Minimum JCPR Percentage" shall mean, with respect to any Series, the
amount stated in the most recently executed Supplement, provided that, if a
Supplement for any Series specifically states a percentage below which the
Minimum JCPR Percentage may not be reduced, than the Minimum JCPR Percentage
shall not be less than the percentage so stated as long as such Series is
outstanding.
"Monthly Facility Fee" shall have the meaning specified in Section 4.10.
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<PAGE>
"Monthly Period" shall mean the period from and including the beginning of
the first day of the calendar month preceding a related Determination Date to
and including the end of the last day of such calendar month.
"Monthly Servicing Fee" shall have the meaning specified in Section 3.2.
"Moody's" shall mean Moody's Investors Service, Inc.
"Net Recoveries" shall mean, with respect to any Monthly Period, the
excess, if any, of Recoveries collected during such Monthly Period over the
aggregate amount of Receivables in Defaulted Accounts charged off during such
Monthly Period.
"Notice Date" shall have the meaning specified in Section 2.6.
"Obligor" shall mean, with respect to any Account, the Person or Persons
obligated to make payments with respect to such Account, including any guarantor
thereof.
"Officer's Certificate" shall mean a certificate signed by any officer of
JCPR or the Servicer and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who may be
counsel for, or an employee of, JCPR or the Servicer and who shall be reasonably
acceptable to the Trustee.
"Optional Repurchase Percentage" shall mean, with respect to any Series,
the amount, if any, expressed as a percentage of the Initial Investor Amount of
such Series, stated in the applicable Supplement as the amount which will cause
the purchase provisions of Section 12.2(a) to apply to such Series.
"Paying Agent" shall mean any paying agent appointed pursuant to Section
6.6 and shall initially be the Corporate Trust Office of the Trustee.
"Pay Out Commencement Date" shall mean the date on which a Pay Out Event is
deemed to occur pursuant to Section 9.1.
"Pay Out Event" shall have the meaning, with respect to any Series,
specified in Section 9.1.
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"Periodic Finance Charges" shall mean the finance charges specified in the
Credit Card Agreements.
"Permitted Investments" shall mean (a) negotiable instruments or securities
represented by instruments in bearer or registered form which evidence (i)
obligations fully guaranteed by the United States of America; (ii) time deposits
in, or bankers' acceptances issued by, any depositary institution or trust
company (including the Trustee or any affiliate or agent of the Trustee, acting
in their respective commercial capacities) organized under the laws of the
United States of America or any state thereof and subject to supervision and
examination by federal or state banking or depositary institution authorities,
provided, however, that at the time of the Trust's investment or contractual
commitment to invest therein, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations (other than such
obligation whose rating is based on collateral or on the credit of a Person
other than such institution or trust company) of such depositary institution or
trust company (or, in the case of a depositary institution or trust company
which is the principal subsidiary of a holding company, the long-term unsecured
debt holdings of such holding company) shall have a credit rating from Moody's
and Standard & Poor's of P-1 and A-1+, respectively, in the case of the
certificates of deposit or short-term deposits, or a rating from Moody's of Aa3
and from Standard & Poor's of AA in the case of the long-term unsecured debt
obligations, or such time deposits are fully insured by the FSLIC or the FDIC;
(iii) certificates of deposit having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating from Moody's and Standard &
Poor's of P-1 and A-1+, respectively; and (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by
Moody's and Standard & Poor's, (b) demand deposits in the name of the Trust or
the Trustee in any depositary institution or trust company referred to in (a)
(ii) above and (c) securities not represented by an instrument, which are
registered in the name of the Trustee upon books maintained for that purpose by
or on behalf of the issuer thereof and identified on books maintained for that
purpose by the Trustee as held for the benefit of the Trust or the
Certificateholders, and consisting of shares of an open end diversified
investment company which is registered under the Investment Company Act of 1940,
as amended, and which (i) invests its assets exclusively in obligations of or
guaranteed by the United States of America or any instrumentality or agency
thereof having in each instance a final maturity date of less than one year from
their date of purchase or other Permitted Investments, (ii) seeks to maintain a
constant net asset value per share and (iii) has aggregate net assets of not
less than $100,000,000 on the date of purchase of such shares, and which is
acceptable to the rating agencies that initially rated the Certificates
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<PAGE>
without causing a reduction in their ratings of the Certificates (as confirmed
in writing by such rating agencies).
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Pool Factor" shall mean, with respect to any Series and any Monthly
Period, a number carried out to seven decimals representing the ratio of the
applicable Adjusted Investor Amount as of the end of the last day of the
preceding Monthly Period to the applicable Initial Investor Amount.
"Portfolio Yield" shall mean, with respect to any Series and any Monthly
Period, the annualized percentage equivalent of a fraction the numerator of
which is the amount of Finance Charge Receivables deposited in the Finance
Charge Account pursuant to Section 4.3 and allocated to such Series, calculated
on a cash basis after subtracting the Investor Default Amount of such Series for
such Monthly Period, and the denominator of which is the Investor Amount of such
Series as of the last day of the preceding Monthly Period.
"Principal Account" shall have the meaning specified in subsection 4.2(b).
"Principal Receivable" shall mean each Receivable other than Finance Charge
Receivables and Receivables in Defaulted Accounts. A Principal Receivable shall
be deemed to have been created at the end of the day on the Date of Processing
of such Receivable. In calculating the aggregate amount of Principal Receivables
on any day, the amount of Principal Receivables shall be reduced by the
aggregate amount of credit balances in the Accounts on such day. Any Principal
Receivables which JCPR is unable to transfer, as provided in subsection 2.5(e),
shall not be included in calculating the aggregate amount of Principal
Receivables.
"Principal Terms" shall have the meaning, with respect to any Series issued
pursuant to an Exchange, specified in Section 6.12.
"Publication Date" shall have the meaning specified in Section 9.2.
"Qualified Institution" shall have the meaning specified in subsection
4.2(a).
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"Rating Agency" shall mean, with respect to each Series, the rating agency
or rating agencies that rated the Series of Certificates, including, if
applicable, Moody's and/or Standard & Poor's.
"Receivable" shall mean any amount owing by the Obligors under an Account
(including amounts in Defaulted Accounts) from time to time, including, without
limitation, amounts owing for the payment of goods and services, Periodic
Finance Charges, late charges, returned check fees, Special Fees and premiums
for Credit Insurance, if any, but shall exclude therefrom for all purposes
Insurance Receivables unless provided to the contrary in any Supplement.
"Receivables Purchase Agreement" shall mean the Receivables Purchase
Agreement between JCPenney and JCPR, dated the date hereof, governing the terms
and conditions upon which JCPR is acquiring the initial Receivables transferred
to the Trust on the Initial Closing Date and all additional Eligible Receivables
arising in the Accounts from JCPenney on a daily basis and to require JCPenney
to transfer all of the Receivables generated or to be generated in any
Additional Accounts for purposes of this Agreement, in the form attached hereto
as Exhibit D (or in a form substantially similar thereto), as such agreement may
be amended, modified or otherwise changed from time to time.
"Record Date" shall mean with respect to any Distribution Date, the last
Business Day of the preceding Monthly Period.
"Recoveries" shall mean all amounts received, including Insurance Proceeds,
by the Servicer with respect to Receivables which have previously been charged
off as uncollectible (and regardless of whether such Receivables were charged
off before or after the Cut Off Date or Addition Date, as the case may be,
relating to the applicable Account), after deducting, in the case of each such
amount received, a percentage of such amount which in the good faith judgment of
the Servicer represents the amount of out-of-pocket costs incurred by the
Servicer during the preceding fiscal year (or other, more recent, period deemed
appropriate by the Servicer) as a percentage of collections during such period
in respect of charged-off receivables in all JCPenney credit card accounts
(including the Accounts) serviced by the Servicer.
"Removal Date" shall have the meaning specified in Section 2.7.
"Removal Notice Date" shall mean the fifth Business Day prior to a Removal
Date.
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"Removed Accounts" shall have the meaning specified in Section 2.7.
"Repurchase Deposit Amount" shall mean, with respect to any Series and any
Transfer Date, an amount equal to the Adjusted Investor Amount for such Series
determined as of the end of the Monthly Period preceding such Transfer Date.
"Repurchase L/C Amount" shall mean, with respect to any Series, the amount,
if any, available to be drawn pursuant to subsection 12.2(a) under the
Repurchase Letter of Credit relating to such Series, if any, as provided by the
related Repurchase Letter of Credit.
"Repurchase Letter of Credit" shall mean, with respect to any Series, the
letter of credit, surety arrangement, guaranty contract, or other form of credit
enhancement facility, if any, issued by a bank or other financial institution,
obtained by JCPR in accordance with the applicable Supplement solely for the
purposes set forth in subsection 12.2(a).
"Repurchase Letter of Credit Bank" shall mean, with respect to any Series,
the issuer of the applicable Repurchase Letter of Credit.
"Requirements of Law" for any Person shall mean the certificate of
incorporation or articles of association and bylaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
whether Federal, state or local (including, without limitation, usury laws, the
Federal Truth in Lending Act and retail installment sales acts).
"Response" shall have the meaning specified in Section 9.2(a).
"Responsible Officer" shall mean the Chairman or any Vice Chairman of the
Board of Directors or Trustees of the Trustee, the Chairman or Vice Chairman of
the Executive or Standing Committee of the Board of Directors or Trustees of the
Trustee, the President, any Executive Vice President, Senior Vice President,
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant or
Deputy Cashier, any Trust Officer or Assistant Trust Officer, the Controller and
any Assistant Controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers and also, with respect to a particular matter, any other
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officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Retransfer Agreement" shall have the meaning specified in subsection
2.7(b)(ii).
"Revolving Period" shall mean, with respect to each Series, the period from
and including the Closing Date for such Series, up to but not including the
earlier of the day that the Amortization Period begins for such Series an
specified in the applicable Supplement or the Pay Out Commencement Date for such
Series.
"Scheduled Trust Termination Date" shall mean September 5, 2088.
"Series" shall mean the initial Series of Investor Certificates and any
Series of Investor Certificates issued pursuant to an Exchange performed under
Section 6.12.
"Servicer" shall mean initially JCPenney and thereafter any Person
appointed as successor as herein provided to service the Receivables.
"Servicer Default" shall have the meaning specified in Section 10.1.
"Servicing Fee Percentage" shall mean, with respect to any Series, the
percentage stated in the applicable Supplement.
"Servicing Officer" shall mean any employee of the Servicer involved in, or
responsible for, the administration and servicing of the Receivables whose name
appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may from time to time be amended.
"Special Fees" shall mean Receivables which are fees which are not now but
may from time to time be assessed on the Accounts.
"Standard & Poor's" shall mean Standard & Poor's Corporation.
"Stated L/C Amount" shall mean, with respect to any Series, the "Stated
Amount" or equivalent as specified in the Letter of Credit.
"Successor Servicer" shall have the meaning specified in Section 10.2.
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"Supplement" shall mean, with respect to any Series, a supplement to this
Agreement complying with the terms of Section 6.12, executed in conjunction with
an Exchange.
"Termination Notice" shall have the meaning specified in Section 10.1.
"Transfer Agent and Registrar" shall have the meaning specified in Section
6.3 and shall initially be the Trustee's corporate trust office.
"Transfer Agreement" shall have the meaning specified in subsection
2.6(d)(iii).
"Transfer Date" shall mean the Business Day next preceding each
Distribution Date.
"Trust" shall mean the trust created by this Agreement, the corpus of which
shall consist of the Receivables now existing or hereafter transferred thereto
in accordance herewith and all monies due or to become due with respect thereto,
all proceeds (including, without limitation, all amounts defined as "proceeds"
in Section 9-306 of the UCC as in effect in any state where the Servicer's chief
executive offices or books and records relating to the Receivables are located)
of the Receivables and Insurance Proceeds relating thereto and such funds as
from time to time are deposited in the Collection Account, the Finance Charge
Account, the Principal Account and the Distribution Account, all of JCPR's
rights, remedies, powers and privileges with respect to the Receivables under
the Receivables Purchase Agreement and the benefits of any Letter of Credit and
any Repurchase Letter of Credit.
"Trustee" shall mean the institution executing this Agreement as Trustee,
or its successor in interest, or any successor or additional trustee appointed
as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from time to time,
as in effect in any specified jurisdiction.
"Undivided Interest" shall mean the undivided interest in the Trust
evidenced by a Certificate.
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Section 1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) The agreements, representations and warranties of JCPR in
this Agreement in its capacities as JCPR and those of JCPenney in its capacity
an Servicer shall be deemed to be the agreements, representations and warranties
of JCPR and JCPenney, respectively, solely in each such capacity for so long as
they act in each such capacity under this Agreement.
(c) the words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement or any
Supplement as a whole and not to any particular provision of this Agreement or
such Supplement; and Section, subsection, Schedule and Exhibit references
contained in this Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement or any Supplement
unless otherwise specified.
Section 1.3 Estimation of Finance Charge Receivables; Daily Allocation of
Collections.
Except as expressly stated in this Section and in Section 4.3(e), (a) the
amount of Finance Charge Receivables in each Account and in all Accounts on any
date of determination, and the percentage of all Collections in respect thereof,
shall be determined as set forth in clauses (i) through (vii) below, (b) the
amount of Principal Receivables in each Account and in all Accounts on any date
of determination, and the percentage of all Collections in respect thereof,
shall be equal to the total amount of Receivables in such Account or Accounts,
or the amount of such Collection pursuant to clause (a) above, minus the
percentage thereof determined to be, or to be a Collection in respect of,
Finance Charge Receivables and (c) the amount of Receivables in any Defaulted
Account shall be deemed to be zero.
(i) Subject to clauses (v), (vi) and (vii) below, at the
close of business on each Cycle Billing Date for any Cycle of which any
Accounts are included in the Trust, the amount of Finance Charge
Receivables of all Accounts in such Cycle shall be equal to (A) the amount
of Finance Charges charged to all Accounts in such Cycle on
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such date plus (B) the Carry-Over Finance Charge Amount, as defined below,
for such Cycle.
(ii) Subject to clauses (v), (vi) and (vii) below, on each
Date of Processing during the period commencing on the Date of Processing
next following such Cycle Billing Date through and including the next
succeeding Cycle Billing Date for such Cycle, Collections of Receivables
from all Accounts in such Cycle shall first be deemed to be Collections in
respect of Finance Charge Receivables until the aggregate amount of Finance
Charge Receivables so deemed to be collected during such period shall equal
(A) the amount of Finance Charge Receivables in all Accounts in such Cycle
at the beginning of such period multiplied by (B) a fraction, the numerator
of which is the number of Dates of Processing which have elapsed during
such period through and including the Date of Processing for which such
determination is being made and the denominator of which is the total
number of Dates of Processing in such period.
(iii) If, at the close of business on any Cycle Billing Date
which is the end of any period described in clause (ii) above, the amount
of Finance Charge Receivables in all Accounts in such Cycle as of the
beginning of such period (determined pursuant to clause (i) above), minus
the Finance Charge Receivables in all Defaulted Accounts in such Cycle
which were written off during the Monthly Period preceding such Cycle
Billing Date, exceeds the total amount of Collections applied as Finance
Charge Receivables for all Accounts in such Cycle during such period, such
excess shall be the "Carry-Over Finance Charge Amount" for such Cycle and
shall be added to the Finance Charges charged on such Cycle Billing Date
pursuant to clause (i)(B) above. The Carry-Over Finance Charge Amount with
respect to any Accounts shall be zero as of the Cycle Billing Date next
preceding (A) the Initial Closing Date in the case of Accounts which are
not Additional Accounts, and (B) the applicable Addition Date in the case
of Additional Accounts.
(iv) For all Accounts in any Cycle, on each day during any
period described in clause (ii) above, the aggregate amount of Finance
Charge Receivables outstanding on such day shall be equal to (A) the amount
of Finance Charge Receivables outstanding as of the
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close of business on the Cycle Billing Date for all Accounts in such Cycle
preceding such date of determination, as determined pursuant to clause (i)
above, minus (B) the cumulative amount of Collections deemed to be in
respect of Finance Charge Receivables for all Accounts in such Cycle during
such period pursuant to clause (ii) above.
(v) On any day of determination, the amount of Finance
Charge Receivables in any Account in any Cycle shall be equal to the
aggregate amount of Finance Charge Receivables in all Accounts in such
Cycle on such day, as determined pursuant to clause (iv) above, multiplied
by a fraction, the numerator of which is the amount of Receivables in such
Account on such day and the denominator of which is the aggregate amount of
Receivables in all Accounts in such Cycle on such day.
(vi) If any accounts become Accounts on a day other than the
Cycle Billing Date for such Accounts' Cycle and other Accounts in such
Cycle have been dedicated to the Trust, (a) the percentages of Receivables
in such Accounts deemed to be Finance Charge Receivables and Principal
Receivables as of the first day Receivables in such Accounts are
transferred to the Trust shall be the same as the percentages of the other
Accounts in such Cycle on such day and (b) the amount of Collections of
Receivables of all Accounts in such Cycle deemed, pursuant to clause (ii)
above, to be in respect of Finance Charge Receivables on each Date of
Processing during the period from the day Receivables in such Additional
Accounts are first transferred to the Trust through and including the next
Cycle Billing Date for such Cycle shall be increased by an amount equal to
the amount of Finance Charge Receivables in such Additional Accounts on the
first day of such period divided by the number of Dates of Processing in
such period. If any accounts become Accounts on a day other than the Cycle
Billing Date for such Accounts' Cycle and no other Accounts in such Cycle
have been dedicated to the Trust, the amount of Finance Charge Receivables
and Principal Receivables in such Accounts on the first day Receivables in
such Accounts are transferred to the Trust, and the portion of all
Collections in respect thereof during the period from the day Receivables
in such Accounts are first transferred to the Trust through and including
the next Cycle Billing Date for such Cycle, shall be determined in
accordance with the procedures set forth in clauses (i) through (v) above
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as if such Accounts had first become Accounts on the Cycle Billing Date
next preceding the day that such Accounts were first transferred to the
Trust.
(vii) If any Accounts become Removed Accounts (a) the
percentages of Receivables in such Removed Accounts deemed to be Finance
Charge Receivables and Principal Receivables in such Removed Accounts as of
the day such Accounts are removed from the Trust shall be the same as
portions of the other Accounts in such Removed Accounts' Cycle on such day
and (b) the amount of Collections of Receivables of all Accounts in such
Cycle deemed, pursuant to clause (ii) above, to be in respect of Finance
Charge Receivables on each Date of Processing during the period from the
day such Removed Accounts are removed from the Trust through and including
the next Cycle Billing Date for such Cycle shall be decreased by an amount
equal to the amount of Finance Charge Receivables in such Removed Accounts
on the first day of such period divided by the number of Dates of
Processing in such period.
Notwithstanding the foregoing, the Servicer may adopt, as set forth in an
Officer's Certificate, a different method of determining the amount of Finance
Charge Receivables which in the good faith judgment of the Servicer is designed
more accurately to reflect the portions of Receivables and Collections
constituting Finance Charge Receivables.
ARTICLE II
TRANSFER OF RECEIVABLES;
ISSUANCE OF CERTIFICATES
Section 2.1 Transfer of Receivables. JCPR does hereby transfer, assign
and set-over to the Trust for the benefit of the Certificateholders, without
recourse, (a) all right, title and interest of JCPR in, to and under the
Receivables now existing and hereafter created (other than Receivables in
Additional Accounts), all monies due or to become due with respect thereto
(including all Finance Charge Receivables), all proceeds thereof and Insurance
Proceeds relating thereto and (b) and all of JCPR's rights, remedies, powers and
privileges with respect to such Receivables under the Receivables Purchase
Agreement.
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In connection with such transfer, JCPR agrees to record and file, and to
cause JCPenney to record and file as required by the Receivables Purchase
Agreement, at its or JCPenney's own expense, a financing statement with respect
to the Receivables now existing and hereafter created (other than Receivables in
Additional Accounts) for the transfer of accounts (as defined in Section 9-106
of the UCC as in effect in any state where JCPR's or the Servicer's chief
executive offices or books and records relating to the Receivables are located)
meeting the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the acquisition of the Receivables by
JCPR from JCPenney and the transfer of the Receivables from JCPR to the Trust,
and to deliver a file-stamped copy of such financing statements or other
evidence of such filings (which may, for purposes of this Section 2.1, consist
of telephone confirmations of such filings) to the Trustee on or prior to the
date of initial issuance of the Certificates.
In connection with such transfer, JCPR further agrees, at its own expense,
on or prior to the Initial Closing Date (i) to indicate in its computer files
and to cause JCPenney to indicate on its computer files as required by the
Receivables Purchase Agreement that Receivables created in connection with the
Accounts (other than any Additional Accounts) have been sold to JCPR in
accordance with the Receivables Purchase Agreement and transferred to the Trust
pursuant to this Agreement for the benefit of the Certificateholders and (ii) to
deliver to the Trustee (or cause JCPenney so to do) a computer file or
microfiche list containing a true and complete list of all such Accounts,
identified by account number and by the Receivables balance as of the Cut Off
Date. Such file or list shall be marked as Schedule I to this Agreement,
delivered to the Trustee as confidential and proprietary, and is hereby
incorporated into and made a part of this Agreement.
The parties intend that JCPR shall be deemed hereunder to have granted to
the Trustee a first perfected security interest in all of JCPR's right, title
and interest in, to and under the Receivables now existing and hereafter created
(other than Receivables in Additional Accounts), all monies due or to become due
with respect thereto (including Finance Charge Receivables), all proceeds
thereof and Insurance Proceeds relating thereto and all of JCPR's rights,
remedies, powers and privileges with respect to such Receivables under the
Receivables Purchase Agreement and that this Agreement shall constitute a
security agreement under applicable law.
Pursuant to the request of JCPR, the Trustee has caused Certificates in
authorized denominations evidencing the entire interest in the Trust to be duly
authenticated and delivered to or upon the order of JCPR pursuant to Section
6.2.
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Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on behalf of
the Trust, of all right, title and interest previously held by JCPR in, to and
under the Receivables now existing and hereafter created (other than Receivables
in Additional Accounts), all monies due or to become due with respect thereto
(including all Finance Charge Receivables), all proceeds thereof and Insurance
Proceeds relating thereto, and declares that it shall maintain such right, title
and interest, upon the trust herein set forth, for the benefit of all
Certificateholders. The Trustee further acknowledges that, prior to or
simultaneously with the execution and delivery of this Agreement, JCPR delivered
to the Trustee the computer file or microfiche list described in the third
paragraph of Section 2.1.
(b) The Trustee hereby agrees not to disclose to any Person any
of the account numbers or other information contained in the computer files or
microfiche lists delivered to the Trustee by JCPR pursuant to Sections 2.1 and
2.6, except as is required in connection with the performance of its duties
hereunder or in enforcing the rights of the Certificateholders or to a Successor
Servicer appointed pursuant to Section 10.2. The Trustee agrees to take such
measures as shall be reasonably requested by JCPR or JCPenney to protect and
maintain the security and confidentiality of such information, and, in
connection therewith, shall allow JCPR and JCPenney to inspect the Trustee's
security and confidentiality arrangements from time to time during normal
business hours. The Trustee shall provide JCPR and JCPenney with written notice
five days prior to any disclosure pursuant to this subsection 2.2(b).
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
Section 2.3 Representations and Warranties of JCPR Relating to JCPR. JCPR
hereby represents and warrants to the Trust, with respect to any Series of
Certificates, as of the date of the related Supplement and the related Closing
Date, unless otherwise stated in such Supplement that:
(a) Organization and Good Standing. JCPR is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware, and has full corporate power, authority and right to own its property
and conduct its business an such property is presently owned and such business
is presently conducted, and to execute, deliver and perform its obligations
under this Agreement and any
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Supplement and to execute and deliver to the Trustee the Certificates pursuant
hereto or thereto.
(b) Due Qualification. JCPR is neither required to qualify, nor
to register, as a foreign corporation in any state other than the State of Texas
in order to conduct business, and has obtained all necessary licenses and
approvals with respect to JCPR required under federal and Delaware law.
(c) Due Authorization. The execution and delivery of this
Agreement, any Supplement and the Receivables Purchase Agreement and the
execution and delivery to the Trustee of the Certificates by JCPR and the
consummation of the transactions provided for in this Agreement, any Supplement
and the Receivables Purchase Agreement have been duly authorized by JCPR by all
necessary corporate action on the part of JCPR.
(d) No Conflict. The execution and delivery of this Agreement,
any Supplement and the Receivables Purchase Agreement and the Certificates, the
performance of the transactions contemplated by this Agreement, any Supplement
and the Receivables Purchase Agreement and the fulfillment of the terms hereof
and thereof will not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, any indenture, contract, agreement, mortgage, deed of trust, or
other instrument to which JCPR in a party or by which it or any of its property
is bound.
(e) No Violation. The execution and delivery of this Agreement,
any Supplement, the Receivables Purchase Agreement and the Certificates, the
performance of the transactions contemplated by this Agreement, any Supplement
or the Receivables Purchase Agreement and the fulfillment of the terms hereof or
thereof will not conflict with or violat6 any Requirements of Law applicable to
JCPR.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of JCPR, threatened against JCPR, before any
court, regulatory body, administrative agency, or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Agreement, any
Supplement, the Receivables Purchase Agreement or the Certificates, (ii) seeking
to prevent the issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement, any Supplement, the Receivables
Purchase Agreement or the Certificates, (iii) seeking any determination or
ruling that, in the reasonable judgment of JCPR, would materially and adversely
affect the performance by JCPR of its obligations under
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this Agreement, any Supplement or the Receivables Purchase Agreement, (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement, any Supplement, the
Receivables Purchase Agreement or the Certificates or (v) seeking to affect
adversely the income tax attributes of the Trust.
(g) Eligibility of Accounts. As of the Cut Off Date, each Account
was an Eligible Account .
(h) All Consents Required. All appraisals, authorizations,
consents, orders or other actions of any Person or of any governmental body or
official required in connection with the execution and delivery of this
Agreement, any Supplement, the Receivables Purchase Agreement and the
Certificates, the performance of the transactions contemplated by this
Agreement, any Supplement or the Receivables Purchase Agreement, and the
fulfillment of the terms hereof or thereof, have been obtained.
(i) Notice of Breach. The representations and warranties set
forth in this Section 2.3 shall survive the transfer of the respective
Receivables to the Trust, and termination of the rights and obligations of the
Servicer pursuant to Section 10.1. Upon discovery by JCPR, the Servicer or the
Trustee of a breach of any of the foregoing representations and warranties, the
party discovering such breach shall give prompt written notice to the others.
Section 2.4 Representations and Warranties of JCPR Relating to the
Agreement and any Supplement and the Receivables.
(a) Binding Obligation, Valid Transfer and Security Interest.
JCPR hereby represents and warrants to the Trust, with respect to any Series of
Certificates, as of the date of the related Supplement and the related Closing
Date, unless otherwise stated in such Supplement, and an of any Addition Date
that:
(i) This Agreement and any Supplement, and, in the case of
Additional Accounts, the related Transfer Agreement, each constitute a
legal, valid and binding obligation of JCPR, enforceable against JCPR in
accordance with its terms, except as such enforceability may be limited by
Debtor Relief Laws and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in
equity).
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(ii) This Agreement and the Receivables Purchase Agreement,
collectively, constitute either (A) a valid transfer to the Trust of all
right, title and interest of JCPR and JCPenney in, to and under the
Receivables now existing and hereafter created (other than Receivables in
Additional Accounts), all monies due or to become due with respect thereto
(including all Finance Charge Receivables), and all proceeds (as defined in
the UCC as in effect in any state where JCPR's, JCPenney's or the
Servicer's chief executive offices or books and records relating to the
Receivables are located) thereof and Insurance Proceeds relating thereto,
and such property will be held by the Trust free and clear of any Lien of
any Person claiming through or under JCPR or JCPenney, except for (x) Liens
permitted under subsection 2.5(b), (y) the interest of the Holder of the
Exchangeable Certificate and (z) JCPR's right to receive interest accruing
on, and investment earnings in respect of, the Finance Charge Account and
the Principal Account as provided in this Agreement and any Supplement or
(B) a grant of a security interest (as defined in the UCC as in effect in
any state where JCPR's, JCPenney's or the Servicer's chief executive
offices or books and records relating to the Receivables are located) in
such property to the Trust, which is enforceable with respect to existing
Receivables (other than Receivables in Additional Accounts), all monies due
or to become due with respect thereto, the proceeds thereof, and Insurance
Proceeds relating thereto upon execution and delivery of this Agreement,
the Receivables Purchase Agreement and any Supplement, and which will be
enforceable with respect to such Receivables hereafter created, all monies
due or to become due with respect thereto, the proceeds thereof and
Insurance Proceeds relating thereto, upon such acquisition. If this
Agreement or any Transfer Agreement constitutes the grant of a security
interest to the Trust in such property, upon the filing of the financing
statement described in Section 2.1 and in the case of the Receivables
hereafter created and proceeds thereof and Insurance Proceeds relating to
such Receivables, upon such creation, the Trust shall have a first priority
perfected security interest in such property, except for Liens permitted
under subsection 2.5(b). Neither JCPR, JCPenney nor any Person claiming
through or under JCPR or JCPenney shall have any claim to or interest in
the Principal Account, the Finance Charge Account or the Distribution
Account, except for JCPR's right to receive interest accruing on, and
investment earnings in respect of, the Finance Charge Account
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and Principal Account as provided in this Agreement and any Supplement,
the right of the Holder of the Exchangeable Certificate to receive payments
from the Finance Charge Account and Principal Account in accordance with
subsections 4.3(c)(iii) and 4.5(e), if applicable, and, if this Agreement
and any Supplement constitutes the grant of a security interest in such
property, except for the interest of JCPR in such property as a debtor for
purposes of the UCC as in effect in any state where JCPR's, JCPenney's or
the Servicer's chief executive offices or books and records relating to the
Receivables are located.
(b) Eligibility of Receivables. JCPR hereby represents and
warrants to the Trust as of the Initial Closing Date that (i) each Receivable
then existing is an Eligible Receivable, (ii) each Receivable then existing has
been transferred to the Trust free and clear of any Lien of any Person claiming
through or under JCPR (other than Liens permitted under subsection 2.5(b)) and
in compliance, in all material respects, with all Requirements of Law applicable
to JCPR and (iii) with respect to each Receivable then existing, all consents,
licenses, approvals or authorizations of or registrations or declarations with
any Governmental Authority required to be obtained, effected or given by JCPR in
connection with the transfer of such Receivable to the Trust have been duly
obtained, effected or given and are in full force and effect. On each day on
which any new Receivable is created, JCPR shall be deemed to represent and
warrant to the Trust that (i) each such Receivable is an Eligible Receivable,
(ii) each such Receivable has been transferred to the Trust free and clear of
any Lien of any Person claiming through or under JCPR (other than Liens
permitted under subsection 2.5(b)) and in compliance, in all material respects,
with all Requirements of Law applicable to JCPR, (iii) with respect to each such
Receivable, all consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required to be
obtained, effected or given by JCPR or the Servicer in connection with the
transfer of each such Receivable to the Trust have been duly obtained, effected
or given and are in full force and effect and (iv) the representations and
warranties set forth in subsection 2.4(a) are true and correct with respect to
each such Receivable as if made on such day.
(c) Notice of Breach. The representations and warranties set
forth in this Section 2.4 shall survive the transfer of the respective
Receivables to the Trust, and termination of the rights and obligations of the
Servicer pursuant to Section 10.1. Upon discovery by JCPR, the Servicer or the
Trustee of a breach of any of the foregoing representations and warranties, the
party discovering such breach shall give prompt written notice to the others.
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(d) Transfer of Ineligible Receivables. In the event of a breach of
any representation and warranty set forth in subsection 2.4(b) hereof or
subsection 4.1(1) of the Receivables Purchase Agreement, within 60 days (or with
the prior written consent of a Responsible Officer of the Trustee, such longer
period specified in such consent) of the earlier to occur of the discovery of
such breach by JCPR, or receipt by JCPR of written notice of such breach given
by the Trustee or Servicer, JCPR shall accept a retransfer of each Principal
Receivable to which such breach relates (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 specified in
the consent), either (i) the representations and warranties in the second
sentence of subsection 2.4(b) hereof or Section 4.1(1) of the Receivables
Purchase Agreement, as the case may be, with respect to such Ineligible
Receivable shall then be true and correct in all material respects with respect
to such Ineligible Receivable as if such Ineligible Receivable had been created
on such day or (ii) the aggregate amount of Ineligible Receivables outstanding
at any time and with respect to which such representations and warranties
continue to be incorrect in any material respect does not in the sole reasonable
judgment of an officer 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 a 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 JCPR Amount. On
and after the date of such retransfer, each Ineligible Receivable so
retransferred shall not be included in the calculation of the Investor
Percentage, the JCPR Percentage or the JCPR Amount. In the event that 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 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. The amounts so deposited are to be treated
for all purposes hereof as Collections on such Ineligible Receivables. Such
deposit shall be considered a prepayment in full of the Ineligible Receivable
and shall be applied in accordance with Section 4.3. Upon each retransfer to
JCPR of such Ineligible Receivable, the Trust shall automatically and without
further action be deemed to transfer, assign and set-over to JCPR, without
recourse, representation or warranty, all the right, title and interest of the
Trust in, to and under such Ineligible Receivable, all monies due or to become
due with respect thereto, all proceeds thereof and Insurance Proceeds relating
thereto. The Trustee shall execute such documents and instruments of transfer
and take such other actions as
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shall reasonably be requested by JCPR to effect the transfer of such Ineligible
Receivable pursuant to this subsection. The obligation of JCPR to accept
retransfer of any Ineligible Receivable shall constitute the sole remedy
respecting any breach of the representations and warranties set forth in
subsection 2.4(b) with respect to such Receivable available to
Certificateholders or the Trustee on behalf of Certificateholders.
(e) Retransfer of Trust Portfolio. In the event of a breach of any of
the representations and warranties set forth in subsection 2.4(a) hereof or
Section 4.1(j) or (k) of the Receivables Purchase Agreement, either the Trustee,
or the Holders of Investor Certificates evidencing Undivided Interests
aggregating not less than 25% of the Aggregate Investor Amount, by notice then
given in writing to JCPR (and to the Trustee and the Servicer, if given by the
Investor Certificateholders), may direct JCPR to accept retransfer of all of the
Receivables after 45 days of such notice, or within such longer period as may be
specified in such notice, and JCPR shall be obligated to accept retransfer of
such Receivables on a Distribution Date first occurring after such applicable
period on the terms and conditions set forth below; provided, however, that no
such retransfer shall be required to be made if, at any time during such
applicable period the representations and warranties contained in subsection
2.4(a) or subsection 4.1(j) or (k) of the Receivables Purchase Agreement, as the
case may be, shall then be true and correct in all material respects. JCPR
shall deposit on the Transfer Date (in next day funds) for the related
Distribution Date an amount equal to the deposit amount provided in the next
sentence for such Receivables in the Distribution Account for distribution to
the Investor Certificateholders pursuant to Section 12.3. The deposit amount for
such retransfer will be equal to (i) the Aggregate Adjusted Investor Amount at
the end of the day on the last day of the Monthly Period preceding the
Distribution Date on which the retransfer is scheduled to be made, plus (ii) an
amount equal to all interest accrued but unpaid on the Investor Certificates of
each Series at the relevant Certificate Rates through such last day, less the
amount transferred to the Distribution Account from the Finance Charge Account
on such Transfer Date in respect of Certificate Interest for such Series.
Payment of the deposit amount and all other amounts in the Distribution Account
in respect of the preceding Monthly Period shall be considered a prepayment in
full of the Receivables represented by the Investor Certificates. On the
Distribution Date following the Transfer Date on which such amount has been
deposited in full into the Distribution Account, the Receivables and all monies
due or to become due with respect thereto and all proceeds of the Receivables
and Insurance Proceeds relating thereto shall be transferred to JCPR, and the
Trustee shall execute and deliver such instruments of transfer, in each case
without recourse, representation or warranty, as shall be reasonably requested
by JCPR to vest in JCPR, or its designee or assignee (including JCPenney as
contemplated by the provisions of
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the Receivables Purchase Agreement corresponding to this subsection 2.4(e)), all
right, title and interest of the Trust in, to and under the Receivables, all
monies due or to become due with respect thereto (including all Finance Charge
Receivables) and all proceeds thereof and Insurance Proceeds relating thereto.
If the Trustee or the Investor Certificateholders give a notice directing JCPR
to accept a retransfer as provided above, the obligation of JCPR to accept a
retransfer of the Receivables pursuant to subsection 2.4(e) shall constitute the
sole remedy respecting a breach of the representations and warranties contained
in subsection 2.4(a) available to the Investor Certificateholders or the Trustee
on behalf of the Investor Certificateholders.
(f) Periodic Finance Charges and Other Fees. JCPR hereby represents
and warrants to the Trust that JCPR and JCPenney have entered into the
Receivables Purchase Agreement and that, pursuant thereto, JCPenney has
covenanted and agreed that, except as otherwise required by any Requirements of
Law or as is deemed by JCPenney to be 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 shall not
reduce at any time (x) the Periodic Finance Charges assessed in respect of any
Accounts, or (y) any other fees charged on any of the Accounts, if as a result
of such reduction, JCPenney's reasonable expectation of the Portfolio Yield as
of such date would be less than the highest of the Base Rates for the Series
then outstanding.
(g) Credit Card Agreements and Guidelines. JCPR hereby represents and
warrants to the Trust that, pursuant to the Receivables Purchase Agreement,
JCPenney has covenanted and agreed to comply with and perform its obligations
under the Credit Card Agreements relating to the Accounts and the Credit Card
Guidelines, except insofar as any failure so to comply or conform would not
materially and adversely affect the rights of the Trust or the
Certificateholders hereunder or under the Certificates. In that regard, except
as aforesaid, and so long as such changes are made applicable to comparable
segments of the revolving credit card accounts owned and serviced by JCPenney
which have characteristics the same as, or substantially similar to, the
Accounts which are subject hereto, JCPenney shall be free to change the terms
and provisions of such Credit Card Agreements or the Credit Card Guidelines in
any respect (including, without limitation, the calculation of the amount, or
the timing, of charge-offs).
Section 2.5 Covenants of JCPR. JCPR hereby covenants that:
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(a) Receivables Not to be Evidenced by Promissory Notes or Chattel
Paper. JCPR will take no action to cause any Receivable to be evidenced by any
"instrument" (as defined in the UCC as in effect in any state where JCPR's or
the Servicer's chief executive offices or books and records relating to such
Receivable is located). Each Receivable shall be payable pursuant to a contract
which does not create a Lien on any goods purchased thereunder; provided,
however, that any such Receivable which shall be payable pursuant to a contract
which shall be governed by Florida law may provide for the retention of a
security interest in any goods purchased by the Obligor, except those goods that
are considered real property under Florida law.
(b) Security Interests. Except for the transfers hereunder, JCPR will
not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on any Receivable, whether now
existing or hereafter created, or any interest therein; JCPR will immediately
notify the Trustee of the existence of any Lien on any Receivable; and JCPR
shall defend the right, title and interest of the Trust in, to and under the
Receivables, whether now existing or hereafter created, against all claims of
third parties claiming through or under JCPR; provided, however, that nothing in
this subsection 2.5(b) shall prevent or be deemed to prohibit JCPR from
suffering to exist upon any of the Receivables any Liens for state, municipal or
other local taxes if such taxes shall not at the time be due and payable or if
JCPR shall currently be contesting the validity thereof in good faith by
appropriate proceedings and shall have set aside on its books adequate reserves
with respect thereto; provided, further, however, that nothing in this
subsection 2. 5(b) shall prevent or be deemed to prohibit JCPR from selling,
pledging, assigning, transferring or granting a participation interest in the
Exchangeable Certificate or the Undivided Interest in the Trust evidenced
thereby to JCPenney in accordance with the terms of the Receivables Purchase
Agreement or as full or partial consideration for any Receivables of JCPenney
purchased by JCPR thereunder.
(c) Account Allocations.
(i) In the event that JCPR is unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of this
Agreement or any Supplement (including, without limitation, by reason of
the occurrence of a Bankruptcy Event or its inability to obtain Receivables
from JCPenney for any reason) then, in any such event, (A) JCPR agrees to
instruct the Servicer to allocate and pay to the Trust, after the date of
such inability, payments received in respect of the Accounts giving rise to
such Receivables first to the total amount of
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Principal Receivables from such Accounts transferred to the Trust; and (B)
JCPR agrees to have such amounts applied as Collections in accordance with
Section 4.3. If such event shall occur, it shall be deemed a Pay Out Event
immediately upon the occurrence thereof. The parties hereto agree that
Finance Charge Receivables, whenever created, with respect to Principal
Receivables which have been transferred to the Trust shall continue to be a
part of the Trust notwithstanding any cessation of the transfer of
additional Principal Receivables to the Trust and Collections with respect
thereto shall continue to be allocated and paid in accordance with Section
4.3.
(ii) In the event that pursuant to subsection 2.4(d), JCPR
accepts a retransfer of an Ineligible Receivable as a result of a breach of
the representations and warranties in subsection 2.4(b) relating to such
Receivable, then, in any such event, JCPR agrees to instruct the Servicer
to allocate payments received in respect of the Account giving rise to such
Receivable first to the total amount of Receivables of the appropriate
Obligor retained in the Trust and thereafter to the total amount owing by
such Obligor on any Ineligible Receivable retransferred to JCPR.
(d) Delivery of Collections. JCPR agrees to pay to the Servicer all
payments received by JCPR in respect of the Receivables as soon as practicable
after receipt thereof by JCPR.
(e) Nonconveyance of Accounts. JCPR covenants and agrees that it will
enforce the provisions of the Receivables Purchase Agreement prohibiting
JCPenney from conveying, assigning, exchanging or otherwise transferring the
Accounts to any Person prior to the termination of this Agreement and any
Supplement pursuant to Article XII hereof.
(f) Regulatory Filings. JCPR shall make any filings, reports,
notices, applications, registrations with, and to seek any consents or
authorizations from the Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be necessary or advisable to
comply with any federal or state securities or reporting requirements laws.
Section 2.6 Addition of Accounts.
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(a) If during any period of 30 consecutive days, the JCPR Amount
averaged over that period is less than the Minimum JCPR Percentage of the
Average Principal Receivables, JCPR shall, under the terms of the Receivables
Purchase Agreement, require JCPenney to transfer the Receivables of additional
Eligible Accounts to be included as Accounts, and JCPR shall purchase
Receivables in such Additional Accounts 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 on the first day of such 30 day period, at least
equaled the Minimum JCPR Percentage.
(b) In addition to its obligation under subsection 2.6(a), JCPR may,
but shall not be obligated to, from time to time, agree with JCPenney to
designate Additional Accounts to be included as Accounts.
(c) At any time that the Receivables in substantially all the Eligible
Accounts of any Cycle have been transferred to the Trust, then on each day that
an Eligible Account is added to such Cycle such Eligible Account shall, until
notice from JCPR to the Trustee to the contrary, automatically be included as an
Additional Account effective as of such data of inclusion in such Cycle.
(d) JCPR agrees that any Receivables from Additional Accounts shall
first be sold by JCPenney to JCPR and transferred by JCPR to the Trust under
subsection 2.6(a), (b) or (c) upon and subject to the following conditions:
(i) On or before the fifth Business Day (the "Notice Date") prior
to the Addition Date in respect of Additional Accounts added pursuant to
subsection 2. 6(a) or (b), JCPR shall give the Trustee and the Servicer
written notice that such Additional Accounts will be included and
specifying the approximate aggregate amount of the Receivables to be
transferred;
(ii) JCPR (A) shall require JCPenney to transfer Receivables only
in Eligible Accounts, and (B) shall, if the designation of Additional
Accounts is made pursuant to subsection 2.6(b) and if the sum of Principal
Receivables in the Trust as of the related Notice Date after giving effect
to the addition of such Additional Accounts would exceed $50,000,000 more
than the greater of (x) the amount of Principal Receivables in the Trust on
the Initial Closing Date and (y) the amount
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of Principal Receivables in the Trust on the most recent date when the
terms of this subsection 2.6(d)(ii)(B) were complied with, deliver a letter
from a Rating Agency to the Trustee by the Addition Date confirming that
the addition of such Additional Accounts will not adversely affect the
rating of any Series of Investor Certificates which has been rated by such
Rating Agency;
(iii) On or prior to the Addition Date, in respect of Additional
Accounts added pursuant to subsection 2.6(a) or (b), and on or before five
Business Days after the first day of the Monthly Period next succeeding the
Monthly Period in which Additional Accounts were added pursuant to
subsection 2.6(c), JCPR shall have delivered to the Trustee a written
transfer agreement (including an acceptance by the Trustee on behalf of the
Trust for the benefit of the Investor Certificateholders) in substantially
the form of Exhibit E (the "Transfer Agreement") and shall have indicated
in its computer files and caused JCPenney to indicate in its computer files
that the Receivables created in connection with such Additional Accounts
have been sold by JCPenney to JCPR and transferred by JCPR to the Trust;
and shall have delivered (or caused JCPenney so to do) to the Trustee a
computer file or microfiche list containing a true and complete list of all
Additional Accounts identified by account number and the aggregate amount
of the Receivables in such Additional Accounts as of the Addition Date in
respect of Additional Accounts added pursuant to subsection 2.6(a) or (b)
or as of such fifth Business Day of the month in respect of Additional
Accounts added during the preceding month pursuant to subsection 2.6(c),
which computer file or microfiche list shall be marked as Schedule 1 to the
Transfer Agreement, delivered to the Trustee as confidential and
proprietary, shall be as of the date of such Transfer Agreement and
incorporated into and made a part of such Transfer Agreement, this
Agreement and any Supplement;
(iv) JCPR shall represent and warrant that (x) each Additional
Account is, as of the applicable Addition Date, an Eligible Account, (y) in
the case of an addition pursuant to subsection 2.6(a) or 2.6(b), no
selection procedures believed by JCPR to be materially adverse to the
interests of the Investor Certificateholders or the Letter of Credit Banks
were utilized in selecting the Additional Accounts from the available
Eligible Accounts of JCPenney or, in the case of an addition
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pursuant to subsection 2.6(c), in adding any such Additional Account to
any Cycle, and (z) as of the Addition Date, neither JCPR nor JCPenney is
insolvent;
(v) JCPR shall represent and warrant that, as of the Addition
Date, the Transfer Agreement and Receivables Purchase Agreement,
collectively, constitute either (x) a valid transfer or, in the case of
Accounts added pursuant to subsection 2.6(c), confirmation of transfer to
the Trust of all right, title and interest of JCPR and JCPenney in, to and
under the Receivables then existing and thereafter to be created, all
monies due or to become due with respect thereto (including all Finance
Charge Receivables), and all proceeds (including, without limitation,
"proceeds" as defined in the UCC as in effect in any state where JCPR's,
JCPenney's or the Servicer's chief executive offices or books and records
relating to the Receivables are located) of such Receivables and Insurance
Proceeds relating thereto and all of JCPR's rights, remedies, powers and
privileges with respect to such Receivables under the Receivables Purchase
Agreement, and such property will be held by the Trust free and clear of
any Lien of any Person claiming through or under JCPR or JCPenney, except
for (i) Liens permitted under subsection 2.5(b), (ii) the interest of the
Holder of the Exchangeable Certificate and (iii) JCPR's right to receive
interest accruing on, and investment earnings in respect of, the Finance
Charge Account and the Principal Account as provided in this Agreement and
any Supplement or (y) a grant of a security interest (as defined in the UCC
as in effect in any state where JCPR's, JCPenney's or the Servicer's chief
executive offices or books and records relating to the Receivables are
located) in such property to the Trust, which is enforceable with respect
to then existing Receivables of the Additional Accounts, all monies due or
to become due with respect thereto, the proceeds thereof and Insurance
Proceeds relating thereto upon the transfer of such Receivables to the
Trust, and which will be enforceable with respect to the Receivables
thereafter created in respect of Additional Accounts, the proceeds thereof
and Insurance Proceeds relating thereto upon such transfer; and (z) if the
Transfer Agreement constitutes the grant of a security interest to the
Trust in such property, upon the filing of a financing statement as
described in Section 2.1 with respect to such Additional Accounts and in
the case of the Receivables of Additional Accounts thereafter created and
the proceeds thereof, and Insurance Proceeds relating to such
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Receivables, upon such transfer, the Trust shall have a first priority
perfected security interest in such property, except for Liens permitted
under subsection 2.5(b);
(vi) JCPR shall, on the Addition Date for Additional Accounts
added pursuant to subsection 2.6 (a) or (b), deliver a certificate of a
Vice President or more senior officer confirming the items set forth in
paragraphs (ii), (iii), (iv) and (v) above; and
(vii) JCPR shall, on the Addition Date for Additional Accounts
added pursuant to subsection 2. 6 (a) or (b), deliver an Opinion of Counsel
with respect to the Receivables in the Additional Accounts substantially in
the form of Exhibit K.
(e) JCPR shall provide to each Rating Agency prior written notice each
time Additional Accounts are added to the Trust pursuant to subsection 2.6(a) or
(b).
Section 2.7 Removal of Accounts.
(a) Subject to the conditions set forth below, under the terms of the
Receivables Purchase Agreement, JCPR may designate from time to time, Accounts
no longer to be designated for inclusion in the Trust (the "Removed Accounts");
provided, however, that JCPR shall not make more than one such designation in
any Monthly Period. On or before the fifth Business Day (the "Removal Notice
Date") prior to the date on which Removed Accounts shall be designated (the
"Removal Date"), JCPR shall give the Trustee and the Servicer written notice
that the Receivables from such Removed Accounts are to be retransferred to JCPR.
(b) 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) JCPR (a) shall designate Removed Accounts having a minimum
aggregate amount of Principal Receivables as of the related Removal Notice
Date equal to at least 2% of the Principal Receivables in the Trust as of
such Removal Notice Date, and (b) shall deliver a letter from each Rating
Agency that has rated any Series to the Trustee by
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such Removal Date confirming that the removal of such Removed Accounts will
not adversely affect the rating of such Series of Investor Certificates;
(ii) On each Removal Date, the Trustee shall deliver to JCPR a
written retransfer in substantially the form of Exhibit O (the "Retransfer
Agreement") and JCPR shall deliver to the Trustee a computer file,
microfiche or written list containing a true and complete schedule
identifying all Removed Accounts specifying for each such Removed Account,
as of the Removal Notice Date, its account number and the aggregate amount
of Receivables therein. Such computer file, microfiche or written list
shall be as of the date of such Retransfer Agreement incorporated into and
made a part of this Agreement and any Supplement;
(iii) JCPR shall represent and warrant as of each Removal Date
that (a) the list of Removed Accounts, as of the Removal Notice Date,
complies in all material respects with the requirements of (ii) above; (b)
no selection procedure used by JCPR which is adverse to the interests of
the Investor Certificateholders or the Letter of Credit Banks was utilized
in selecting the Removed Accounts; and (c) as of the Removal Notice Date
and as of the Removal Date, neither JCPenney nor JCPR is insolvent;
(iv) The removal of any Receivables of any Removed Accounts on
any Removal Date shall not, in the reasonable belief of JCPR, cause a Pay
Out Event, or an event which with notice or lapse of time or both would
constitute a Pay Out Event, with respect to any Series to occur; and
(v) JCPR shall have delivered to the Trustee a certificate of an
officer of JCPR confirming the items set forth in (i) through (iv) above.
The Trustee may conclusively rely on such certificate, shall have no duty
to make inquiries with regard to the matters set forth therein and shall
incur no liability in so relying.
Upon satisfaction of the above conditions, the Trustee shall execute and
deliver the Retransfer Agreement to JCPR, and the Receivables from the Removed
Accounts shall no longer constitute a part of the Trust.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters Relating to the
Servicer.
(a) In connection with and in consideration for the acquisition
of the Receivables by JCPR from JCPenney in accordance with the Receivables
Purchase Agreement, and on behalf of JCPR to facilitate the secured credit-
enhanced financing for JCPR contemplated by this Agreement, JCPenney agrees to
act as the Servicer under this Agreement. The Investor Certificateholders by
their acceptance of the Investor Certificates consent to JCPenney acting as
Servicer.
(b) Notwithstanding subsection 6.3(b), the Servicer shall service
and administer the Receivables and shall collect payments due under the
Receivables in accordance with its customary and usual servicing procedures for
servicing credit card receivables comparable to the Receivables and in
accordance with the Credit Card Guidelines and shall have full power and
authority, acting alone or through any party properly designated by it
hereunder, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing and subject to Section 10.1, the Servicer is hereby
authorized and empowered (i) to make withdrawals from the Collection Account as
set forth in this Agreement, (ii) unless such power and authority is revoked by
the Trustee on account of the occurrence of a Servicer Default pursuant to
Section 10.1, to instruct the Trustee to make withdrawals and payments from the
Principal Account and the Finance Charge Account in accordance with such
instructions as set forth in this Agreement, (iii) unless such power and
authority is revoked by the Trustee on account of the occurrence of a Servicer
Default pursuant to Section 10.1, to make draws on any Letter of Credit as set
forth in this Agreement, and (iv) to execute and deliver, on behalf of the Trust
for the benefit of the Certificateholders, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Receivables and, after the
delinquency of any Receivable and to the extent permitted under and in
compliance with applicable law and regulations, to commence enforcement
proceedings with respect to such Receivables. The Trustee agrees that it shall
promptly follow the instructions of the Servicer to withdraw funds from the
Principal Account and the Finance Charge Account and make drawings under any
Letter of Credit. The Trustee shall furnish the Servicer with
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any powers of attorney and other documents necessary or appropriate to enable
the Servicer to carry out its servicing and administrative duties hereunder.
(c) (i) In the event that JCPR is unable for any reason to
transfer Receivables to the Trust in accordance with the provisions of this
Agreement and any Supplement (including, without limitation, by reason of
the occurrence of a Bankruptcy Event or its inability to obtain Receivables
from JCPenney for any reason) then, in any such event, (A) the Servicer
agrees to allocate and pay to the Trust, after such date, all Collections
in respect of the Accounts giving rise to such Receivables first to the
total amount of Principal Receivables from such Accounts transferred to the
Trust.
(ii) In the event that pursuant to subsection 2.4(d), JCPR
accepts a retransfer of an Ineligible Receivable as a result of a breach of
the representations and warranties in subsection 2.4(b) relating to such
Receivable, then, in any such event, the Servicer agrees to allocate
payments received in respect of the Account giving rise to such Receivable
first to the total amount of Receivables of the appropriate Obligor
retained in the Trust and thereafter to the total amount owing by such
Obligor on any Ineligible Receivables retransferred to JCPR.
(d) The Servicer shall not be obligated to use separate servicing
procedures, offices, employees or accounts for servicing the Receivables from
the procedures, offices, employees and accounts used by the Servicer in
connection with servicing other credit card receivables.
(e) The Servicer shall not be 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.
Section 3.2 Servicing Compensation. As compensation for its servicing
activities hereunder and reimbursement for its expenses as set forth in the
immediately following paragraph, the Servicer shall be entitled to receive a
monthly servicing fee in respect of any Monthly Period (or portion thereof)
prior to the termination of the Trust pursuant to Section 12.1, payable in
arrears on each Transfer Date in an amount equal to the total for all Series of
the following amount calculated for each Series: 1/12th of the product of (A)
the Servicing Fee Percentage for such Series times (B) the sum of (i) a pro rata
portion (based on the Investor Amount of each Series) of the JCPR Amount
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and (ii) the applicable Investor Amount as of the first day of the related
Monthly Period, or portion thereof (the "Monthly Servicing Fee"). The share of
the Monthly Servicing Fee allocable to each Series of the Investor
Certificateholders with respect to any Monthly Period (or portion thereof) shall
be equal to one-twelfth the product of (A) the Servicing Fee Percentage for such
Series, and (B) the Adjusted Investor Amount for such Series on the first day of
such Monthly Period or on the Closing Date for such Series, as the case may be,
(with respect to such Series, the "Investor Monthly Servicing Fee") and shall be
paid to the Servicer pursuant to Section 4.5. The remainder of the Monthly
Servicing Fee shall be paid by JCPR and in no event shall the Trust, the Trustee
or the Investor Certificateholders be liable for the share of the Monthly
Servicing Fee to be paid by JCPR and no drawing may be made under any Letter of
Credit with respect thereto. In the case of the Monthly Period in which a
Closing Date occurred for any Series, the Monthly Servicing Fee and the Investor
Monthly Servicing Fee with respect to such Series shall accrue from the date
interest begins to accrue with respect to such Series.
The Servicer's expenses include the reasonable fees and disbursements of
independent accountants and all other expenses incurred by the Servicer in
connection with its activities hereunder; provided that the Servicer shall not
be liable for any liabilities, costs or expenses of the Trust, the Investor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation any federal, state or local income or franchise
taxes 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).
The Servicer shall be required to pay such expenses for its own account and
shall not be entitled to any payment therefor other than the Monthly Servicing
Fee.
Section 3.3 Representations and Warranties of the Servicer. The Servicer
hereby makes the following representations and warranties on which the Trustee
has relied in accepting the Receivables in trust and in authenticating
Certificates:
(a) Organization and Good Standing. The Servicer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power, authority and right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under this Agreement, any Supplement and the Receivables Purchase
Agreement.
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(b) Due Qualification. The Servicer is qualified as a foreign
corporation in any state where it is required to be so qualified to service the
Receivables as required by this Agreement and has obtained all necessary
licenses and approvals as required under federal and state law, in each case,
where the failure to be so qualified, licensed or approved, could reasonably be
expected materially and adversely to affect the ability of the Servicer to
comply with the terms of this Agreement.
(c) Due Authorization. The execution, delivery, and performance of
this Agreement, any Supplement and the Receivables Purchase Agreement have been
duly authorized by the Servicer by all necessary corporate action on the part of
the Servicer.
(d) Binding Obligation. This Agreement, any Supplement and the
Receivables Purchase Agreement constitute a legal, valid and binding obligation
of the Servicer, enforceable in accordance with its terms, except as
enforceability may be limited by Debtor Relief Laws and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) No Violation. The execution and delivery of this Agreement, any
Supplement and the Receivables Purchase Agreement by the Servicer, and the
performance of the transactions contemplated by this Agreement, any Supplement
and the Receivables Purchase Agreement and the fulfillment of the terms hereof
and thereof applicable to the Servicer, will not conflict with, violate, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time or both) a default under, any Requirements of
Law applicable to the Servicer or any indenture, contract, agreement, mortgage,
deed of trust or other instrument to which the Servicer is a party or by which
it is bound.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Servicer, threatened against the Servicer
before any court, regulatory body, administrative agency or other tribunal or
governmental instrumentality seeking to prevent the issuance of the Certificates
or the consummation of any of the transactions contemplated by this Agreement or
any Supplement, seeking any determination or ruling that, in the reasonable
judgment of the Servicer, would materially and adversely affect the performance
by the Servicer of its obligations under this Agreement, any Supplement or the
Receivables Purchase Agreement, or seeking any determination or ruling that
would materially and adversely affect the validity or enforceability of this
Agreement, any Supplement or the Receivables Purchase Agreement.
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Section 3.4 Reports and Records for the Trustee; Bank Account Statements.
(a) Initial Report. On the day on which the Series A Investor
Certificates are issued (the "Initial Closing Date"), the Servicer shall prepare
and deliver to the Trustee, the related Letter of Credit Bank, Moody's and
Standard & Poor's an Officer's Certificate substantially in the form of Exhibit
F setting forth the Servicer's best estimate of (i) the aggregate amount of
Principal Receivables as of the end of the second day preceding the Closing Date
and (ii) the aggregate amount of Finance Charge Receivables as of the end of the
second day preceding the Initial Closing Date.
(b) Daily Reports. On each Business Day, the Servicer shall prepare
and make available at the office of the Servicer for inspection by the Trustee a
record setting forth (i) the aggregate amount of Collections processed by the
Servicer on the preceding Business Day and (ii) the aggregate amount of
Receivables as of the close of business on the preceding Business Day.
(c) Monthly Servicer's Certificate. For each Series, on each
Determination Date, the Servicer shall forward to the Trustee, the Paying Agent,
any Rating Agency and the appropriate Letter of Credit Bank a certificate of a
Servicing Officer substantially in the form of Exhibit G setting forth (i) the
aggregate amount of Collections processed during the preceding Monthly Period,
(ii) the aggregate amount of the Investor Percentage of Collections of Principal
Receivables processed by the Servicer pursuant to Section 4.3 during the
preceding Monthly Period for such Series, (iii) the aggregate amount of the
Investor Percentage of Collections of Finance Charge Receivables and Net
Recoveries processed by the Servicer pursuant to Section 4.3 during the
preceding Monthly Period for such Series, (iv) the aggregate amount of
Receivables and the balance on deposit in, or to be deposited on the Collections
Deposit Date in, the Finance Charge Account and the Principal Account with
respect to Collections processed as of the end of the last day of the preceding
Monthly Period for such Series, (v) the aggregate amount, if any, of drawings
pursuant to Section 4.5 or 4.9 under the appropriate Letter of Credit required
to be made on the succeeding Drawing Date, (vi) the aggregate amount to be paid
to the Letter of Credit Bank, JCPR or JCPenney, as the case may be, from the
Finance Charge Account pursuant to Section 4.5, (vii) the Stated L/C Amount and
Available L/C Amount, in each case as of the opening of business on the
succeeding Drawing Date and the close of business on the succeeding Distribution
Date, (viii) the statement required by Section 5.2 and (ix) the sum of all
amounts payable to the Investor Certificateholders of such Series on the
succeeding Distribution Date in respect of Certificate Interest and Certificate
Principal.
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Section 3.5 Annual Servicer's Certificate. The Servicer will deliver to
the Trustee, any Letter of Credit Bank, and any Rating Agency on or before April
15 of each calendar year, beginning with April 15, 1989, an Officer's
Certificate substantially in the form of Exhibit H stating that (a) a review of
the activities of the Servicer during the preceding calendar year and of its
performance under this Agreement was made under the supervision of the officer
signing such certificate and (b) to the best of such officer's knowledge, based
on such review, the Servicer has fully performed all its obligations under this
Agreement throughout such year, or, if there has been a default in the
performance of any such obligation, specifying each such default known to such
officer and the nature and status thereof. A copy of such certificate may be
obtained by any Investor Certificateholder by a request in writing to the
Trustee addressed to the Corporate Trust Office.
Section 3.6 Annual Independent Public Accountants' Servicing Report.
(a) On or before April 15 of each calendar year, beginning with
April 15, 1989, the Servicer shall cause Peat Marwick Main & Co. or another firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer or JCPR) to furnish a report covering the
preceding annual period to the effect that such accountants have applied certain
agreed-upon procedures to certain documents and records relating to the
servicing of Accounts under this Agreement, compared the information contained
in the Servicer's certificates delivered during the period covered by such
report with such documents and records and that no matters came to the attention
of such accountants that caused them to believe that such servicing was not
conducted in compliance with Sections 3.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 and
8.8 of this Agreement, except for such exceptions as such firm shall believe to
be immaterial and such other exceptions as shall be set forth in such statement.
In addition, each report shall set forth the agreed-upon procedures performed. A
copy of such report may be obtained by any Investor Certificateholder by a
request in writing to the Trustee addressed to the Corporate Trust Office.
(b) On or before April 15 of each calendar year, beginning with
April 15, 1989, the Servicer shall cause Peat Marwick Main & Co. or another firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer or JCPR) to furnish a report to the Trustee to
the effect that they have compared the mathematical calculations of each amount
set forth in the monthly certificates forwarded by the Servicer pursuant to
subsection 3.4(c) during the period covered by such report (which shall be the
period from January 1, to and including
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December 31 of such calendar year) with the Servicer's computer reports which
were the source of such amounts and that on the basis of such comparison, such
accountants are of the opinion that such amounts are in agreement, except for
such exceptions as they believe to be immaterial and such other exceptions as
shall be set forth in such statement. A copy of such report may be obtained by
any Investor Certificateholder by a request in writing to the Trustee addressed
to the Corporate Trust Office.
Section 3.7 Tax Treatment. JCPR has structured this Agreement, any
Supplement and the Investor Certificates to facilitate a secured, credit-
enhanced financing on favorable terms with the intention that the Investor
Certificates will constitute indebtedness of JCPR for federal income and state
and local tax purposes; and JCPR and each Investor Certificateholder by
acceptance of its Certificate agrees to recognize and report the Investor
Certificates as indebtedness of JCPR for purposes of federal, state and local
income or franchise taxes and any other tax imposed on or measured by income,
and to report all receipts and payments relating thereto in a manner that is
consistent with such characterization.
Section 3.8 Notices to JCPenney. In the event that JCPenney is no longer
acting as Servicer, any Successor Servicer appointed pursuant to Section 10.2
shall deliver or make available to JCPenney each certificate and report required
to be prepared, forwarded or delivered thereafter pursuant to Sections 3.4, 3.5
and 3.6.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Certificateholders. Each Series of Investor
Certificates shall represent Undivided Interests in the Trust, including the
benefits of any Letter of Credit issued with respect to such Series and the
right to receive the Collections and other amounts at the times and in the
amounts specified in this Article IV to be deposited in Investor Accounts for
the account of such Series or paid to the Investor Certificateholders of such
Series; provided, however, that the aggregate interest represented by such
Certificates at any time in the Principal Receivables shall not exceed an amount
equal to the Aggregate Investor Amount at such time. The Exchangeable
Certificate shall represent the remaining Undivided Interest in the Trust,
including the right to receive the Collections and other amounts at the times
and in the amounts specified in this Article IV to be paid to JCPR as Holder of
the Exchangeable
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Certificate, provided, however, that the aggregate interest represented by such
Certificate at any time in the Principal Receivables shall not exceed the JCPR
Amount at such time and such Certificate shall not represent any interest in the
Investor Accounts or the benefits of any Letter of Credit or Repurchase Letter
of Credit, except for JCPR's right to receive interest accruing on, and
investment earnings in respect of, the Finance Charge Account and Principal
Account as provided in this Agreement, right of JCPR or the Holder of the
Exchangeable Certificate to receive payments from the Finance Charge Account and
Principal Account in accordance with subsections 4.3(c)(iii) and 4.5(e) and, if
this Agreement or any Supplement constitutes the grant of a security interest in
such property, except for the interest of JCPR in such property as a debtor for
purposes of the UCC as in effect in any state where JCPR's or the Servicer's
chief executive offices and books and records relating to the Receivables are
located.
Section 4.2 Establishment of Investor Accounts.
(a) The Collection Account. The Servicer, for the benefit of the
Certificateholders, shall establish and maintain in the name of the Trust, or
cause to be established and maintained, with an office or branch located in the
state designated by the Servicer of a depository institution or trust company
(which may include the Trustee) organized under the laws of the United States of
America or any one of the states thereof a non-interest bearing segregated
account (the "Collection Account") bearing a designation clearly indicating that
the funds deposited therein are held in trust for the benefit of the
Certificateholders; provided, however, that at all times the certificates of
deposit, short-term deposits or commercial paper (other than such obligation
whose rating is based on collateral or on the credit of a Person other than such
institution or trust company) of such depository institution or trust company
shall have a credit rating from the applicable Rating Agency of P-1, A-1 or its
equivalent, respectively, and which is a member of the FDIC or FSLIC (a
"Qualified Institution"). Pursuant to Section 3.1(b), the Servicer shall have
the revocable power to withdraw funds from the Collection Account for the
purposes of carrying out its duties hereunder.
(b) The Finance Charge Account and Principa1 Account. The Trustee,
for the benefit of the Investor Certificateholders, shall establish and maintain
in the name of the Trust, with an office or branch of a Qualified Institution,
two segregated trust accounts (the "Finance Charge Account" and the "Principal
Account," respectively), bearing a designation clearly indicating that the funds
therein are held for the benefit of the Investor Certificateholders. Pursuant to
authority granted to it hereunder, the Servicer shall have the revocable power
to instruct the Trustee to withdraw funds from the Finance Charge Account and
Principal Account for the
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purpose of carrying out the Servicer's duties hereunder. The Principal Account
and the Finance Charge Account shall be book-entry accounts of the Trustee;
provided that the Qualified Institution at all times shall maintain accurate
records reflecting each transaction in the Principal Account and the Finance
Charge Account and shall provide copies of such records to the Trustee and that
funds held therein shall at all times be held in trust for the benefit of the
Investor Certificateholders.
(c) The Distribution Account. The Trustee, for the benefit of the
Investor Certificateholders, shall cause to be established and maintained in the
name of the Trust, with an office or branch of a Qualified Institution, a non-
interest bearing segregated demand deposit account (the "Distribution Account")
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Investor Certificateholders. The Paying
Agent shall have the revocable authority to make withdrawals from the
Distribution Account.
(d) Administration of the Investor Accounts. Funds on deposit in the
Principal Account and the Finance Charge Account shall at all times be invested
in Permitted Investments for the benefit of JCPR; provided, that any such
investment shall mature and such funds shall be available for withdrawal on or
prior to the Transfer Date following the Record Date occurring in the Monthly
Period in which such funds were processed for collection. The Qualified
Institution which maintains such Accounts shall maintain for the benefit of the
Investor Certificateholders and the Servicer possession of the negotiable
instruments or securities evidencing the Permitted Investments described in
clause (a) of the definition thereof from the time of purchase thereof until the
time of sale or maturity. At the end of each month, all interest and earnings
(net of losses and investment expenses) on funds on deposit in the Principal
Account and the Finance Charge Account shall be deposited in a separate deposit
account with a Qualified Institution in the name of JCPR, which shall not
constitute a part of the Trust, or shall otherwise be turned over by the Trustee
to JCPR not less frequently than monthly. Subject to the restrictions set forth
above, JCPR shall have the authority to instruct the Qualified Institution with
respect to the investment of funds on deposit in the Principal Account and the
Finance Charge Account. For purposes of determining the availability of funds
or the balances in the Finance Charge Account and the Principal Account for any
reason under this Agreement, all investment earnings on such funds shall be
deemed not to be available or on deposit. Schedule 2, which is hereby
incorporated into and made a part of this Agreement, identifies each of the
Collection Account and the Investor Accounts by setting forth the account number
of such account, the account designation of such account and the name of the
institution with which such account has been established.
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Section 4.3 Collections and Allocations.
(a) Collections. The Servicer shall deposit all Collections in
the Collection Account as promptly as possible after the Date of Processing of
such Collections, but in no event later than the second Business Day following
such Date of Processing; provided, however, that for so long as, and only so
long as (i) JCPenney is the Servicer, (ii) the short term debt rating of
JCPenney is not reduced below A-1/P-1 by either Rating Agency; and (iii) there
is no Servicer Default under Section 10.1, JCPR may, in its discretion, permit
the Servicer to retain Collections and not deposit them in the Collection
Account until the next Collections Deposit Day, at which time such Collections,
netted as provided in subsection 4.3(d), shall be deposited in the Collection
Account; provided, further, however, that JCPR may not permit the Servicer to
retain Collections and the Servicer will be required to make daily deposits of
Collections to the Collection Account in accordance with this subsection 4.3(a)
for a period of five consecutive Business Days commencing within 30 days before
or after each anniversary of the Initial Closing Date.
The Servicer shall, as described in subsection 4.3(c), withdraw the
required amounts from the Collection Account and deposit such amounts into the
Principal Account or the Finance Charge Account or pay such amounts to the
Holder of the Exchangeable Certificate or to the other persons entitled thereto
pursuant to this Agreement. The Servicer shall make such deposits or payments
on the date indicated therein, if applicable, by wire transfer in next day
funds.
(b) Allocations Among Series. Prior to the close of business on the
day any Collections are deposited in the Collection Account, the Servicer shall:
(i) determine the portion allocable to each Series of the
aggregate amount of Collections processed in respect of Finance Charge
Receivables on such day (the "Daily Series Finance Charge Allocation"),
which portion shall be equal to the product of (A) the aggregate amount of
such Collections in respect of Finance Charge Receivables, multiplied by
(B) the Investor Percentage of such Series applicable to Finance Charge
Receivables as of such day; and
(ii) determine the portion allocable to each Series of the
aggregate amount of Collections processed in respect of Principal
Receivables on such day (the "Daily Series Principal Allocation"), which
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portion shall be equal to the product of (A) the aggregate amount of such
Collections in respect of Principal Receivables, multiplied by (B) the
Investor Percentage of such Series applicable to Principal Receivables as
of such day.
(c) Allocations and Payments. The Servicer shall, prior to the close
of business on the day any Collections are deposited in the Collection Account,
pay or deposit the following amounts as set forth below, except as provided in
subsection 4.3(f):
(i) For each Series in its Revolving Period:
(A) Allocate to, and deposit in the Finance Charge Account
for the account of the applicable Series, an amount equal to the Daily
Series Finance Charge Allocation for such Series for such day; and
(B) Allocate and pay to JCPR an amount equal to the Daily
Series Principal Allocation for such Series for such day;
(ii) For each Series in its Amortization Period:
(A) Allocate to, and deposit in the Finance Charge Account
for the account of the applicable Series, an amount equal to the Daily
Series Finance Charge Allocation for such Series for such day; and
(B) Allocate to, and deposit in the Principal Account for
the account of the applicable Series, an amount equal to the Daily Series
Principal Allocation for such Series for such day;
(iii) For the Exchangeable Certificate: Throughout the existence
of the Trust, the Servicer shall pay to the Holder of the Exchangeable
Certificate an amount equal to the product of (A) the applicable JCPR
Percentage and (B) the aggregate amount of such Collections deposited in
the Collection Account in respect of Principal Receivables and Finance
Charge Receivables, respectively, on such day.
(d) Net Payments. So long as JCPenney is the Servicer and JCPenney,
as Servicer, is making deposits to the Collection Account in accordance with the
first proviso to subsection 4.3(a), JCPenney, acting as Servicer and as agent
for
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JCPR, may make a net payment to the Collection Account on the Collections
Deposit Day in the amount of all Collections received by JCPenney since the
previous Collections Deposit Date, minus all amounts payable to JCPenney or JCPR
on or before the next succeeding Transfer Date in accordance with subsection
4.3(c) and subsections 4.5(d) and (e) and, in such event, JCPenney will, on the
Collections Deposit Date, retain, or pay to JCPR, as the case may be, all
amounts payable to JCPenney or JCPR as aforesaid in lieu of the payments
required to be made under said subsections.
(e) Investor Net Recoveries. On each Determination Date, the Servicer
shall calculate with respect to each Series the Investor Net Recoveries for such
Series, if any, for the Monthly Period next preceding such Determination Date.
On or before the Transfer Date next following such Determination Date, (i) with
respect to each Series in its Amortization Period, the Servicer shall transfer
the amount of Investor Net Recoveries, if any, for each such Series from the
amount on deposit in the Principal Account for the account of such Series to the
Finance Charge Account for the account of such Series and (ii) for each Series
in its Revolving Period, JCPR shall deposit the amount of Investor Net
Recoveries, if any, for each such Series in the Finance Charge Account for the
account of such Series. If JCPR shall fail to make such deposit in full, the
Servicer shall deposit any deficiency on behalf of JCPR and shall be entitled to
deduct the amount of such deposit from future payments to JCPR hereunder.
(f) Reallocation of Collections. (i) No payment may be made in
respect of Collections of Principal Receivables or Finance Charge
Receivables to JCPR pursuant to Section 4.3(c)(i)(B) or to the Holder of
the Exchangeable Certificate pursuant to Section 4.3(c)(iii) if the JCPR
Amount is zero or to the extent any payment in respect of Principal
Receivables would be greater than the JCPR Amount.
(ii) If any amount is not paid to JCPR or to the Holder of the
Exchangeable Certificate pursuant to the preceding clause (i), then on the
Date of Processing on which such payment is not made, in respect of the
amount of Collections of Finance Charge Receivables and Principal
Receivables not so paid on such day, and on each remaining Date of
Processing in such Monthly Period, the Investor Percentage of each
outstanding Series and the JCPR Percentage shall be determined by
substituting as the denominator of the fraction used to determine the
Investor Percentage of each such Series the greater of (A) the aggregate
amount of Principal Receivables as of the end of such day or (B) the
Aggregate Investor Amount as of the end of such day. The Investor
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Percentages and JCPR Percentages so determined shall be used in applying
the provisions of this Section 4.3 on each such Date of Processing.
(iii) Payments which would be made to JCPR pursuant to
subsection 4.3(c)(i)(B) but for the operation of subsection 4.3(f)(i) shall
be retained in the Collection Account and (A) so long as a Pay Out Event
shall not have occurred with respect to one or more particular Series, the
amounts retained in respect of such Series shall be paid to JCPR pursuant
to such subsection 4.3(c)(i)(B) as and to the extent such payment is
permitted under clauses (i) and (ii) of this subsection 4.3(f) or (B) if a
Pay Out Event shall have occurred with respect to one or more particular
Series, the amounts retained in respect of such Series shall be applied as
if such amounts had been Collections in respect of Principal Receivables
processed on the applicable Pay Out Commencement Date.
Section 4.4 Defaulted Accounts.
(a) On each Determination Date, the Servicer shall calculate with
respect to each Series the Investor Default Amount for such Series, if any, for
the Monthly Period next preceding such Determination Date.
(b) If on any Transfer Date the Investor Default Amount with
respect to any Series for the Monthly Period next preceding such Transfer Date
exceeds the sum of (a) such Series' Finance Charge Collections remaining after
giving effect to the withdrawal pursuant to subsection 4.5(a) on such Transfer
Date plus (b) (i) the Available L/C Amount, if any, for the Letter of Credit
relating to such Series as of the last day of the preceding month minus (ii) the
amount of drawings, if any, made or to be made pursuant to subsection 4.5(a)
under such Letter of Credit on the Drawing Date occurring during the Monthly
Period in which such Determination Date occurs, the Investor Amount for such
Series shall be reduced by the amount of such excess (an "Investor Charge Off").
Investor Charge Offs may be reimbursed only pursuant to subsection 4.5(c).
Section 4.5 Monthly Payments. On each Determination Date, the Servicer
shall instruct the Trustee to withdraw and the Trustee, acting in accordance
with such instructions, shall withdraw on the succeeding Transfer Date the
amounts required to be withdrawn from the Finance Charge Account pursuant to
subsections 4.5(a), (b), (c), (d) and (e). On each Determination Date, the
Servicer shall also notify the Trustee
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of the amounts to be drawn by the Servicer under the Letters of Credit with
respect to each Series pursuant to subsections 4.5(a), (b), (c) and (d) on the
first Business Day prior to the succeeding Transfer Date (a "Drawing Date"),
specifying in such notice the aggregate amount of the drawing to be made on such
Drawing Date. Each such instruction and notice required by this Section 4.5
shall be in substantially the form of Exhibit I hereto.
(a) Current Certificate Interest with respect to each Series. With
respect to each Series, on each Transfer Date, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw from the Finance Charge
Account to the extent funds were available from Collections processed during the
preceding Monthly Period and deposited for the account of such Series pursuant
to subsection 4.3(c) or 4.3(e) (with respect to each Series, "Finance Charge
Collections"), (i) first an amount equal to interest at the Certificate Rate for
such Series for the Monthly Period ended prior to such Transfer Date on the
Adjusted Investor Amount for such Series determined as of the opening of
business on the first day of such Monthly Period, and (ii) then, an amount equal
to the amount of any unpaid Deficiency Amounts with respect to such Series, as
defined below, and on such Transfer Date the Trustee shall deposit such funds
into the Distribution Account for payment to the Certificateholders of such
Series. If the Finance Charge Collections with respect to such Series would be
less than the amount required to be deposited pursuant to this subsection
4.5(a), on the Drawing Date preceding such Transfer Date the Servicer shall make
a drawing under each Letter of Credit relating to such Series, if any, in the
amount of such deficiency (up to the Available L/C Amount) and on the related
Transfer Date the proceeds from such drawings shall be deposited into the
Distribution Account for the benefit of such Series. If the amounts described in
this subsection 4.5(a) are insufficient to pay such interest to any Series in
respect of any Monthly Period, payments to the Certificateholders of such Series
will be reduced by the amount of such deficiency. The amount, if any, of such
deficiency for any month shall be referred to as the "Deficiency Amount," with
respect to such Series. Interest shall not accrue on Deficiency Amounts.
(b) Defaults with respect to each Series. With respect to each
Series, on each Transfer Date, after giving effect to the withdrawal pursuant to
subsection 4.5(a), the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw from such Series' Finance Charge Collections an amount
equal to the Investor Default Amount for such Series, if any, for the preceding
Monthly Period (less the aggregate amount of Investor Charge Offs in respect of
such Monthly Period) and shall (i) during the Revolving Period for such Series,
apply such amount for such Series in accordance with subsection 4.3(c)(i)(B) and
(ii) during the Amortization Period for any
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Series, deposit such amount into the Distribution Account for distribution to
the Investor Certificateholders of such Series on the Distribution Date
immediately following such Transfer Date. If such Series' Finance Charge
Collections would be less than the amount required to be deposited with respect
to such Series pursuant to this subsection 4.5(b), on the Drawing Date preceding
such Transfer Date the Servicer shall make a drawing under the Letter of Credit,
if any, relating to such Series in the amount of such deficiency relating to the
Series (up to the Available L/C Amount after giving effect to the drawing
pursuant to subsection 4.5(a)) and on the related Transfer Date the proceeds
from such drawings shall be deposited for the benefit of such Series as provided
in the next preceding sentence.
(c) Reimbursement of Investor Charge Offs with respect to each Series.
With respect to each Series, on each Transfer Date after giving effect to the
withdrawals, drawings and transfers pursuant to subsections 4.5(a) and (b), the
Trustee, acting in accordance with instructions of the Servicer, shall withdraw
from such Series' Finance Charge Collections an amount equal to the aggregate
amount of Investor Charge Offs for such Series, if any, which have not
theretofore been reimbursed pursuant to this subsection 4.5(c) and (i) shall pay
such amount for such Series during its Revolving Period in accordance with
subsection 4.3(c)(i)(B) and (ii) during the Amortization Period for such Series,
shall deposit such amount for such Series into the Distribution Account for
distribution to the Certificateholders of such Series on the Distribution Date
immediately following such Transfer Date. If such Series' Finance Charge
Collections would be less than the amount required to be deposited with respect
to such Series pursuant to this subsection 4.5(c), on the Drawing Date preceding
such Transfer Date the Servicer, shall make a drawing under the Letter of
Credit, if any, relating to such Series in the amount of such deficiency (up to
the Available L/C Amount after giving effect to the drawings pursuant to
subsections 4.5(a) and (b)) and on the related Transfer Date the proceeds from
such drawing shall be deposited as provided in the next preceding sentence. On
the date of any such reimbursement, the Investor Amount for such Series shall be
increased by the amount of such reimburse ment of Investor Charge Offs
allocated to or drawn under the Letter of Credit relating to such Series.
(d) Investor Monthly Servicing Fee and Investor Monthly Facility Fee
with respect to each Series. With respect to each Series on each Transfer Date,
after giving effect to the withdrawals pursuant to subsections 4.5(a), (b) and
(c) the Trustee, acting in accordance with instructions from the Servicer, shall
withdraw from such Series' Finance Charge Collections an amount equal to the
Investor Monthly Servicing Fee and the Investor Monthly Facility Fee for such
Series accrued in respect of the
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preceding Monthly Period, plus all accrued and unpaid Investor Monthly Servicing
Fees and Investor Monthly Facility Fees for such Series in respect of previous
Monthly Periods, and the Trustee shall pay such Servicing Fees to the Servicer
and such Facility Fees to JCPR. If such Series' Finance Charge Collections would
be less than the amount required to be paid to the Servicer and JCPR with
respect to such Series pursuant to this subsection 4.5(d), on the Drawing Date
preceding such Transfer Date, the Servicer shall make a drawing under the Letter
of Credit relating to such Series in the amount of the deficiency in the amount
payable in respect of Investor Monthly Servicing Fees and the Investor Monthly
Facility Fee for such Series (up to the Available L/C Amount after giving effect
to the drawings pursuant to subsections 4.5(a), (b) and (c)), and on the related
Transfer Date the proceeds from such drawing shall be paid to the Servicer and
JCPR. In the event that there are not sufficient Finance Charge Collections and
Letter of Credit drawings to pay all such fees, the shortfall shall be shared
pro rata by the Servicer and JCPR.
(e) Payments to the Letter of Credit Banks or JCPR with respect to
each Series. With respect to each Series, on each Transfer Date, after giving
effect to the withdrawals pursuant to subsections 4.5(a), (b), (c) and (d), the
Trustee, acting in accordance with instructions from the Servicer, shall
withdraw all the remaining Finance Charge Collections. The Trustee shall
transfer such funds out of the Trust to the Letter of Credit Bank, if any, for
such Series for application by such Letter of Credit Bank in accordance with the
related Letter of Credit Agreement, provided that if a Letter of Credit shall
not have been issued with respect to such Series or if, and to the extent, the
Letter of Credit Agreement shall provide for direct payment to JCPR in the
circumstances then existing, then the Trustee shall transfer such funds to JCPR.
Neither the Trustee nor the Certificateholders shall have any rights in any
funds held by the Letter of Credit Bank or paid to JCPR.
Section 4.6 Payment of Certificate Interest with respect to each Series.
With respect to each Series, on each Distribution Date, the Paying Agent shall
pay in accordance with Section 5.1 to the Certificateholders of such Series from
the Distribution Account the amount deposited into the Distribution Account for
the account of such Series pursuant to subsection 4.5(a) on the related Transfer
Date.
Section 4.7 Payment of Certificate Principal with respect to each Series.
(a) On each Determination Date, with respect to each Series in the
Amortization Period, the Servicer shall instruct the Trustee to withdraw for
such Series, and on each related Transfer Date the Trustee shall withdraw from
the Principal Account
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and deposit in the Distribution Account for the benefit of such Series the
amount deposited for such Series in the Principal Account for the account of
such Series pursuant to subsection 4.3(c)(ii)(B) in respect of the preceding
Monthly Period or 4.3(f)(iii)(B) for the benefit of such Series; provided that
with respect to the final Transfer Date, the Trustee shall withdraw from the
amounts deposited in the Principal Account for the benefit of such Series, and
deposit into the Distribution Account for the benefit of such Series an amount
which is no greater than the Adjusted Investor Amount for each Series as of the
end of the day on the second Record Date preceding such Distribution Date.
(b) On each Distribution Date occurring after a deposit is made
pursuant to subsection 4.7(a), the Paying Agent shall pay in accordance with
Section 5.1 to the Certificateholders of each Series from the Distribution
Account, the amount deposited into the Distribution Account for the benefit of
such Series pursuant to subsections 4.5(a), (b) and (c) and 4.7(a) on the
related Transfer Date.
Section 4.8 Adjustments for Miscellaneous Credits.
(a) JCPR shall be obligated to reduce on a net basis each Monthly
Period the aggregate amount of Principal Receivables used to calculate the JCPR
Amount as provided in this Section 4.8 (a "Credit Adjustment") with respect to
any Principal Receivable (i) which was created in respect of merchandise refused
or returned by the Obligor thereunder or as to which the Obligor thereunder has
asserted a counterclaim or defense, (ii) which is reduced by the Servicer by any
rebate, refund, chargeback or adjustment, (iii) which was created through a
fraudulent or counterfeit charge, as determined and allocated to the Accounts in
the good faith judgment of the Servicer, or (iv) which was removed from an
Account and transferred to another JCPenney account which is not an Account by
reason of a request by the Obligor to change Cycles.
(b) In the event that the exclusion of the amount of a Credit
Adjustment from the calculation of the JCPR Amount would cause the JCPR Amount
to be an amount less than zero, JCPR shall make a deposit, no later than the
Business Day following the Date of Processing of such Credit Adjustment, in the
Collection Account in immediately available funds, in an amount equal to the
amount by which such Credit Adjustment exceeds the JCPR Amount on such Date of
Processing. Such deposit shall be applied in accordance with Section 4.3 and
treated as a Collection for all purposes hereof.
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Section 4.9 JCPR's or Servicer's Failure to Make a Deposit or Payment.
(a) If the Servicer or JCPR fails to make, or give instructions
to make, any payment or deposit (other than as required by subsection 2.4(e) or,
except as specifically provided in the Supplement relating to the applicable
Series, subsection 12.2(a)) required to be made or given by the Servicer or
JCPR, respectively, at the time specified in this Agreement (including
applicable grace periods), the Trustee shall make such payment from the
applicable Investor Account without instruction from the Servicer or shall make
a drawing under the appropriate Letter of Credit (on the basis of the amount of
any such payment or deposit allocable to the Series supported by such Letter of
Credit) in an amount equal to the amount of such payment or deposit. The
Servicer shall, upon request of the Trustee, promptly provide the Trustee with
all information necessary to allow the Trustee to make such a payment or
drawing. Such funds or the proceeds of such drawing shall be applied by the
Trustee in the manner in which such payment or deposit should have been made by
JCPR or the Servicer, as the case may be.
(b) If a drawing is made pursuant to subsection 4.9(a) because of
a failure of the Servicer or JCPR to make, or give instructions to make, any
payment or deposit required to be made or given by the Servicer or JCPR from
sources other than a draw under the Letter of Credit, the Servicer or JCPR, as
the case may be, shall, as appropriate, make the required payment, deposit or
transfer or give the Trustee instructions to transfer the required payment or
deposit in respect of which such drawing was made to the appropriate Letter of
Credit Bank on the basis of amounts drawn.
Section 4.10 Letter of Credit. JCPR hereby represents that, and to the
extent provided in the applicable Supplement, (a) the Letter of Credit, if any,
and Repurchase Letter of Credit, if any, for each Series will be obtained by it
or on its behalf and payable to the Trustee for the benefit of the
Certificateholders of such Series, (b) it has entered or will enter into the
Letter of Credit Agreement for each Series, if any, and (c) each Letter of
Credit and Repurchase Letter of Credit, respectively, permits or will permit the
Trustee or the Servicer acting as the Trustee's attorney-in-fact to make
drawings or otherwise receive payments from time to time in an amount up to the
Available L/C Amount for such Letter of Credit at such time, and the Repurchase
L/C Amount for such Repurchase Letter of Credit, respectively, for the purposes
set forth in this Agreement and the applicable Supplement. As compensation for
arranging for Letters of Credit and Repurchase Letters of Credit or for
arranging other forms of credit enhancement hereunder from time to time, JCPR
shall be entitled to receive a monthly facility fee in respect of any Monthly
Period (or portion thereof) prior to the termination of the Trust
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pursuant to Section 12.1, payable in arrears on each Transfer Date in an amount
equal to the total for all Series of the following amount calculated for each
Series: 1/12th of the product of (A) the Facility Fee Percentage for such
Series, and (B) the Adjusted Investor Amount for such Series on the first day of
such Monthly Period or on the Closing Date for such Series, as the case may be
(in the aggregate, the "Monthly Facility Fee" and, with respect to such Series,
the "Investor Monthly Facility Fee"), which fees shall be paid to JCPR pursuant
to Section 4.5. In the case of the Monthly Period in which a Closing Date
occurred for any Series, the Monthly Facility Fee and the Investor Monthly
Facility Fee with respect to such Series shall accrue from the date interest
first begins to accrue with respect to such Series.
ARTICLE V
DISTRIBUTIONS AND REPORTS
TO INVESTOR CERTIFICATEHOLDERS
Section 5.1 Distributions. On each Distribution Date, the Paying Agent
shall distribute (in accordance with the certificate delivered by the Servicer
to the Trustee pursuant to subsection 3.4(c)) to each Investor Certificateholder
of record of any Series on the preceding Record Date (other than as provided in
Section 2.4 or in Section 12.3 hereof respecting a final distribution) such
Certificateholder's pro rata share (based on the aggregate Undivided Interests
represented by Investor Certificates of such Series held by such
Certificateholder) of amounts on deposit in the Distribution Account as are
payable to the Investor Certificateholders of such Series pursuant to Sections
4.6 and 4.7 hereof by check mailed to each Certificateholder, except that with
respect to Certificates registered in the name of the nominee of a Clearing
Agency, such distribution shall be made in immediately available funds.
Section 5.2 Monthly Certificateholders' Statement. (a) On each
Distribution Date, the Paying Agent shall forward to each Certificateholder of
any Series, and any applicable Rating Agency a statement substantially in the
form of Exhibit J prepared by the Servicer setting forth the following
information (which, in the case of (i), (ii) and (iii) below, shall be stated on
the basis of an original principal amount of $1,000 per Certificate of each
Series and, in the case of (ix) and (x) shall be stated on an aggregate basis
and on the basis of an original principal amount of $1,000 per Certificate of
such Series):
(i) the total amount distributed to such Series;
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(ii) the amount of such distribution allocable to Certificate
Principal of such Series;
(iii) the amount of such distribution allocable to Certificate
Interest of such Series;
(iv) the aggregate amount of Collections of Principal
Receivables processed during the preceding Monthly Period and allocated in
respect of the Investor Certificates of such Series;
(v) the aggregate amount of Collections of Finance Charge
Receivables and Net Recoveries, if any, processed during the preceding
Monthly Period and allocated in respect of Investor Certificateholders of
such Series;
(vi) the aggregate amount of Principal Receivables, the
Investor Amount and the Investor Amount as a percentage of the aggregate
amount of the Principal Receivables in the Trust as of the end of the day
on the last day of the preceding month for such Series;
(vii) the aggregate outstanding balance of Accounts which are
one, two, three, four, five and six or more months delinquent as of the end
of the day on the last day of the preceding month;
(viii) the Investor Default Amount for such Series for the
preceding Monthly Period;
(ix) the aggregate amount of Investor Charge Offs for such
Series for the preceding Monthly Period;
(x) the aggregate amount of Investor Charge Offs for such
Series reimbursed on the Transfer Date immediately preceding such
Distribution Date;
(xi) the amount of the Investor Monthly Servicing Fee for such
Series for the preceding Monthly Period;
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(xii) the amount of any Investor Monthly Facility Fee for
such Series for the preceding Monthly Period;
(xiii) the Available L/C Amount for such Series, if any, as of
the close of business on such Distribution Date;
(xiv) the Pool Factor for such Series; and
(xv) any other information specified in the Supplement with
respect to such Series.
(b) Annual Certificateholders' Tax Statement. On or before
January 31 of each calendar year, beginning with calendar year 1989, JCPR shall
furnish to each Person who at any time during the preceding calendar year was an
Investor Certificateholder a statement prepared by the Servicer containing the
information required to be contained in the regular monthly report to Investor
Certificateholders, as set forth in subclauses (i), (ii) and (iii) above
aggregated for such calendar year or the applicable portion thereof during which
such Person was an Investor Certificateholder, together with such other
customary information (consistent with the treatment of the Certificates as
debt, as provided in Section 3.7 hereof) as the Trustee or the Servicer deems
necessary or desirable to enable the Investor Certificateholders to prepare
their tax returns. Such obligations of JCPR shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by JCPR pursuant to any requirements of the Internal Revenue Code, as
from time to time in effect.
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. The Investor Certificates of each Series
and the Exchangeable Certificate shall be substantially in the form of Exhibits
A and B, respectively, and shall, upon issue, be executed and delivered by JCPR
to the Trustee for authentication and redelivery as provided in Sections 2.1,
6.2, 6.11 and 6.12. The Investor Certificates shall be issuable in a minimum
denomination of $1,000 Undivided Interest and integral multiples thereof and
shall be issued upon initial issuance of any Series as a single Certificate in
an original principal amount equal to the Initial Investor Amount for such
Series. The Exchangeable Certificate shall be issued in one Certificate. Each
Certificate shall be executed by manual or facsimile signature on
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behalf of JCPR by an authorized officer of JCPR. Certificates bearing the manual
or facsimile signature of the individual who was, at the time when such
signature was affixed, authorized to sign on behalf of JCPR or the Trustee shall
not be rendered invalid, notwithstanding that such individual has ceased to be
so authorized prior to the authentication and delivery of such Certificates or
does not hold such office at the date of such Certificates. No Certificate shall
be entitled to any benefit under this Agreement or any applicable Supplement, or
be valid for any purpose, unless there appears on such Certificate a certificate
of authentication substantially in the form provided for herein executed by or
on behalf of the Trustee by the manual signature of a duly authorized signatory,
and such certificate upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Section 6.2 Authentication of Certificates. Contemporaneously with the
transfer of the Receivables, whether now existing or hereafter created (other
than Receivables in Additional Accounts) and the other components to the Trust,
the Trustee shall authenticate and deliver the Investor Certificate for the
initial Series issued hereunder, upon the order of JCPR, to the managing
underwriter for the sale of the Book-Entry Certificates evidenced by such
Investor Certificate, and against payment to JCPR of the Initial Investor Amount
for such Series (net of any purchase discount or underwriting discounts). The
Trustee shall deliver the Exchangeable Certificate to JCPR simultaneously with
its delivery to JCPR of the Investor Certificate for such Series. The
Certificates shall be duly authenticated by or on behalf of the Trustee, in
authorized denominations equal to (in the aggregate) in the case of the Investor
Certificates, the Initial Investor Amount for such Series, and, in the case of
the Exchangeable Certificate, in a denomination equal to the JCPR Amount from
time to time, and together evidencing the entire ownership of the Trust as of
the Initial Closing Date.
Section 6.3 Registration of Transfer and Exchange of Certificates. (a)
The Trustee shall cause to be kept at the office or agency to be maintained by a
transfer agent and registrar (the "Transfer Agent and Registrar") in accordance
with the provisions of Section 11.16 a register (the "Certificate Register") in
which, subject to such reasonable regulations as it may prescribe, the Transfer
Agent and Registrar shall provide for the registration of the Investor
Certificates and of transfers and exchanges of the Investor Certificates as
herein provided. The Trustee is hereby initially appointed Transfer Agent and
Registrar for the purpose of registering the Investor Certificates and transfers
and exchanges of the Investor Certificates as herein provided. The Trustee
shall be permitted to resign as Transfer Agent and Registrar upon 30 days
written notice to
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JCPR. In the event that the Trustee shall no longer be the Transfer Agent and
Registrar, the Trustee shall appoint a successor Transfer Agent and Registrar.
Upon surrender for registration of transfer of any Investor Certificate at
any office or agency of the Transfer Agent and Registrar maintained for such
purpose, JCPR shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Investor
Certificates in authorized denominations of like aggregate Undivided Interests
and Series.
At the option of an Investor Certificateholder, Investor Certificates may
be exchanged for other Investor Certificates of the same Series and authorized
denominations of like Undivided Interests, upon surrender of the Investor
Certificates to be exchanged at any such office or agency. Whenever any
Investor Certificates are so surrendered for exchange, JCPR shall execute, and
the Trustee shall authenticate and deliver, the Investor Certificates which the
Certificateholder making the exchange is entitled to receive. Every Investor
Certificate presented or surrendered for registration of transfer or exchange
shall be accompanied by a written instrument of transfer in a form satisfactory
to the Trustee and the Transfer Agent and Registrar duly executed by the
Certificateholder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Investor
Certificates.
All Investor Certificates surrendered for registration of transfer and
exchange shall be cancelled and disposed of in a manner satisfactory to JCPR and
the Trustee.
(b) It is the understanding of the parties to this Agreement that
JCPenney has particular expertise in performing the functions given by this
Agreement to the Servicer and that the Investor Certificateholders will be
purchasing Certificates relying on JCPenney's exercising such expertise in
performing such functions. As provided in Sections 8.5 and 8.7, the Servicer is
not permitted to resign, except as otherwise permitted in such sections, and the
parties understand that the Servicer's performance of its servicing functions
and the quality of the Receivables will best be ensured if JCPR or JCPenney
retains the Exchangeable Certificate. Accordingly, except as provided in
Section 7.2, the Exchangeable Certificate, or any interest therein, shall not be
transferred, assigned, exchanged, or otherwise transferred other than from JCPR
to JCPenney.
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(c) The Transfer Agent and Registrar will maintain at its expense
in the Borough of Manhattan, The City of New York, an office or offices or
agency or agencies where Investor Certificates may be surrendered for
registration of transfer or exchange.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or
JCPR and the Transfer Agent and Registrar receives evidence to each of its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
is delivered to JCPR, the Transfer Agent and Registrar and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Trustee that such Certificate has been
acquired by a bona fide purchaser, JCPR shall execute and the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
aggregate Undivided Interest. In connection with the issuance of any new
Certificate under this Section 6.4, the Trustee or the Transfer Agent and
Registrar may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Transfer Agent
and Registrar) connected therewith. Any duplicate Certificate issued pursuant
to this Section 6.4 shall constitute complete and indefeasible evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
Section 6.5 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, JCPR and the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of them may treat
the person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 5.1
and for all other purposes whatsoever, and neither JCPR and the Trustee, the
Paying Agent, the Transfer Agent and Registrar nor any agent of any of them
shall be affected by any notice to the contrary; provided, however, that in
determining whether the holders of Investor Certificates evidencing the
requisite Undivided Interests have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Investor Certificates owned by
JCPR, the Servicer or any Affiliate thereof shall be disregarded and deemed not
to be outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Investor Certificates which a Responsible
Officer in the Corporate Trust Office of the Trustee knows to be so owned shall
be so disregarded. Investor Certificates so owned which have
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been pledged in good faith shall not be disregarded and may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Investor Certificates and that
the pledgee is not JCPR, the Servicer or an Affiliate thereof.
Section 6.6 Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Investor Certificateholders of each Series from the
Distribution Account pursuant to Section 5.1. Any Paying Agent shall have the
revocable power to withdraw funds from the Distribution Account for the purpose
of making distributions referred to above. The Trustee may revoke such power
and remove the Paying Agent, if the Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent shall initially be the
Trustee. The Trustee shall be permitted to resign as Paying Agent upon 30 days'
written notice to JCPR. In the event that the Trustee shall no longer be the
Paying Agent, the Trustee shall appoint a Qualified Institution to be successor.
Each Paying Agent must be acceptable to JCPR. The provisions of Sections 11.1,
11.2 and 11.3 shall apply to the Trustee also in its role as Paying Agent, for
so long as the Trustee shall act as Paying Agent.
(b) The Trustee shall cause the Paying Agent (other than itself)
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent will hold all sums, if any,
hold by it for payment to the Investor Certificateholders in trust for the
benefit of the Investor Certificateholders entitled thereto until such sums
shall be paid to such Certificateholders and shall agree, and if the Trustee is
the Paying Agent it hereby agrees, that it shall comply with all requirements of
the Internal Revenue Code regarding the withholding of payments in respect of
federal income taxes due from Certificate Owners by the Trustee.
Section 6.7 Access to List of Certificateholders' Names and Addresses. The
Trustee will furnish or cause to be furnished by the Transfer Agent and
Registrar to JCPR or the Paying Agent, within five Business Days after receipt
by the Trustee of a request therefor from JCPR or the Paying Agent,
respectively, in writing, a list in such form as the JCPR or the Paying Agent
may reasonably require, of the names and addresses of the Investor
Certificateholders as of the most recent Record Date for payment of
distributions to Investor Certificateholders. If Holders of Investor
Certificates (the "Applicants") evidencing Undivided Interests aggregating not
less than 5% of the Aggregate Investor Amount apply in writing to the Trustee,
and such application states that the Applicants desire to communicate with other
Investor
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Certificateholders with respect to their rights under this Agreement or under
the Investor Certificates and is accompanied by a copy of the communication
which such Applicants propose to transmit, then the Trustee, after having been
adequately indemnified by such Applicants for its costs and expenses, shall
afford or shall cause the Transfer Agent and Registrar to afford such Applicants
access during normal business hours to the most recent list of
Certificateholders held by the Trustee and shall give the Servicer notice that
such request has been made, within five Business Days after the receipt of such
application. Such list shall be as of a date no more than 45 days prior to the
date of receipt of such Applicants' request. Every Certificateholder, by
receiving and holding a Certificate, agrees with the Trustee that neither the
Trustee, the Transfer Agent and Registrar, nor any of their respective agents
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Certificateholders hereunder, regardless of
the source from which such information was obtained.
Section 6.8 Authentication Agent. (a) The Trustee may appoint one or
more authenticating agents with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in authenticating the Certificates in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of Certificates. Whenever reference is made in this Agreement to the
authentication of Certificates by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be acceptable to JCPR.
(b) Any institution succeeding to the corporate agency business of
an authenticating agent shall continue to be an authenticating agent without the
execution or filing of any paper or any further act on the part of the Trustee
or such authenticating agent.
(c) An authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to JCPR. The Trustee may at any
time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to JCPR. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time an
authenticating agent shall cease to be acceptable to the Trustee or JCPR, the
Trustee promptly may appoint a successor authenticating agent. Any successor
authenticating agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an authenticating agent.
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No successor authenticating agent shall be appointed unless acceptable to the
Trustee and JCPR.
(d) The Trustee agrees to pay each authenticating agent from time to
time reasonable compensation for its services under this Section 6.8, and the
Trustee shall be entitled to be reimbursed and JCPR shall reimburse the Trustee
for such reasonable payments actually made, subject to the provisions of Section
11.5.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be applicable
to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.8, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
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This is one of the Certificates described in the Pooling and Servicing
Agreement.
_________________________
_________________________
as Authenticating Agent
for the Trustee,
By: ______________________
Authorized Office
Section 6.9 Book-Entry Certificates for any Series. As provided in any
Supplement, the Investor Certificates of each Series, upon original issuance,
may be issued in the form of a single typewritten Certificate representing the
Book-Entry Certificates, to be delivered to The Depository Trust Company, the
initial Clearing Agency, by, or on behalf of, JCPR. Such Investor Certificates
shall initially be registered on the Certificate Register in the name of CEDE &
Co., the nominee of the Clearing Agency, and no Certificate Owner will receive a
definitive certificate representing such Certificate Owner's interest in the
Investor Certificates, except as provided in Section 6.11. Unless and until
definitive, fully registered Investor Certificates (the "Definitive
Certificates") have been issued to Certificate Owners of such Series pursuant to
Section 6.11:
(i) the provisions of this Section 6.9 shall be in full force
and effect;
(ii) JCPR, the Servicer, the Paying Agent, the Transfer Agent
and Registrar and the Trustee may deal with the related Clearing Agency and
the related Clearing Agency Participants for all purposes (including the
making of distributions on the Investor Certificates) as the authorized
representatives of such Certificate Owners;
(iii) with respect to such Series, to the extent that the
provisions of this Section 6.9 conflict with any other provisions of this
Agreement or any applicable Supplement, the provisions of this Section 6.9
shall control; and
(iv) the rights of Certificate Owners of such Series shall be
exercised only through such Clearing Agency and such Clearing
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Agency Participants and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Depository Agreement,
unless and until Definitive Certificates are issued pursuant to Section
6.11, the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Investor Certificates to such Clearing
Agency Participants.
Section 6.10 Notices to Clearing Agency of any Series.
Whenever notice or other communication to the Certificateholders is
required under this Agreement or any Supplement, unless and until Definitive
Certificates shall have been issued to Certificate Owners of any Series pursuant
to Section 6.11, the Trustee shall give all such notices and communications
specified herein to be given to Holders of the Investor Certificates to the
Clearing Agency.
Section 6.11 Definitive Certificates for any Series Initially Issued as
Book-Entry Certificates.
If (i)(A) JCPR advises the Trustee in writing that the Clearing Agency of
any Series is no longer willing or able properly to discharge its
responsibilities under the related Depository Agreement, and (B) the Trustee or
JCPR is unable to locate a qualified successor, (ii) JCPR, at its option,
advises the Trustee in writing that it elects to terminate the book-entry system
through such Clearing Agency with respect to one or more Series or (iii) after
the occurrence of a Servicer Default, Certificate Owners representing beneficial
interests aggregating not less than 50% of the Investor Amount of such Series
advise the Trustee and the related Clearing Agency through the related Clearing
Agency Participants in writing that the continuation of a book-entry system
through such Clearing Agency is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners of the
applicable Series through such Clearing Agency, of the occurrence of any such
event and of the availability of Definitive Certificates of such Series to
Certificate Owners requesting the same. Upon surrender to the Trustee of the
Investor Certificates of such Series by the related Clearing Agency, accompanied
by registration instructions from the related Clearing Agency for registration,
the Trustee shall issue the Definitive Certificates for such Series. Neither
JCPR nor the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of such Definitive Certificates all
references herein to
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obligations imposed upon or to be performed by the Clearing Agency shall be
deemed to be imposed upon and performed by the Trustee, to the extent applicable
with respect to such Definitive Certificates of such Series and the Trustee
shall recognize the Holders of the Definitive Certificates of such Series as
Certificateholders hereunder.
Section 6.12 Delivery of Exchangeable Certificate, etc.
(a) Upon any Exchange, the Trustee shall issue to JCPR under
Section 6.1 for execution and redelivery to the Trustee for authentication under
Section 6.2 one or more Series of Investor Certificates. Any such Series of
Investor Certificates shall be substantially in the form of Exhibit A and shall
bear, upon its face, the designation for such Series to which it belongs so
selected by JCPR. All Investor Certificates of a particular Series shall be
identical in all respects except for the denominations thereof and shall be
equally and ratably entitled as provided herein to the benefits hereof without
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions of
this Agreement and the applicable Supplement.
(b) JCPR may deliver the Exchangeable Certificate to the Trustee
in exchange for (i) one or more newly issued Series of Investor Certificates and
(ii) a reissued Exchangeable Certificate (any such delivery, an "Exchange").
JCPR may perform an Exchange by notifying the Trustee, in writing, at least five
Business Days in advance (an "Exchange Notice") of the date upon which the
Exchange is to occur (an "Exchange Date"). Any Exchange Notice shall state the
designation of any Series to be issued on the Exchange Date and, with respect to
each such Series: (a) its Initial Investor Amount which, in the aggregate, may
not be greater than the current principal amount of the Exchangeable
Certificate, (b) its Certificate Rate and (c) the Letter of Credit Bank, if any,
and Repurchase Letter of Credit Bank, if any, which is expected to provide
credit enhancement with respect to it. On the Exchange Date, the Trustee shall
issue any such Series upon delivery to it of the following:
(a) a Supplement in form satisfactory to the Trustee executed by
JCPR and JCPenney and specifying the Principal Terms of such Series,
(b) the applicable Letter of Credit, if any, and Repurchase
Letter of Credit, if any,
(c) if any Series is outstanding that has been rated by a Rating
Agency, the Trustee shall have received, with respect to each such Series
the written
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advice of each such Rating Agency that the issuance of such new Series will
not result in such Rating Agency's reducing or withdrawing its rating of
such outstanding Series, or if no Series is outstanding that has been rated
by a Rating Agency, the Trustee shall have received a letter from a
nationally recognized investment banking firm stating, in substance, that
the issuance of such new Series should not have an adverse effect on the
timing or amount of payments to the Holders of any Series then outstanding
or, if they would have such an adverse effect on any Series, that such
adverse effect is permitted by the terms of the Supplement pursuant to
which the adversely affected Series was issued,
(d) an Officer's Certificate of JCPR stating that the issuance
of such Series pursuant to the Exchange on the Exchange Date shall not, in
the reasonable belief of JCPR, cause a Pay Out Event, or an event which
with notice or lapse of time or both would constitute a Pay Out Event, with
respect to any Series to occur,
(e) an Opinion of Counsel to the effect that the Investor
Certificates issued pursuant to the Exchange should be treated as debt for
federal income tax purposes,
(f) a Letter of Credit Agreement, if any, executed by JCPR and
the Letter of Credit Bank, and
(g) the existing Exchangeable Certificate, to the Trustee.
Upon satisfaction of such conditions, the Trustee shall cancel the existing
Exchangeable Certificate and issue, as provided above, such Series of Investor
Certificates and a new Exchangeable Certificate dated the Exchange Date.
(c) In conjunction with the issuance of the first Series of
Certificates on the date hereof and hereafter in conjunction with an Exchange,
the parties hereto shall execute a Supplement. Any Supplement shall be
substantially in the form of Exhibit C and shall specify, with respect to any
Series of Investor Certificates:
(i) its name or designation;
(ii) an Initial Investor Amount;
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(iii) a Certificate Rate (or formula for the determination
thereof);
(iv) an Amortization Commencement Date;
(v) the Servicing Fee Percentage;
(vi) the Letter of Credit Bank, if any;
(vii) the Stated L/C Amount, if any;
(viii) a Mandatory Repurchase Amount and Optional Repayment
Percentage, if any;
(ix) the Repurchase Letter of Credit Bank, if any;
(x) the Repurchase L/C Amount, if any;
(xi) the Base Rate;
(xii) the percentages, if any, applicable to such Series
pursuant to subsections 9.1(h) and 9.1(i);
(xiii) the Facility Fee Percentage, if any;
(xiv) any additional terms relating to the acquisition or
full payment of such Series of Investor Certificates;
(xv) the Final Maturity Date;
(xvi) the Minimum JCPR Percentage;
(xvii) the extent to which, and terms upon which, if any,
any portion of the payments, to be made to JCPR pursuant to subsection
4.3(c)(i)(B) or the Holder of the Exchangeable Certificate pursuant to
subsection 4.3(c)(iii) shall be made available for distribution to the
Certificateholders of such Series; and
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(xviii) any other relevant terms permitted hereby, including,
without limitation,
(A) the method of determining the Investor Percentages
(which need not be the same at all times such Series is outstanding and
which may vary as among Principal Receivables, Finance Charge Receivables,
Receivables in Defaulted Accounts and other items) applicable to such
Series and any one or more other Series then outstanding, to the extent
permitted hereunder or permitted in the Supplement under which such
outstanding Series was created, or issued thereafter,
(B) the method of allocating and paying Collections of
items allocable to such Series among JCPR, the Certificateholders of such
Series or any other Person or among such Series and any one or more other
Series then outstanding, to the extent permitted hereunder or permitted in
the Supplement under which such outstanding Series was created, or issued
thereafter,
(C) provisions creating different or additional security
(including Letters of Credit and other credit enhancement facilities) for
the payment of such Series,
(D) provisions subordinating such Series to other Series,
stating that such Series shall be senior to one or more other Series (but
only to the extent the Supplement under which such other Series was created
stated that such Series may be made subordinate) or subordinating all or a
portion of the JCPR Amount to one or more Series, and
(E) any other amendment or supplement to any term hereof
which is explicitly made applicable only to the Series designated in such
Supplement
(all such terms, the "Principal Terms" of such Series). JCPR shall also specify
in such Supplement the Person or Persons to whom the authenticated Series of
Certificates shall be delivered by the Trustee and the amount of any payment
therefor.
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ARTICLE VII
OTHER MATTERS RELATING
TO JCPR
Section 7.1 Liability of JCPR. JCPR shall be liable in accordance
herewith to the extent of the obligations specifically undertaken by JCPR
hereunder.
Section 7.2 Merger or Consolidation of, or Assumption of the Obligations
of, JCPR, etc. (a) JCPR shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person.
(b) The obligations of JCPR hereunder shall not be assignable nor
shall any Person succeed to the obligations of JCPR hereunder except in
accordance with the provisions of the Receivables Purchase Agreement.
(c) JCPR shall not amend Articles 3 or 10 or the last sentence of
Article 6 of its Certificate of Incorporation without the consent of the Holders
of Investor Certificates evidencing Undivided Interests aggregating not less
than two-thirds of the Aggregate Investor Amount. JCPR shall deliver to the
Rating Agencies a copy of any request sent to the Holders of Investor
Certificates for any such consent.
Section 7.3 Limitation on Liability of JCPR. Neither JCPR nor any of the
directors or officers or employees or agents of JCPR shall be under any
liability to the Trust, the Trustee, the Certificateholders or any other Person
for any action taken or for refraining from the taking of any action pursuant to
this Agreement whether arising from express or implied duties under this
Agreement or any Supplement; provided, however, that this provision shall not
protect JCPR or any such person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of its willful misconduct hereunder. JCPR
and any director or officer or employee or agent of JCPR may rely in good faith
on any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder.
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ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer. The Servicer shall not consolidate with or merge into any
other corporation or convey or transfer its properties and assets substantially
as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which
the Servicer is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Servicer substantially as an
entirety shall be a corporation organized and existing under the laws of
the United States of America or any State or the District of Columbia, and,
if the Servicer is not the surviving entity, shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Trustee in
form satisfactory to the Trustee, the performance of every covenant and
obligation of the Servicer hereunder; and
(ii) the Servicer has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolida-
tion, merger, conveyance or transfer and such supplemental agreement comply
with this Section 8.2 and that all conditions precedent herein provided for
relating to such transaction have been complied with.
Section 8.3 Limitation on Liability of the Servicer and Others. Except
as provided in Section 8.4 with respect to the Trust and the Trustee, neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Trust, the Trustee, the
Certificateholders or any other Person for any action taken or for refraining
from the taking of any action in its capacity as Servicer pursuant to this
Agreement or any Supplement; provided, however, that this provision shall not
protect the Servicer or any such person against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of its willful misconduct
hereunder. The
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Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Receivables in
accordance with this Agreement which in its reasonable opinion may involve it in
any expense or liability.
Section 8.4 Indemnification of the Trust and the Trustee. The Servicer
shall indemnify and hold harmless the Trust and the Trustee from and against any
loss, liability, expense, damage or injury suffered or sustained by reason of
any acts, omissions or alleged acts or omissions arising out of activities of
the Trust or the Trustee pursuant to this Agreement or any Supplement, including
those arising from acts or omissions of the Servicer pursuant to this Agreement
or any Supplement, including, but not limited to any judgment, award,
settlement, reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided, however, that the Servicer shall not indemnify the Trust or the
Trustee if such acts, omissions or alleged acts or omissions constitute fraud,
negligence, breach of fiduciary duty or wilful misconduct by the Trustee;
provided further, that the Servicer shall not indemnify the Trust, the Trustee,
any Investor Certificateholders or any Certificate Owners for any liabilities,
costs or expenses of the Trust with respect to any action taken by the Trustee
at the request of such Investor Certificateholders; provided further, that the
Servicer shall not indemnify the Trust, any Investor Certificateholders or any
Certificate Owners as to any losses, claims or damages incurred by any of them
in their capacities as investors, including without limitation losses incurred
as a result of defaulted Receivables or Receivables which are written off as
uncollectible, and provided further, that the Servicer shall not indemnify the
Trust, any Investor Certificateholders or the Certificate Owners for any
liabilities, costs or expenses of the Trust, such Investor Certificateholders or
the Certificate Owners arising under any tax law, including without limitation
any federal, state or local income or franchise taxes 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,
such Investor Certificateholders or such Certificate Owners in connection
herewith to any taxing authority. The provisions of this indemnity shall run
directly to and be enforceable by an injured party subject to the limitations
hereof.
Section 8.5 The Servicer Not to Resign. The Servicer shall not resign
from the obligations and duties hereby imposed on it except upon determination
that (i) the performance of its duties hereunder is or becomes impermissible
under applicable law
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and (ii) there is no reasonable action which the Servicer could take to make the
performance of its duties hereunder permissible under applicable law. Any such
determination permitting the resignation of the Servicer shall be evidenced as
to clause (i) above by an Opinion of Counsel to such effect delivered to the
Trustee. No such resignation shall become effective until the Trustee or a
Successor Servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 10.2 hereof. If the Trustee is unable
within 120 days of the date of such determination to appoint a Successor
Servicer, the Trustee shall serve as Successor Servicer hereunder but shall have
continuing authority to appoint a Successor Servicer.
Section 8.6 Access to Certain Documentation and Information Regarding the
Receivables. The Servicer shall provide to the Trustee access to the
documentation regarding the Accounts and the Receivables in such cases where the
Trustee is required in connection with the enforcement of the rights of the
Investor Certificateholders, or by applicable statutes or regulations to review
such documentation, such access being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours, (iii) subject to the
Servicer's normal security and confidentiality procedures and (iv) at offices
designated by the Servicer. Nothing in this Section 8.6 shall derogate from the
obligation of JCPR, the Trustee or the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors and the failure of
the Servicer to provide access as provided in this Section 8.6 as a result of
such obligation shall not constitute a breach of this Section 8.6.
Section 8.7 Delegation of Duties. In the ordinary course of business,
the Servicer may at any time delegate any duties hereunder to any Person who
agrees to conduct such duties in accordance with the Credit Card Guidelines and
this Agreement. Any such delegations shall not relieve the Servicer of its
liability and responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.5 hereof.
Section 8.8 Examination of Records. The Servicer shall clearly and
unambiguously identify each Account (including any Additional Account designated
pursuant to Section 2.6) in its computer or other records to reflect that the
Receivables arising in such Account have been sold to JCPR and transferred by
JCPR to the Trust pursuant to this Agreement. The Servicer shall, prior to the
sale or transfer to a third party of any receivable held in its custody, examine
its computer and other records to determine that such receivable is not a
Receivable.
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ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the following events shall
occur during the Revolving Period with respect to any Series of Investor
Certificates:
(a) failure on the part of JCPR or JCPenney (i) to make any payment
or deposit required by the terms of this Agreement or the related Supplement on
or before the date occurring five Business Days after the date such payment or
deposit is required to be made herein, or (ii) duly to observe or perform in any
material respect any other material covenants or agreements of JCPR or JCPenney
set forth in this Agreement or the related Supplement or of JCPenney set forth
in the Receivables Purchase Agreement and assigned to the Trust, which continues
unremedied for a period of 60 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to JCPR
and JCPenney by the Trustee, or to JCPR, JCPenney and the Trustee by the Holders
of Investor Certificates evidencing Undivided Interests aggregating not less
than 25% of the Aggregate Investor Amount of the related Series; or
(b) any representation or warranty made by JCPR or JCPenney in this
Agreement or the related Supplement or any information contained in a computer
file or microfiche list required to be delivered by JCPR pursuant to Section 2.1
or 2.6 shall prove to have been incorrect in any material respect when made or
when delivered, which continues to be incorrect in any material respect for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to JCPR and JCPenney by
the Trustee, or to JCPR, JCPenney and the Trustee by the Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 25% of the
Aggregate Investor Amount of the related Series and as a result of which the
interests of such Series of Investor Certificateholders are materially and
adversely affected, or if such failure cannot be cured within such 60 day period
owing to causes beyond the control of JCPR or JCPenney, as the case may be, if
JCPR or JCPenney shall fail to proceed promptly to cure the same and thereafter
prosecute the curing of such failure with diligence and continuity; provided,
however, that a Pay Out Event shall not be deemed to have occurred hereunder
with respect to such Series, if JCPR has accepted a retransfer of the related
Receivable, or all of such Receivables, if applicable, during such period (or
such longer period as the Trustee may specify) in accordance with the provisions
hereof; or
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(c) JCPR or JCPenney shall (a) become insolvent, (b) fail to pay its
debts generally as they become due, (c) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any Debtor Relief Law, (d) become a
party to (or be made the subject of) any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, and, in the event such
proceeding is involuntary, the petition instituting same is not dismissed within
90 days after its filing, or (e) become unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of this Agreement; or
(d) the average Portfolio Yield of such Series for any three
consecutive Monthly Periods is reduced to a rate which is less than the Base
Rate of such Series; or
(e) the Trust shall become an "investment company" within the meaning
of the Investment Company Act of 1940, as amended; or
(f) JCPR shall fail to transfer Receivables from Additional Accounts
to the Trust, as required by subsection 2.6(a) hereof, and such failure shall
continue for a period of 30 days after notice thereof from the Trustee to JCPR;
or
(g) any Servicer Default shall occur which would have a material
adverse effect on the Holders of the Investor Certificates of such Series; or
(h) the Available L/C Amount for such Series shall be less than the
percentage, if any, set forth in the Supplement relating to such Series; or
(i) the average Cardholder Monthly Payment Rate for any three
consecutive Monthly Periods is less than the percentage, if any, set forth in
the Supplement relating to such Series;
then (i) in the case of any event described in subparagraph (a) or (b), a Pay
Out Event will be deemed to have occurred with respect to any Series only if,
after the applicable grace period set forth in such subparagraphs, either the
Trustee or the Holders of Investor Certificates evidencing Undivided Interests
aggregating not less than 25% of the Investor Amount of such Series by notice
given in writing to JCPR and the Servicer (and to the Trustee if given by the
Certificateholders) declare that a pay out event (a "Pay Out Event") has
occurred as of the date of such notice, (ii) in the case of any event described
in subparagraph (g), a Pay Out Event will be deemed to have occurred with
respect to all Series only if either the Trustee or the Holders of Investor
Certificates
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evidencing Undivided Interests aggregating not less than 25% of the Aggregate
Investor Amount by notice given in writing 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 and (iii) in the case of any event
described in subparagraphs (c), (d), (e), (f), (h) or (i), a Pay Out Event shall
occur (with respect to all Series in the case of subparagraph (c) or (e), and
with respect only to the affected Series in the case of subparagraph (d), (f),
(h) or (i) without any notice or other action on the part of the Trustee or the
Investor Certificateholders, immediately upon the occurrence of such event.
Section 9.2 Additional Rights Upon the Occurrence of Certain Events. (a)
If JCPR voluntarily seeks, consents to or acquiesces in the benefit or benefits
of any Debtor Relief Law or becomes a party to (or is made the subject of) any
proceeding provided for by any Debtor Relief Law, other than as a creditor or
claimant, and, in the event such proceeding is involuntary, the petition
instituting same is not dismissed within 90 days after its filing (a "Bankruptcy
Event"), JCPR shall on the date of such Bankruptcy Event immediately cease to
transfer Principal Receivables to the Trust and shall promptly give notice to
the Trustee of such Bankruptcy Event. Notwithstanding any cessation of the
transfer to the Trust of additional Principal Receivables, Finance Charge
Receivables, whenever created, accrued in respect of Principal Receivables which
have been transferred to the Trust shall continue to be a part of the Trust.
Within 15 days of the Bankruptcy Event, the Trustee shall (i) publish a notice
in the Authorized Newspapers that a Bankruptcy Event has occurred and that the
Trustee intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and (ii) send written notice to the Investor
Certificateholders describing the provisions of this Section 9.2 and requesting
instructions from such Holders, which notice shall request each Investor
Certificateholder to advise the Trustee in writing that it elects one of the
following options: (i) the Investor Certificateholder wishes the Trustee to
instruct the Servicer not to sell, dispose of or otherwise liquidate the
Receivables, or (ii) the Investor Certificateholder wishes the Trustee to
instruct the Servicer to sell, dispose of or otherwise liquidate the
Receivables, (iii) the Investor Certificateholder refuses to advise the Trustee
as to whether or not the Trustee should instruct the Servicer to sell, dispose
of or otherwise liquidate the Receivables. If after 90 days from the day notice
pursuant to clause (i) above is first published (the "Publication Date"), the
Trustee shall not have received written instructions of Holders of Investor
Certificates representing Undivided Interests aggregating in excess of 50% of
the Aggregate Investor Amount to the effect that the Trustee shall not instruct
the Servicer to sell, dispose of, or otherwise liquidate the Receivables, the
Trustee, subject to the following proviso, shall proceed to sell, dispose of, or
otherwise liquidate the Receivables in a commercially reasonable
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manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids; provided, however, no such sale, disposition
or liquidation, whether in whole or in part, of the Receivables shall be
consummated until and unless the Trustee shall have first received written
instructions as aforementioned, other written response or affirmative refusal to
provide a written response (in each case, a "Response") from Holders of
Aggregate Investor Certificates representing Undivided Interests aggregating in
excess of 50% of the Aggregate Investor Amount. The Trustee may obtain a prior
determination from such conservator or receiver that the terms and manner of any
proposed sale, disposition or liquidation are commercially reasonable. The
provisions of Sections 9.1 and 9.2 shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the
Receivables pursuant to subsection (a) above shall be treated as Collections on
the Receivables and shall be allocated and deposited in accordance with the
provisions of Section 4.3; provided that the Trustee shall determine
conclusively the amount of such proceeds which are allocable to Finance Charge
Receivables and the amount of such proceeds which are allocable to Principal
Receivables. On the day following the Distribution Date on which such proceeds
are scheduled to be distributed to the Investor Certificateholders, the Trust
shall terminate.
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to Section 4.5
or to make a drawing under any Letter of Credit on or before the date occurring
five Business Days after the date such payment, transfer, deposit or drawing or
such instruction or notice is required to be made or given, as the case may be,
under the terms of this Agreement or any Supplement; or
(b) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set forth
in this Agreement or any Supplement which has a material adverse effect on the
Certificateholders, which continues unremedied for a period of 60 days after the
date on
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which written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Investor Certificates evidencing Undivided Interests
aggregating not less than 25% of the Aggregate Investor Amount; or the Servicer
shall delegate its duties under this Agreement, except as permitted by Section
8.7; or
(c) any representation, warranty or certification made by the
Servicer in this Agreement, any Supplement or in any certificate delivered
pursuant to this Agreement or any Supplement shall prove to have been incorrect
when made, which has a material adverse effect on the rights of the
Certificateholders and which continues to be incorrect in any material respect
for a period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 25% of the
Aggregate Investor Amount, or if such failure cannot be cured within such 60-day
period owing to causes beyond the control of Servicer, if Servicer shall fail to
proceed promptly to cure the same and thereafter prosecute the curing of such
failure with diligence and continuity; or
(d) the Servicer shall (a) become insolvent, (b) fail to pay its
debts generally as they become due, (c) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any Debtor Relief Law, or (d) become a
party to (or be made the subject of) any proceeding provided for by any Debtor
Relief Law, other than as a creditor or claimant, and, in the event such
proceeding is involuntary, the petition instituting same is not dismissed within
90 days after its filing;
then, so long as such Servicer Default shall not have been remedied, either the
Trustee, or the Holders of Investor Certificates evidencing Undivided Interests
aggregating not less than 51% of the Aggregate Investor Amount, by notice then
given in writing to the Servicer (and to the Trustee if given by the Investor
Certificateholders) (a "Termination Notice"), may terminate all of the rights
and obligations of the Servicer as Servicer under this Agreement and in and to
the Receivables and the proceeds thereof (other than its rights and interest, if
any, as Holder of the Exchangeable Certificate under this Agreement). After
receipt by the Servicer of such Termination Notice, and on the date that a
Successor Servicer shall have been appointed by the Trustee pursuant to Section
10.2, all authority and power of the Servicer under this Agreement shall pass to
and be vested in a Successor Servicer; and, without limitation, the Trustee is
hereby authorized and empowered (upon the failure of the Servicer to cooperate)
to execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, all documents and other
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instruments upon the failure of the Servicer to execute or deliver such
documents or instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer of servicing
rights. The Servicer agrees to cooperate with the Trustee and such Successor
Servicer in effecting the termination of the responsibilities and rights of the
Servicer to conduct servicing hereunder, including, without limitation, the
transfer to such Successor Servicer of all authority of the Servicer to service
the Receivables provided for under this Agreement, including, without
limitation, all authority over all Collections which shall on the date of
transfer be held by the Servicer for deposit, or which have been deposited by
the Servicer, in the Collection Account, the Finance Charge Account or, the
Principal Account, or which shall thereafter be received with respect to the
Receivables, and in assisting the Successor Servicer and in enforcing all rights
to Insurance Proceeds. The Servicer shall promptly transfer its electronic
records relating to the Receivables to the Successor Servicer in such electronic
form as the Successor Servicer may reasonably request and shall promptly
transfer to the Successor Servicer all other records, correspondence and
documents necessary for the continued servicing of the Receivables in the manner
and at such times as the Successor Servicer shall reasonably request. To the
extent that compliance with this Section 10.1 shall require the Servicer to
disclose to the Successor Servicer information of any kind which the Servicer
reasonably deems to be confidential, the Successor Servicer shall be required
to enter into such customary licensing and confidentiality agreements as the
Servicer shall deem necessary to protect its interest. The Servicer shall, on
the date of any servicing transfer, transfer all of its rights and obligations,
if any, under the Letter of Credit to the Successor Servicer.
Section 10.2 Trustee to Act; Appointment of Successor. (a) On and after
the receipt by the Servicer of a Termination Notice pursuant to Section 10.1,
the Servicer shall continue to perform all servicing functions under this
Agreement until the date specified in the Termination Notice or otherwise
specified by the Trustee in writing or, if no such date is specified in such
Termination Notice, or otherwise specified by the Trustee, until a date mutually
agreed upon by the Servicer and Trustee. The Trustee shall as promptly as
possible after the giving of a Termination Notice appoint a successor servicer
(the "Successor Servicer"), subject to the consent of the Letter of Credit
Banks, which shall not be unreasonably withheld, and such Successor Servicer
shall accept its appointment by a written assumption in a form acceptable to the
Trustee. The Trustee may obtain bids from any potential successor servicer. If
the Trustee is unable to obtain any bids from any potential successor servicer
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 and JCPR may accept retransfer of all the
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Receivables, provided, however, that if the long-term unsecured debt obligations
of JCPenney are not rated at the time of such purchase at least Baa-3 by
Moody's, no such retransfer shall occur unless JCPR shall deliver an Opinion of
Counsel reasonably acceptable to the Trustee that such retransfer would not
constitute a fraudulent conveyance of JCPR. The retransfer deposit amount for
such a retransfer shall be equal to the higher of the sum of, with respect to
each Series (i) the outstanding principal balance of the Investor Certificates,
plus accrued interest thereon, at the Certificate Rate for each Series, through
the date of retransfer and (ii) the average bid price quoted by two recognized
dealers for a similar security rated in the highest rating category by Moody's
and Standard & Poor's and having a remaining maturity substantially similar to
the remaining maturity of such Series. In the event that a Successor Servicer
has not been appointed and has not accepted its appointment at the time when the
Servicer ceases to act as Servicer, the Trustee without further action shall
automatically be appointed the Successor Servicer. Notwithstanding the above,
the Trustee shall, if it is legally unable so to act, petition a court of
competent jurisdiction to appoint any established financial institution having a
net worth of not less than $100,000,000 and whose regular business includes the
servicing of credit card receivables as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing functions
under this Agreement and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Servicer by the terms and
provisions hereof, and all references in this Agreement to the Servicer shall be
deemed to refer to the Successor Servicer except for the references in Sections
8.4 and 11.5 which shall continue to include JCPenney; provided, however, that
(i) JCPenney shall not indemnify the Trust or the Trustee if the acts, omissions
or alleged acts or omissions upon which a claim for indemnification arises
pursuant to Section 8.4 constitute fraud, negligence, breach of fiduciary duty
or misconduct by a Successor Servicer and (ii) JCPenney shall not pay or
reimburse the Trustee pursuant to Section 11.5 for any expense, disbursement or
advance of the Trustee related to or arising as a result of the negligence or
bad faith of the Successor Servicer. The Successor Servicer shall expressly be
authorized, subject to Section 8.7, to delegate any of its duties hereunder to
JCPenney on and after the date of any transfer of servicing pursuant to this
Article X. Any Successor Servicer, by its acceptance of its appointment, will
automatically agree to be bound by the terms and provisions of any Letter of
Credit Agreement to the extent that such terms apply to the Servicer.
(c) In connection with such appointment and assumption, the Trustee
shall be entitled to such compensation, or may make such arrangements for the
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compensation of the Successor Servicer out of Collections, as it and such
Successor Servicer shall agree; provided, however, that no such compensation
shall be in excess of the Monthly Servicing Fees permitted to the Servicer
pursuant to Section 3.2; provided, further, however, that in the event such
Successor Servicer is not an Affiliate of JCPenney, the Investor Monthly
Facility Fee payable pursuant to subsection 4.5(d) for each Series shall be
reduced to zero and the Investor Monthly Servicing Fee payable pursuant to
Section 3.2 for each Series shall be increased by the amount of such reduction
for such Series. JCPR agrees that if the Servicer is terminated hereunder, it
will agree, at the request of the Trustee or any Successor Servicer, to deposit
a portion of the Collections in respect of Finance Charge Receivables that it is
entitled to receive pursuant to subsection 4.3 (c) (iii), as applicable, to pay
its share of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer under
this Agreement shall automatically cease and terminate upon termination of the
Trust pursuant to Section 12.1 and shall pass to and be vested in JCPR and,
without limitation, JCPR is hereby authorized and empowered to execute and
deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise,
all documents and other instruments, and to do and accomplish all other acts or
things necessary or appropriate to effect the purposes of such transfer of
servicing rights. The Successor Servicer agrees to cooperate with JCPR in
effecting the termination of the responsibilities and rights of the Successor
Servicer to conduct servicing on the Receivables. The Successor Servicer shall
transfer its electronic records relating to the Receivables to JCPR or, at its
discretion, JCPenney in such electronic form as JCPR or JCPenney, as the case
may be, may reasonably request and shall transfer all other records,
correspondence and documents to JCPR in the manner and at such times as JCPR
shall reasonably request. To the extent that compliance with this Section 10.2
shall require the Successor Servicer to disclose to JCPR or JCPenney information
of any kind which the Successor Servicer deems to be confidential, JCPR or
JCPenney, as appropriate, shall be required to enter into such customary
licensing and confidentiality agreements as the Successor Servicer shall deem
necessary to protect its interests.
Section 10.3 Notification to Certificateholders. Upon the occurrence of
any Servicer Default, the Servicer shall give prompt written notice thereof to
the Trustee and the Trustee shall give notice to the Investor Certificateholders
at their respective addresses appearing in the Certificate Register. Upon any
termination or appointment of a Successor Servicer pursuant to this Article X,
the Trustee shall give prompt written notice thereof to Investor
Certificateholders at their respective addresses appearing in the Certificate
Register.
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Section 10.4 Waiver of Past Defaults. The Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 50% of the
Aggregate Investor Amount may, on behalf of all Holders of Certificates, waive
any default by the Servicer or JCPR in the performance of its obligations
hereunder and its consequences, except a default in the failure to make any
required deposits or payments in accordance with Sections 4.6 and 4.7 provided,
however, that no such waiver shall affect any rights of, or obligations to, any
Letter of Credit Bank hereunder. Upon any such waiver of a past default, such
default shall cease to exist, and any default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of a Servicer Default and
after the curing of all Servicer Defaults which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If a Servicer Default has occurred (which has not been cured or
waived), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement or any Supplement, as the case may be, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of such man's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, or any Supplement, shall examine them to determine
whether they conform to the requirements of this Agreement or any Supplement.
The Trustee shall give prompt written notice to the Certificateholders of any
material lack of conformity of any such instrument to the applicable
requirements of this Agreement or any Supplement discovered by the Trustee which
would entitle a specified percentage of the Certificateholders to take any
action pursuant to this Agreement or any Supplement.
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(c) Subject to Section 11.1(a), no provision of this Agreement or any
Supplement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct;
provided, however, that:
(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Investor Certificates
evidencing Undivided Interests aggregating not less than 51% of the
Aggregate Investor Amount relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement or any Supplement; and
(iii) the Trustee shall not be charged with knowledge of, or
required to take notice of, any failure by the Servicer to comply with the
obligations of the Servicer hereunder or of the occurrence of a Servicer
Default, and the Trustee may conclusively assume that no Servicer Default
has occurred, unless a Responsible Officer of the Trustee obtains actual
knowledge of such failure or occurrence or the Trustee receives written
notice of such failure or occurrence from the Servicer, any Letter of
Credit Bank or any Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 10% of the Aggregate Investor Amount.
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
hereunder, or in exercise of any of its rights or powers, if there is reasonable
ground for believing that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it; and none of the
provisions contained in this Agreement or any Supplement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement or any
Supplement except during such time, if any, as the Trustee shall be
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the Successor Servicer, and be vested with the rights, duties, powers and
privileges of the Servicer, in accordance with the terms of this Agreement or
any Supplement.
(e) Except for actions expressly authorized by this Agreement or any
Supplement, the Trustee shall take no action reasonably likely to impair the
interests of the Trust in any Receivable now existing or hereafter acquired by
JCPR from JCPenney pursuant to the Receivables Purchase Agreement or to impair
the value of any Receivable now existing or hereafter created.
(f) Except as provided in Section 2.6, the Trustee shall have no
power to vary the corpus of the Trust including, without limitation, the power
to (i) accept any substitute obligation for a Receivable initially assigned to
the Trust under Section 2.1 or 2.6 hereof, (ii) add any other investment,
obligation or security to the Trust or (iii) withdraw from the Trust any
Receivables, except for a withdrawal permitted under subsections 2.4(d), 2.4(e),
4.4(c), 4.8, 9.2 or 12.1.
(g) In the event that the Paying Agent or the Transfer Agent and
Registrar shall fail to perform any obligation, duty or agreement in the manner
or on the day required to be performed by the Paying Agent or the Transfer Agent
and Registrar, as the case may be, under this Agreement, the Trustee shall be
obligated promptly upon written notice of such failure to use its best efforts
to perform such obligation, duty or agreement in the manner so required.
(h) If JCPR or JCPenney has agreed to transfer any of its credit card
receivables (other than the Receivables) to another Person, upon the written
request of JCPR or JCPenney, as the case may be, the Trustee will enter into
such intercreditor agreements with the transferee of such receivables as are
customary and necessary separately to identify the rights of the Trust and such
other Person in JCPR's credit card receivables; provided, that the Trust shall
not be required to enter into any intercreditor agreement which could adversely
affect the interests of the Certificateholders and, upon the request of the
Trustee, JCPR or JCPenney, as the case may be, will deliver an Opinion of
Counsel on any matters relating to such intercreditor agreement, reasonably
requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. Except as otherwise
provided in Section ll.l:
(a) the Trustee may rely on and shall be protected in acting on, or
in refraining from acting in accord with, any resolution, Officer's Certificate,
certificate of
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auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or presented to it pursuant
to this Agreement or any Supplement by the proper party or parties;
(b) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement or any Supplement, or to
institute, conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders, pursuant to
the provisions of this Agreement or any Supplement, unless such
Certificateholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby; nothing contained herein shall, however, relieve the Trustee
of the obligations, upon the occurrence of any Servicer Default (which has not
been cured), to exercise such of the rights and powers vested in it by this
Agreement or any Supplement, and to use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances in
the conduct of such man's own affairs;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement or
any Supplement;
(e) the Trustee shall not be bound to make any investigation into the
facts of matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing so to do by Holders of Investor
Certificates evidencing Undivided Interests aggregating no less than 51% of
Aggregate Investor Amount;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or custodian
appointed with due care by it hereunder; and
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(g) except as may be required by subsection 11.1(a) hereof, the
Trustee shall not be required to make any initial or periodic examination of any
documents or records related to the Receivables or the Accounts for the purpose
of establishing the presence or absence of defects, the compliance by JCPR with
its representations and warranties or for any other purpose.
Section 11.3 Trustee Not Liable for Recitals In Certificates. The Trustee
assumes no responsibility for the correctness of the recitals contained herein
and in the Certificates (other than the certificate of authentication on the
Certificates). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or any
Supplement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document. The Trustee
shall not be accountable for the use or application by JCPR of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to JCPR in respect of the Receivables or deposited
in or withdrawn from the Collection Account, the Principal Account or the
Finance Charge Account by the Servicer.
Section 11.4 Trustee May Own Certificates. The Trustee in its individual
or any other capacity may become the owner or pledgee of Investor Certificates
with the same rights as it would have if it were not the Trustee.
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses. The
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by it in the execution of the trust
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and, subject to Section 8.4, the Servicer will
pay or reimburse the Trustee (without reimbursement from any Investor Account or
otherwise) upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement or any Supplement (including the reasonable fees
and expenses of its agents and counsel) except any such expense, disbursement or
advance as may arise from its negligence or bad faith and except as provided in
the following sentence. If the Trustee is appointed Successor Servicer pursuant
to Section 10.2, the provisions of this Section 11.5 shall not apply to
expenses, disbursements and advances made or incurred by the Trustee in its
capacity as Successor Servicer.
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The obligations of JCPR under this Section 11.5 and Section 8.4 shall
survive the termination of the Trust and the resignation or removal of the
Trustee.
Section 11.6 Eligibility Requirements for Trustee. The Trustee hereunder
shall at all times be a corporation organized and doing business under the laws
of the United States of America or any state thereof authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $10,000,000 and subject to supervision or examination by Federal or state
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section 11.6, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 11.6, the Trustee shall resign
immediately in the manner and with the effect specified in Section 11.7.
Section 11.7 Resignation or Removal of Trustees. (a) The Trustee may at
any time resign and be discharged from the trust hereby created by giving
written notice thereof to JCPR and Servicer. Upon receiving such notice of
resignation, JCPR shall promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.6 hereof and shall fail to resign
after written request therefor by JCPR, or if at any time the Trustee shall be
legally unable to act, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then
JCPR may, but shall not be required to, remove the Trustee and promptly appoint
a successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee.
(c) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 11.7 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section
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11.8 hereof and any liability of the Trustee arising hereunder shall survive
such appointment of a successor trustee.
Section 11.8 Successor Trustee. (a) Any successor trustee appointed as
provided in Section 11.7 hereof shall execute, acknowledge and deliver to JCPR
and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to the successor
trustee all documents and statements held by it hereunder; and JCPR and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties and
obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.8 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a successor trustee as provided
in this Section 11.8 hereof, such successor trustee shall mail notice of such
succession hereunder to all Certificateholders at their addresses as shown in
the Certificate Register.
Section 11.9 Merger or Consolidation of Trustee. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person succeeding to the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be eligible under the provisions of Section 11.6
hereof, without the execution or filing of any paper or any further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate Trustee. (a) Notwith-
standing any other provisions of this Agreement or any Supplement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust may at the time be located, the Trustee shall have the
power and may execute and deliver all instruments to appoint one or more Persons
to act as a co-trustee or co-
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trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the trust, or any part thereof,
and, subject to the other provisions of this Section 11.10, such powers, duties,
obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 11.6 and no notice
to Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 11.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extant that under any laws of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
an successor to the Servicer hereunder), the Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
any Supplement and the conditions of this Article XI. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein,
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subject to all the provisions of this Agreement or any Supplement, specifically
including every provision of this Agreement or any Supplement relating to the
conduct of, affecting the liability of, or affording protection to, the Trustee.
Every such instrument shall be filed with the Trustee and a copy thereof given
to the Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect to this
Agreement or any Supplement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 11.11 Tax Returns. In the event the Trust shall be required to
file tax returns, the Trustee, as soon as practicable after it is made aware of
such requirement, shall prepare or cause to be prepared and is authorized
hereunder to sign any tax returns required to be filed by the Trust and, to the
extent possible, shall file such returns at least five days before such returns
are due to be filed. The Servicer shall prepare or shall cause to be prepared
all tax information required by law to be distributed to Certificateholders and
shall deliver such information to the Trustee at least five days prior to the
date it is required by law to be distributed to Certificateholders. The
Servicer, upon request, will furnish the Trustee with all such information known
to the Servicer as may be reasonably required in connection with the preparation
of all tax returns of the Trust. In no event shall the Trustee or the Servicer
be liable for any liabilities, costs or expenses of the Trust, the Investor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation Federal, state or local income or excise taxes or
any other tax imposed on or measured by income (or any interest or penalty with
respect thereto or arising from a failure to comply therewith). Nothing in this
Section 11.11 shall be construed as inconsistent with the characterization of
the Investor Certificates as indebtedness of JCPR for purposes of federal, state
and local income or franchise taxes and any other tax imposed or measured by
income, as expressed in Section 3.7 hereof.
Section 11.12 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or any
Supplement or the Certificates may be prosecuted and enforced by the Trustee
without the possession of any of the Certificates or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee. Any recovery of judgment
shall, after provision for the payment of the
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reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Certificateholders in
respect of which such judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default shall occur
and be continuing, the Trustee, in its discretion may, subject to the provisions
of Section 10.1, proceed to protect and enforce its rights and the rights of the
Certificateholders under this Agreement or any Supplement by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or any
Supplement or in aid of the execution of any power granted in this Agreement or
any Supplement or for the enforcement of any other legal, equitable or other
remedy as the Trustee, being advised by counsel, shall deem most effectual to
protect and enforce any of the rights of the Trustee or the Certificateholders.
Section 11.14 Rights of Certificateholders to Direct Trustee. Holders of
Investor Certificates evidencing Undivided Interests aggregating not less than
51% of the Aggregate Investor Amount shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, provided,
however, that, subject to Section 11.1, the Trustee shall have the right to
decline to follow any such direction if the Trustee being advised by counsel
determines that the action so directed may not lawfully be taken, or if the
Trustee in good faith shall, by a Responsible Officer or Responsible Officers of
the Trustee, determine that the proceedings so directed would be illegal or
involve it in personal liability or be unduly prejudicial to the rights of
Certificateholders not parties to such direction; and provided further that
nothing in this Agreement or any Supplement shall impair the right of the
Trustee to take any action deemed proper by the Trustee and which is not
inconsistent with such direction.
Section 11.15 Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(i) The Trustee is a banking corporation organized, existing
and in good standing under the laws of New York;
(ii) The Trustee has full power, authority and right to
execute, deliver and perform this Agreement and any Supplement, and has
taken all necessary action to authorize the execution, delivery and
performance by it of this Agreement or any Supplement; and
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(iii) This Agreement or any Supplement has been duly executed
and delivered by the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee will maintain
at its expense in the Borough of Manhattan, The City of New York, an office or
offices or agency or agencies where notices and demands to or upon the Trustee
in respect of the Certificates and this Agreement may be served. The Trustee
initially appoints the Corporate Trust Office as its office for such purposes in
New York. The Trustee will give prompt written notice to the Servicer and to
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
Section 11.17 Requests for Agreement. A copy of this Agreement may be
obtained by any Certificateholder by a request in writing to the Trustee
addressed to the Corporate Trust office and will be provided at the expense of
JCPR.
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust. (a) The respective obligations and
responsibilities of JCPR, the Servicer and the Trustee created hereby (other
than the obligation of the Trustee to make payments to Certificateholders as
hereafter set forth) shall terminate, except with respect to the duties
described in subsections 2.4(c) and 12.3(b), upon the earlier of (i) the day, if
any, designated by JCPR after the Distribution Date following the date on which
funds shall have been deposited in the Distribution Account sufficient to pay
the Aggregate Investor Amount plus Certificate Interest accrued through the last
day of the month preceding such Distribution Date in full ("Final Trust
Termination Date"), (ii) subject to subsection 12.1(b) below, the Scheduled
Trust Termination Date and (iii) the expiration of 21 years less one day from
the death of the last survivor of the descendants living on the date of this
Agreement of Joseph P. Kennedy, the late ambassador of the United States of
America to the Court of St. James's.
(b) If on the Transfer Date in the month immediately preceding the
month in which the Scheduled Trust Termination Date occurs (after giving effect
to all transfers, withdrawals, deposits and drawings to occur on such date and
the payment of principal on any Series of Certificates to be made on the related
Payment Date pursuant to Section 4.7) the Investor Amount of any Series would be
greater than zero, the
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Servicer shall sell within 30 days of such Transfer Date all of the Receivables.
The proceeds of such sale shall be treated as Collections on the Receivables and
shall be allocated and deposited in accordance with Section 4.3; provided,
however, that the Trustee shall determine conclusively the amount of such
proceeds which are allocable to Finance Charge Receivables and the amount of
such proceeds which are allocable to Principal Receivables. During such 30 day
period, the Servicer shall continue to collect Collections on the Receivables
and allocate and deposit such payments in accordance with the provisions of
Section 4.3.
Section 12.2 Repurchase and Final Maturity Date of Investor Certificates
with Respect to Any Series.
(a) (i) If for any Series the Adjusted Investor Amount for such
Series is equal to or less than the Optional Repurchase Percentage of the
Initial Investor Amount for such Series, JCPR may, at its option, purchase such
Series of Investor Certificates, in whole but not in part, by depositing into
the Distribution Account for the account of such Series, on the Collection
Deposit Day next preceding any Transfer Date thereafter an amount equal to the
Repurchase Deposit Amount with respect to such Series as of such Transfer 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 purchase, such
purchase shall not occur unless JCPR shall deliver an Opinion of Counsel
reasonably acceptable to the Trustee that the transfer of funds, if any, to JCPR
by JCPenney in respect of any such purchase of any Series of Investor
Certificates would not constitute a fraudulent conveyance by JCPenney under
applicable law.
(ii) If for any Series the Adjusted Investor Amount for such
Series at the end of any Monthly Period is equal to or less than the
Mandatory Repurchase Amount for such Series as of the end of such Monthly
Period, JCPR shall be obligated to purchase such Series of Investor
Certificates by depositing into the Distribution Account for the account of
such Series, on the Collection Deposit Day next preceding the Transfer Date
preceding the Distribution Date immediately following the end of such
Monthly Period, an amount equal to the Repurchase Deposit Amount with
respect to such Series as of such Transfer Date. If JCPR fails to make the
deposit required under this subsection with respect to such Series for any
reason, then, unless the Supplement with respect to such Series shall
otherwise provide, the Trustee shall, on the Drawing Date following the
Collection Deposit Day on which such payment was due, make a drawing (which
drawing, in the case of the Letter of Credit,
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shall be made simultaneously with any drawing thereunder on such Drawing
Date pursuant to Section 4.5), first, under the Repurchase Letter of
Credit, if any, and then, to the extent necessary, under the Letter of
Credit, if any, relating to such Series in accordance with and to the
extent permitted thereunder and the Supplement relating to such Series, in
an amount equal to such Repurchase Deposit Amount (minus any portion
thereof deposited by or on behalf of JCPR), and the proceeds of such
drawing shall be deposited into the Distribution Account for the account of
such Series.
(iii) On the Distribution Date following the Transfer Date on
which the full Repurchase Deposit Amount then applicable to a Series is
deposited pursuant to this subsection 12.2(a), JCPR shall be deemed,
automatically and without requirement for any act on the part of JCPR or
any other Person, to have acquired all outstanding Certificates of such
Series and to have retired such Series.
(b) The entire Investor Amount of each Series shall be due and
payable no later than the Final Maturity Date with respect to such Series.
Unless otherwise provided in a Supplement, if on the Determination Date in the
month immediately preceding the month in which the Final Maturity Date with
respect to any Series occurs (after giving effect to all transfers, withdrawals,
deposits and drawings to occur on the next Transfer Date and the payment of
principal on such Series of Certificates to be made on the related Distribution
Date pursuant to Section 4.7), the Adjusted Investor Amount of such Series would
be greater than zero, the Servicer shall (subject to prior deposit of the full
Repurchase Deposit Amount, if any, with respect to such Series pursuant to
subsection 12.2 (a)) sell, dispose of, or otherwise liquidate, in a commercially
reasonable manner and on commercially reasonable terms (which shall include the
solicitation of competitive bids from Persons who are not Affiliates of JCPR),
within 30 days of such Determination Date, an amount of Receivables equal to (i)
100% plus the lesser of (x) the JCPR Percentage or (y) the Minimum JCPR
Percentage, multiplied by (ii the Adjusted Investor Amount of such Series
determined as of the date of such sale, disposition or liquidation; provided,
however, that (i) no procedure used by the Servicer to select the Receivables to
be sold, disposed of or otherwise liquidated shall be adverse to the interests
of the Investor Certificateholders of any other Series, and (ii) the Servicer
shall give JCPR at least 10 days advance written notice of such sale,
disposition or other liquidation. JCPR shall have the option, exercisable at any
time after the Servicer has obtained an offer from any Person that is not an
Affiliate of JCPR and prior to the consummation of such sale, disposition or
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liquidation by giving notice of the exercise thereof to the Servicer, to
purchase such Receivables for cash (payable in immediately payable funds on the
Final Maturity Date) for the lesser of (i) 100% of the amount of such
Receivables, or (ii) the highest price offered therefor pursuant to such
proposed sale, disposition or other liquidation. The proceeds received upon the
sale, disposition or other liquidation of such Receivables in an amount up to
(i) the Adjusted Investor Amount for such Series on the Final Maturity Date,
plus (ii) unpaid interest thereon at the applicable Certificate Rate, as of the
end of the Monthly Period preceding the Final Maturity Date, less (iii) amounts
on deposit on such date in respect of such Series in the Investor Accounts,
shall be deposited into the Distribution Account for the benefit of such Series
on the relevant Final Maturity Date, and shall be distributed to the Holders of
such Series in final payment thereof pursuant to the terms of Section 12.3.
Proceeds received in excess of the amount to be deposited as aforesaid shall be
treated as Collections on the Receivables and shall be allocated and deposited
in accordance with the provisions of Section 4.3; provided that the Servicer
shall determine conclusively the amount of such proceeds which are allocable to
Finance Charge Receivables and the amount of such proceeds which are allocable
to Principal Receivables.
(c) The amount deposited pursuant to subsections 12.2 (a) and 12.2
(b) shall be paid to the Investor Certificateholders in the manner provided in
Section 12.3.
Section 12.3 Final Distributions. (a) Written notice of any termination,
specifying the Distribution Date upon which the Investor Certificateholders of
any Series may surrender their Certificates for payment of the final
distribution and cancellation, shall be given (subject to at least two days'
prior notice from the Servicer to the Trustee) by the Trustee to Investor
Certificateholders of any Series mailed not later than the fifth day of the
month of such final distribution specifying (a) the Distribution Date (which
shall be the Distribution Date in the month in which the deposit is made
pursuant to subsection 2.4(e), 12.1, 12.2(a) or 12.2(b)) upon which final
payment of the Investor Certificates of such Series will be made upon
presentation and surrender of Investor Certificates at the office or offices
therein designated, (b) the amount of any such final payment and (c) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Investor
Certificates at the office or offices therein specified. The Servicer's notice
to the Trustee in accordance with the preceding sentence shall be accompanied by
an Officer's Certificate setting forth the information specified in Section 3.5
covering the period during the then current calendar year through the date of
such
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notice. The Trustee shall give such notice to the Transfer Agent and Registrar
and the Paying Agent at the time such notice is given to Investor
Certificateholders.
(b) All funds on deposit in the Distribution Account in respect of
any Series, in the case of a final payment pursuant to Section 12.2, or all
Series, in the case of a termination of the Trust pursuant to Section 12.1 (and
notwithstanding such termination), shall continue to be held in trust for the
benefit of the Certificateholders of such Series and the Paying Agent or the
Trustee shall pay such funds to the appropriate Certificateholders upon
surrender of their Certificates. In the event that all of the Investor
Certificateholders shall not surrender their Certificates for cancellation
within six months after the date specified in the above-mentioned written
notice, the Trustee shall give a second written notice to the remaining Investor
Certificateholders of such Series to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Investor Certificates of such Series
shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Investor Certificateholders of such Series concerning surrender
of their Certificates, and the cost thereof shall be paid out of the funds in
the Distribution Account held for the benefit of such Investor
Certificateholders.
Section 12.4 JCPR's Termination Rights. Upon the termination of the Trust
pursuant to Section 12.1 and the surrender of the Exchangeable Certificate, the
Trustee shall return to JCPR (without recourse, representation or warranty) all
right, title and interest of the Trust in, to and under the Receivables, whether
then existing or thereafter created, and all monies due or to become due with
respect thereto (including all accrued interest theretofore posted as Finance
Charge Receivables), all proceeds thereof and Insurance Proceeds relating
thereto except for amounts held by the Trustee pursuant to subsection 12.3(b).
The Trustee shall execute and deliver such instruments of transfer, in each case
without recourse as shall be reasonably requested by JCPR to vest in JCPR all
right, title and interest which the Trust had in the Receivables.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment. (a) This Agreement and any Supplement may be
amended from time to time by the Servicer, JCPR and the Trustee, without the
consent of any of the Certificateholders, to cure any ambiguity, to correct or
supplement any
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provisions herein which may be inconsistent with any other provisions herein, or
to add any other provisions with respect to matters or questions arising under
this Agreement or any Supplement which shall not be inconsistent with the
provisions of this Agreement or any Supplement; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel adversely affect in any
material respect the interests of the Certificateholders; provided, further,
however, that anything herein or in any Supplement to the contrary
notwithstanding, any Supplement may contain Principal Terms as provided in
Section 6.12. The Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Trustee's rights, duties or immunities under
this Agreement and any Supplement or otherwise. Any Supplement and any Transfer
Agreement or Retransfer Agreement regarding the addition or removal of
Receivables from the Trust as provided in Sections 2.6 and 2.7, respectively,
executed in accordance with the provisions hereof shall not be considered
amendments to this Agreement.
(b) This Agreement and any Supplement may also be amended from time
to time by the Servicer, JCPR and the Trustee with the consent of the Holders of
Investor Certificates evidencing Undivided Interests aggregating not less than
66-2/3% of the Aggregate Investor Amount of all Series adversely affected, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or any Supplement or modifying in any
manner the rights of the Investor Certificateholders; provided, however, that no
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, distributions which are required to be made on any Investor Certificate
without the consent of such Investor Certificateholder, (ii) unless expressly
stated in the Supplement under which a Series is created, change the definition
of or the manner of calculating the Investor Amount, the Investor Percentage or
the Investor Default Amount with respect to any Series without the consent of
each Investor Certificateholder affected thereby, or (iii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of
each Investor Certificateholder; provided, further, however, that anything
herein or in any Supplement to the contrary notwithstanding, any Supplement may
contain Principal Terms as provided in Section 6.12 without the consent of any
Holders of Investor Certificates.
(c) Promptly after the execution of any such amendment or consent the
Trustee shall furnish written notification of the substance of such amendment to
each Investor Certificateholder and to each Rating Agency and any Letter of
Credit Bank.
(d) It shall not be necessary for the consent of Investor
Certificateholders under this Section 13.1 to approve the particular form of any
proposed
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amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Section 13.2 Protection of Right, Title and Interest to Trust. (a) The
Servicer shall cause this Agreement, any Supplement, all amendments hereto and
thereto and/or all financing statements and continuation statements and any
other necessary documents covering the Certificateholders and the Trustee's
right, title and interest to the Trust to be promptly recorded, registered and
filed, and at all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law fully to preserve and
protect the right, title and interest of the Trustee hereunder to all property
comprising the Trust. The Servicer shall deliver to the Trustee file-stamped
copies of, or filing receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recording, registration or
filing. JCPR shall cooperate fully with the Servicer in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this Section 13.2(a).
(b) Within 30 days after JCPenney or JCPR makes any change in its
name, identity or corporate structure which would make any financing statement
or continuation statement filed in accordance with paragraph (a) above seriously
misleading within the meaning of Section 9-402(7) of the UCC as in effect in the
state where such financing statement or continuation statement was filed,
JCPenney or JCPR shall give the Trustee notice of any such change and shall file
such financing statements or amendments as may be necessary to continue the
perfection of the Trust's security interest in the Receivables and the proceeds
thereof.
(c) Each of JCPR and the Servicer will give the Trustee prompt
written notice of any relocation of any office from which it services
Receivables or keeps records concerning the Receivables or of its principal
executive office and whether, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments as may be
necessary to continue the perfection of the Trust's security interest in the
Receivables and the proceeds thereof. Each of JCPR and the Servicer will at all
times maintain each office from which it services Receivables and its principal
executive office within the United States of America.
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(d) The Servicer will deliver to the Trustee: (i) upon the execution
and delivery of each amendment of Articles I, II, III or IV hereto other than
amendments pursuant to subsection 13.1(a) an Opinion of Counsel substantially in
the form of Exhibit P; and (ii) on or before April 15 of each year, beginning
with April 15, 1989 an Opinion of Counsel, dated as of a date during the
preceding 90-day period, substantially in the form of Exhibit L.
Section 13.3 Limitation on Rights of Certificateholders. (a) The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor shall such death or incapacity entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except with
respect to the Investor Certificateholders as provided in Section 13.1 hereof)
or in any manner otherwise control the operation and management of the Trust, or
the obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association;
nor shall any Certificateholder be under any liability to any third person by
reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Certificateholder previously shall have given to the Trustee, and unless the
Holders of Certificates evidencing Undivided Interests aggregating not less than
51% of the Aggregate Investor Amount shall have made, written request upon the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Certificateholder shall
have the right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Certificateholders of any other of the Certificates, or to
obtain or seek to obtain priority over or preference to any other such
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Certificateholder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 13.3, each and every Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
Section 13.4 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
Section 13.5 Notices. All demands, notices and communications hereunder
shall be effective upon receipt and shall be in writing and shall be personally
delivered at or mailed by registered mail, return receipt requested, to (a) in
the case of JCPR, 2700 West Plano Parkway, Plano, Texas 75075, Attention:
President, (b) in the case of JCPenney, 14841 North Dallas Parkway, Dallas,
Texas 75240, Attention: Treasurer, (c) in the case of the Trustee, to the
Corporate Trust Office and (d) in the case of the initial Letter of Credit Bank,
to Credit Suisse, New York Branch, 100 Wall Street, New York, New York 10005,
Attention: Specialty Finance Department; or, as to each party, at such other
address as shall be designated by such party in a written notice to each other
party. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Certificateholder as shown in the Certificate Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Certificateholder receives such notice.
Section 13.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be hold invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or rights of the Certificateholders thereof.
Section 13.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 8.2, this Agreement, including
any Supplement, may not be assigned by the Servicer without the prior consent of
Holders of Investor Certificates evidencing Undivided Interests aggregating not
less than 66 2/3% of the Aggregate Investor Amount.
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Section 13.8 Certificates Nonassessable and Fully Paid. It is the
intention of the parties to this Agreement that the Certificateholders shall not
be personally liable for obligations of the Trust, that the Undivided Interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever, and that Certificates upon
authentication thereof by the Trustee pursuant to Sections 2.7 and 6.2 are and
shall be deemed fully paid.
Section 13.9 Further Assurances. JCPR and the Servicer agree to do and
perform, from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the Trustee more fully to effect
the purposes of this Agreement, including, without limitation, the execution of
any financing statements or continuation statements relating to the Receivables
for filing under the provisions of the UCC of any applicable jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Trustee or the Investor
Certificateholders, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exhaustive of any rights, remedies, powers and privilege provided by law.
Section 13.11 Counterparts. This Agreement and any Supplement may be
executed in two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which together
shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement and any
Supplement will inure to the benefit of and be binding upon the parties hereto,
the Certificateholders and their respective successors and permitted assigns.
Except as otherwise provided in this Article XIII and Section 8.4, no other
person will have any right or obligation hereunder.
Section 13.13 Actions by Certificateholders. (a) Wherever in this
Agreement or any Supplement, a provision is made that an action may be taken or
a notice, demand or instruction given by Investor Certificateholders, such
action, notice or instruction
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may be taken or given by any Investor Certificateholder, unless such provision
requires a specific percentage of Investor Certificateholders.
(b) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Certificateholder shall bind such Certificateholder and
every subsequent holder of such Certificate issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or omitted to be done by the Trustee, JCPR or the Servicer in
reliance thereon, whether or not notation of such action is made upon such
Certificate.
Section 13.14 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement and the Supplement set forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement and the
Supplement. This Agreement and the Supplement may not be modified, amended,
waived or supplemented, except as provided herein.
Section 13.15 JCPenney as Servicer for JCPR. In the event that any
Receivables are ever retransferred to JCPR pursuant to any of the terms or
provisions of this Agreement, including, without limitation, pursuant to
subsection 2.4(d), subsection 2.4 (e), Section 4.4 or Section 12.2 hereof, and
before JCPR transfers, sells or assigns such Receivables to JCPenney or any
other Person in accordance with the terms and provisions of the Receivables
Purchase Agreement, or any other contract or arrangement, JCPenney shall act as
Servicer for such retransferred Receivables in accordance with the Receivables
Purchase Agreement.
Section 13.16 Payments to JCPR. All payments hereunder by the Servicer or
the Trustee to JCPR (including payments to it as Holder of the Exchangeable
Certificate) shall be paid to JCPR or to such other Person as JCPR shall direct
by written notice to the Servicer and the Trustee.
Section 13.17 Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
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IN WITNESS WHEREOF, JCPR, the Servicer and the Trustee have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
JCP RECEIVABLES, INC.
By: /s/ Michael D. Porter
-------------------------------------------------
Title: President
J. C. PENNEY COMPANY, INC.
By: /s/ Donald A. McKay
-------------------------------------------------
Title: Vice President
THE FUJI BANK AND TRUST COMPANY
By: /s/ David J. Kolibachuk
-------------------------------------------------
Title: Vice President
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EXHIBIT 4.1(b)
- --------------------------------------------------------------------------------
JCP RECEIVABLES, INC.
and
J. C. PENNEY COMPANY, INC.
Servicer
and
THE FUJI BANK AND TRUST COMPANY
Trustee
on behalf of the Certificateholders
of the JCP Master Credit Card Trust
$_________
SERIES E
- --------------------------------------------------------------------------------
SERIES E SUPPLEMENT
Dated as of _______ __, 1998
to
MASTER
POOLING AND SERVICING AGREEMENT
Dated as of September 5, 1988, as amended as of October 15, 1997
- --------------------------------------------------------------------------------
<PAGE>
SERIES E SUPPLEMENT, dated as of ______ __, 1998 (this "Series Supplement")
among JCP Receivables, Inc. ("JCPR"), J. C. Penney Company, Inc. ("JCPenney"),
as Servicer, and The Fuji Bank and Trust Company, a banking corporation
organized and existing under the laws of New York (together with its successors
in interest, or any successor or additional trustee appointed as provided in the
Pooling and Servicing Agreement referred to below, the "Trustee"), as trustee
under the Master Pooling and Servicing Agreement dated as of September 5, 1988,
as amended as of October 15, 1997 (the "Pooling and Servicing Agreement").
PRELIMINARY STATEMENT
Section 6.12 of the Pooling and Servicing Agreement provides, among other
things, that JCPR, JCPenney and the Trustee will enter into a Supplement to
issue the first Series of Certificates and may thereafter at any time and from
time to time enter into a Supplement to the Pooling and Servicing Agreement for
the purpose of authorizing the issuance by the Trustee to JCPR for execution and
redelivery to the Trustee for authentication one or more additional Series of
Certificates. If this Supplement is entered into in conjunction with the
issuance of one or more Series of Certificates other than the initial Series,
JCPR has tendered the Exchange Notice required by subsection 6.12(b) of the
Pooling and Servicing Agreement. JCPR, JCPenney and the Trustee hereby enter
into this Series Supplement as required by subsection 6.12(c) of the Pooling and
Servicing Agreement to provide for the issuance, authentication and delivery of
the Class A Certificates and the issuance of the Class B Investor Interest and
the Class C Investor Interest (each as defined in Section 1 below).
In the event that any term or provision contained herein shall conflict
with or be inconsistent with any provision contained in the Pooling and
Servicing Agreement, the terms and provisions of this Series Supplement shall
govern. All capitalized terms not otherwise defined herein are defined in the
Pooling and Servicing Agreement. Each capitalized term defined herein shall
relate only to the Class A Certificates, the Class B Investor Interest and the
Class C Investor Interest and no other Series of Investor Certificates issued by
the Trust.
SECTION 1. Designation. (a) There is hereby created a Series of Investor
Certificates to be issued in three classes pursuant to the Pooling and Servicing
Agreement and this Series Supplement and to be known together as "Series E." The
three classes shall be designated the ___% Class A Asset Backed Certificates,
Series E (the "Class A Certificates"), the Class B Investor Interest, Series E
(the "Class B Investor Interest")
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and the Class C Investor Interest, Series E (the "Class C Investor Interest").
The Class A Certificates shall be substantially in the form of Exhibit A
hereto. Each of the Class B Investor Interest and the Class C Investor Interest
shall be an uncertificated interest in the Trust (subject to the provisions of
subsection 11(c) hereof), which shall be deemed to be an "Investor Certificate"
for all purposes under the Pooling and Servicing Agreement and this Series
Supplement, except as expressly provided herein.
(b) Each of the Class B Investor Interest Holder and the Class C
Investor Interest Holder, as holder of an "Investor Certificate" under the
Pooling and Servicing Agreement, shall be entitled to the benefits of the
Pooling and Servicing Agreement and this Series Supplement upon payment by such
Class B Investor Interest Holder or such Class C Investor Interest Holder, as
applicable, of the purchase price of the Class B Investor Interest or the Class
C Investor Interest, as applicable. Notwithstanding the foregoing, except as
expressly provided herein, (i) (A) the provisions of Article VI of the Pooling
and Servicing Agreement relating to the registration, authentication, delivery,
presentation, cancellation and surrender of registered Certificates and (B) the
opinion described in subsection 6.12(b)(e) of the Pooling and Servicing
Agreement shall not, subject in the case of clause (A) to the provisions of
subsection 11(c) hereof, be applicable to the Class B Investor Interest or the
Class C Investor Interest and (ii) the provisions of Section 3.7 of the Pooling
and Servicing Agreement shall not apply to cause the Class C Investor Interest
to be treated as debt for federal, state and local income and franchise tax
purposes, but rather JCPR intends and, together with the Class C Investor
Interest Holder, agrees to treat the Class C Investor Interest for federal,
state and local income and franchise tax purposes as representing an equity
interest in the assets of the Trust.
SECTION 2. Definitions.
"Adjusted Investor Interest" shall mean, with respect to any date of
determination, an amount equal to the sum of (a) the Class A Adjusted Investor
Interest, (b) the Class B Adjusted Investor Interest and (c) the Class C
Adjusted Investor Interest.
"Amortization Commencement Date" shall mean the first day of the Controlled
Accumulation Period or the Rapid Amortization Period, as applicable.
"Assignee" shall have the meaning specified in subsection 9(a) hereof.
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"Available Investor Principal Collections" shall mean with respect to any
Monthly Period, an amount equal to (a) the Investor Principal Collections for
such Monthly Period, minus (b) the amount of Reallocated Class C Principal
Collections and Reallocated Class B Principal Collections with respect to such
Monthly Period which pursuant to Section 4.19 hereof are used to fund the Class
A Required Amount and the Class B Required Amount.
"Base Rate" shall mean, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the sum
of the Class A Monthly Interest, the Class B Monthly Interest and the Class C
Monthly Interest, each for the related Interest Period, and the
Certificateholder Servicing Fee, for such Monthly Period, and the denominator of
which is the Investor Interest as of the close of business on the last day of
such Monthly Period.
"Class A Account Percentage" shall mean, with respect to any date of
determination, the percentage equivalent of a fraction, the numerator of which
is the aggregate amount on deposit in the Principal Funding Account with respect
to Class A Monthly Principal as of the Record Date preceding the related
Transfer Date and the denominator of which is the aggregate amount on deposit in
the Principal Funding Account with respect to Class A Monthly Principal and
Class B Monthly Principal as of the Record Date preceding the related Transfer
Date.
"Class A Additional Interest" shall have the meaning specified in
subsection 4.13(a) hereof.
"Class A Adjusted Investor Interest" shall mean, with respect to any date
of determination, 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 of determination.
"Class A Available Funds" shall mean, with respect to any Monthly Period,
an amount equal to the sum of (a) the Class A Floating Allocation of the
Collections of Finance Charge Receivables and Net Recoveries allocated to the
Investor Certificates and deposited in the Finance Charge Account for such
Monthly Period, (b) the Class A Account Percentage of the Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date and (c)
the amount deposited into the Finance Charge Account pursuant to subsection
4.20(e) hereof.
"Class A Certificate Rate" shall mean % per annum, calculated on the basis
of a 360-day year consisting of twelve 30-day months.
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"Class A Certificateholder" shall mean the Person in whose name a Class A
Certificate is registered in the Certificate Register.
"Class A Certificates" shall mean any of the certificates executed by JCPR
and authenticated by or on behalf of the Trustee, substantially in the form of
Exhibit A hereto.
"Class A Deficiency Amount" shall have the meaning specified in subsection
4.13(a) hereof.
"Class A Expected Final Distribution Date" shall mean the ____ Distribution
Date.
"Class A Fixed Allocation" shall mean, with respect to any Monthly Period
following the Revolving Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is 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.
"Class A Floating Allocation" shall mean, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is 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 the Adjusted Investor Interest as of the close of
business on such day.
"Class A Initial Investor Interest" shall mean the aggregate initial
principal amount of the Class A Certificates, which is $___________.
"Class A Investor Allocation" shall mean with respect to any Monthly
Period, (a) with respect to Default Amounts and Finance Charge Receivables at
any time and Principal Receivables during the Revolving Period, the Class A
Floating Allocation, and (b) with respect to Principal Receivables during the
Controlled Accumulation Period or the Rapid Amortization Period, the Class A
Fixed Allocation.
"Class A Investor Charge-Offs" shall have the meaning specified in
subsection 4.17(a) hereof.
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"Class A Investor Default Amount" shall mean, with respect to each Transfer
Date, an amount equal to the product of (a) the Investor Default Amount for the
related Monthly Period and (b) the Class A Floating Allocation for the related
Monthly Period.
"Class A Investor Interest" shall mean, on any date of determination, an
amount equal to (a) the Class A Initial Investor Interest, minus (b) the
aggregate amount of principal payments made to Class A Certificateholders prior
to such date and minus (c) the excess, if any, of the aggregate amount of Class
A Investor Charge-Offs pursuant to subsection 4.17(a) hereof over Class A
Investor Charge-Offs reimbursed pursuant to subsection 4.18(b) hereof prior to
such date of determination; provided, however, that the Class A Investor
Interest may not be reduced below zero.
"Class A Monthly Interest" shall mean the monthly interest distributable in
respect of the Class A Certificates as calculated in accordance with subsection
4.13(a) hereof.
"Class A Monthly Principal" shall mean the monthly principal to be
deposited or distributed in respect of the Class A Certificates as calculated in
accordance with subsection 4.14(a) hereof.
"Class A Required Amount" shall have the meaning specified in subsection
4.15(a) hereof.
"Class A Servicing Fee" shall have the meaning specified in Section 3
hereof.
"Class B Account Percentage" shall mean, with respect to any date of
determination, the percentage equivalent of a fraction, the numerator of which
is the aggregate amount on deposit in the Principal Funding Account with respect
to Class B Monthly Principal as of the Record Date preceding the related
Transfer Date and the denominator of which is the aggregate amount on deposit in
the Principal Funding Account with respect to Class A Monthly Principal and
Class B Monthly Principal as of the Record Date preceding the related Transfer
Date.
"Class B Additional Interest" shall have the meaning specified in
subsection 4.13(b) hereof.
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"Class B Adjusted Investor Interest" shall mean, with respect to any date
of determination, an amount equal to the Class B Investor Interest minus the
excess, if any, of the Principal Funding Account Balance over the Class A
Investor Interest on such date of determination (such excess not to exceed the
Class B Investor Interest).
"Class B Available Funds" shall mean, with respect to any Monthly Period,
an amount equal to the sum of (a) the Class B Floating Allocation of the
Collections of Finance Charge Receivables and Net Recoveries allocated to the
Investor Certificates and deposited in the Finance Charge Account for such
Monthly Period and (b) the Class B Account Percentage of the Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date.
"Class B Deficiency Amount" shall have the meaning specified in subsection
4.13(b) hereof.
"Class B Expected Final Distribution Date" shall mean the ____ Distribution
Date.
"Class B Fixed Allocation" shall mean, with respect to any Monthly Period
following the Revolving Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is 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.
"Class B Floating Allocation" shall mean, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is the Class B Adjusted Investor Interest as
of the close of business on the last day of the preceding Monthly Period (or
with
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<PAGE>
respect to the first Monthly Period, as of the Closing Date) and the denominator
of which is the Adjusted Investor Interest as of the close of business on such
day.
"Class B Initial Investor Interest" shall mean $__________.
"Class B Investor Allocation" shall mean with respect to any Monthly
Period, (a) with respect to Default Amounts and Finance Charge Receivables at
any time or Principal Receivables during the Revolving Period, the Class B
Floating Allocation, and (b) with respect to Principal Receivables during the
Controlled Accumulation Period or the Rapid Amortization Period, the Class B
Fixed Allocation.
"Class B Investor Charge-Offs" shall have the meaning specified in
subsection 4.17(b) hereof.
"Class B Investor Default Amount" shall mean, with respect to each Transfer
Date, an amount equal to the product of (a) the Investor Default Amount for the
related Monthly Period and (b) the Class B Floating Allocation for the related
Monthly Period.
"Class B Investor Interest" shall mean, on any date of determination, an
amount equal to (a) the Class B Initial Investor Interest, minus (b) the
aggregate amount of principal payments made to the Class B Investor Interest
Holder prior to such date, minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Transfer Dates pursuant to subsection 4.17(b) hereof,
minus (d) the amount of the Reallocated Class B Principal Collections allocated
pursuant to subsection 4.19(a) hereof on all prior Transfer Dates for which the
Class C Investor Interest has not been reduced, minus (e) an amount equal to the
amount by which the Class B Investor Interest has been reduced on all prior
Transfer Dates pursuant to subsection 4.17(a) hereof and plus (f) the aggregate
amount of Excess Spread allocated and available on all prior Transfer Dates
pursuant to subsection 4.18(d) hereof 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 Investor Interest Holder" shall mean the entity so designated in
writing by JCPR to the Trustee.
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"Class B Monthly Interest" shall mean the monthly interest distributable in
respect of the Class B Investor Interest as calculated in accordance with
subsection 4.13(b) hereof.
"Class B Monthly Principal" shall mean the monthly principal to be
deposited or distributed in respect of the Class B Investor Interest as
calculated in accordance with subsection 4.14(b) hereof.
"Class B Rate" shall mean 0% per annum, or such higher rate not in excess
of ___, as most recently designated to be the "Class B Rate" by JCPR to the
Trustee in writing.
"Class B Required Amount" shall have the meaning specified in subsection
4.15(b) hereof.
"Class B Servicing Fee" shall have the meaning specified in Section 3
hereof.
"Class C Adjusted Investor Interest" shall mean, with respect to any date
of determination, an amount equal to the Class C Investor Interest minus the
excess, if any, of the Principal Funding Account Balance over the sum of the
Class A Investor Interest and the Class B Investor Interest on such date of
determination (such excess not to exceed the Class C Investor Interest).
"Class C Available Funds" shall mean, with respect to any Monthly Period,
an amount equal to the Class C Floating Allocation of the Collections of Finance
Charge Receivables and Net Recoveries allocated to the Investor Certificates and
deposited in the Finance Charge Account for such Monthly Period.
"Class C Fixed Allocation" shall mean with respect to any Monthly Period
following the Revolving Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is 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 C Floating Allocation" shall mean, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is the Class C Adjusted Investor Interest as
of the close of business on the last day of the preceding Monthly Period and the
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denominator of which is equal to the Adjusted Investor Interest as of the close
of business on such day.
"Class C Initial Investor Interest" shall mean $ .
"Class C Investor Allocation" shall mean with respect to any Monthly
Period, (a) with respect to Default Amounts and Finance Charge Receivables at
any time or Principal Receivables during the Revolving Period, the Class C
Floating Allocation, and (b) with respect to Principal Receivables during the
Controlled Accumulation Period or the Rapid Amortization Period, the Class C
Fixed Allocation.
"Class C Investor Charge-Offs" shall have the meaning specified in
subsection 4.17(c) hereof.
"Class C Investor Default Amount" shall mean, with respect to each
Transfer Date, an amount equal to the product of (a) the Investor Default Amount
for the related Monthly Period and (b) the Class C Floating Allocation for the
related Monthly Period.
"Class C Investor Interest" shall mean, on any date of determination, an
amount equal to (a) the Class C Initial Investor Interest, minus (b) the
aggregate amount of principal payments made to the Class C Investor Interest
Holder prior to such date, minus (c) the aggregate amount of Class C Investor
Charge-Offs for all prior Transfer Dates pursuant to subsection 4.17(c) hereof,
minus (d) the amount of Reallocated Principal Collections allocated pursuant to
subsections 4.19(a) and (b) hereof on all prior Transfer Dates, minus (e) an
amount equal to the amount by which the Class C Investor Interest has been
reduced on all prior Transfer Dates pursuant to subsections 4.17(a) and (b)
hereof, and plus (f) the aggregate amount of Excess Spread allocated and
available on all prior Transfer Dates pursuant to subsection 4.18(h) hereof 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 Investor Interest Holder" shall mean the entity so designated
in writing by JCPR to the Trustee.
"Class C Monthly Interest" shall mean the monthly interest distributable in
respect of the Class C Investor Interest as calculated in accordance with
subsection 4.13(c) hereof.
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"Class C Monthly Principal" shall mean the monthly principal to be
deposited or distributed in respect of the Class C Investor Interest as
calculated in accordance with subsection 4.14(c) hereof.
"Class C Rate" shall mean 0% per annum, or such higher rate not in excess
of _____ , as most recently designated to be the "Class C Rate" by JCPR to the
Trustee in writing.
"Class C Servicing Fee" shall have the meaning specified in Section 3
hereof.
"Closing Date" shall mean ___________, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Controlled Accumulation Amount" shall mean for any Transfer Date with
respect to the Controlled Accumulation Period, $_________.
"Controlled Accumulation Period" shall mean, unless a Pay Out Event shall
have occurred prior thereto, the period commencing at the close of business on
the last day of ___________________ and ending on the first to occur of (a) the
commencement of the Rapid Amortization Period or (b) the payment of the Investor
Interest in full.
"Controlled Deposit Amount" shall mean, with respect to any Transfer Date,
the sum of (a) the Controlled Accumulation Amount for such Transfer Date and (b)
any existing Deficit Controlled Accumulation Amount.
"Covered Amount" shall mean an amount, determined as of each Transfer Date,
equal to one-twelfth of the product of (i) the Class A Certificate Rate times
(ii) the aggregate amount on deposit in the Principal Funding Account with
respect to Class A Monthly Principal as of the Record Date preceding such
Transfer Date.
"Deficit Controlled Accumulation Amount" shall mean, on the first
Distribution Date with respect to the Controlled Accumulation Period, the
excess, if any, of the Controlled Accumulation Amount
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over the amount of Class A Monthly Principal for the related Distribution Date
and, on each subsequent Distribution Date with respect to the Controlled
Accumulation Period, the excess, if any, of the Controlled Deposit Amount over
the amount of Class A Monthly Principal for such Distribution Date.
"Excess Spread" shall mean, with respect to any Transfer Date, the sum of
the amounts with respect to such Transfer Date, if any, specified pursuant to
subsections 4.16(a)(iv), 4.16(b)(iii) and 4.16(c)(ii) hereof.
"Final Maturity Date" shall mean _______ __, ____.
"Fixed Investor Percentage" shall mean, with respect to any Monthly Period,
the percentage equivalent of a fraction, the numerator of which is the Investor
Interest as of the end of the last day of the Revolving Period and the
denominator of which is the greater of (a) the aggregate amount of Principal
Receivables in the Trust as of the end of the last day of the prior Monthly
Period and (b) the sum of the numerators used to calculate the Investor
Percentages for allocations with respect to Principal Receivables for all
outstanding Series on such date of determination.
"Floating Investor Percentage" shall mean, with respect to any Monthly
Period, the percentage equivalent of a fraction, the numerator of which is the
Adjusted Investor Interest as of the end of 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 end of the last day preceding the commencement of the Rapid
Amortization Period, and the denominator of which is the greater of (a) the
aggregate amount of Principal Receivables in the Trust as of the end of 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 in
the Trust as of the end of 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 end of the last day of the
first calendar month in the first Monthly Period), and (b) the sum of the
numerators used to calculate the Investor Percentages for allocations with
respect to Finance Charge Receivables, Default Amounts or Principal Receivables,
as applicable, for all outstanding Series on such date of determination.
"Initial Investor Amount" shall mean, with respect to Series E, the
Initial Investor Interest.
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"Initial Investor Interest" shall mean $_____________.
"Interest Period" shall mean, with respect to any Distribution Date, the
period from and including the previous Distribution Date (or in the case of the
first Distribution Date, from and including the Closing Date) through the day
preceding such Distribution Date.
"Investment Letter" shall have the meaning specified in subsection 9(a)
hereof.
"Investor Amount" shall mean, with respect to Series E, the Investor
Interest.
"Investor Certificateholder" shall mean (a) with respect to the Class A
Certificates, the holder of record of a Class A Certificate, (b) with respect to
the Class B Investor Interest, the Class B Investor Interest Holder and (c) with
respect to the Class C Investor Interest, the Class C Investor Interest Holder.
"Investor Certificates" shall mean the Class A Certificates, the Class B
Investor Interest and the Class C Investor Interest.
"Investor Interest" shall mean, on any date of determination, an amount
equal to the sum of (a) the Class A Investor Interest, (b) the Class B Investor
Interest and (c) the Class C Investor Interest, each as of such date.
"Investor Percentage" shall mean for any Monthly Period, (a) with respect
to Finance Charge Receivables and Default Amounts at any time and Principal
Receivables during the Revolving Period, the Floating Investor Percentage and
(b) with respect to Principal Receivables during the Controlled Accumulation
Period or the Rapid Amortization Period, the Fixed Investor Percentage.
"Investor Principal Collections" shall mean, with respect to any Monthly
Period, the sum of (a) the aggregate amount deposited into the Principal Account
for such Monthly Period with respect to Series E pursuant to subsections 4.3(c)
and 4.3(f) of the Pooling and Servicing Agreement and (b) the aggregate amount
to be treated as Investor Principal Collections pursuant to subsections
4.16(a)(iii) and 4.18(a), (b), (c), (d), (g) and (h) hereof for such Monthly
Period (other than such amount paid from Reallocated Principal Collections).
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"Minimum JCPR Percentage" shall mean 10%.
"Monthly Interest" shall mean, with respect to any Transfer Date, the sum
of (a) the Class A Monthly Interest, the Class A Additional Interest, if any,
and the unpaid Class A Deficiency Amount, if any, (b) the Class B Monthly
Interest, the Class B Additional Interest, if any, and the unpaid Class B
Deficiency Amount, if any, and (c) the Class C Monthly Interest and any
previously due and unpaid Class C Monthly Interest, each with respect to such
Transfer Date.
"Monthly Period" shall have the meaning specified in the Pooling and
Servicing Agreement, except that the first Monthly Period with respect to the
Investor Certificates shall begin on and include the Closing Date and shall end
on and include ___________, 1998.
"Permitted Assignee" shall mean any Person who, if it were the Class B
Investor Interest Holder or the Class C Investor Interest Holder or holder of an
interest in the Trust, as applicable, would not cause the Trust to be taxable as
a publicly traded partnership for federal income tax purposes.
"Portfolio Yield" shall mean, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction the numerator of which is the sum
of (a) the amount of Finance Charge Receivables deposited in the Finance Charge
Account pursuant to Section 4.3 of the Pooling and Servicing Agreement and
allocated to Series E, calculated on a cash basis after subtracting the Investor
Default Amount of Series E for such Monthly Period and (b) the Principal Funding
Investment Proceeds for the Transfer Date related to such Monthly Period, and
the denominator of which is the Investor Amount of Series E as of the last day
of the preceding Monthly Period.
"Principal Funding Account" shall have the meaning set forth in subsection
4.20(a) hereof.
"Principal Funding Account Balance" shall mean, with respect to any date of
determination, the principal amount, if any, on deposit in the Principal Funding
Account on such date of determination.
"Principal Funding Investment Proceeds" shall mean, with respect to each
Transfer Date, the investment earnings on funds in the Principal Funding Account
(net of investment expenses and losses) for the period from and including the
immediately preceding Transfer Date to but excluding such Transfer Date.
"Principal Funding Investment Shortfall" shall have the meaning set forth
in subsection 4.20(d) hereof.
"Rapid Amortization Period" shall mean the Amortization Period commencing
on the Pay Out Commencement Date and ending on the Series E Termination Date.
"Rating Agency" shall mean Moody's and Standard & Poor's.
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"Rating Agency Condition" shall mean the notification in writing by each
Rating Agency to JCPR, the Servicer and the Trustee that an action with respect
to the Trust 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.
"Reallocated Class B Principal Collections" shall mean, with respect to any
Transfer Date, Collections of Principal Receivables applied in accordance with
subsection 4.19(a) hereof in an amount not to exceed the product of (a) the
Class B Investor Allocation with respect to the Monthly Period relating to such
Transfer Date and (b) the Investor Percentage with respect to the Monthly Period
relating to such Transfer Date and (c) the amount of Collections of Principal
Receivables with respect to the Monthly Period relating to such Transfer Date;
provided, however, that such amount shall not exceed the Class B Investor
Interest after giving effect to any Class B Investor Charge-Offs for such
Transfer Date.
"Reallocated Class C Principal Collections" shall mean, with respect to any
Transfer Date, Collections of Principal Receivables applied in accordance with
subsections 4.19(a) and (b) hereof in an amount not to exceed the product of (a)
the Class C Investor Allocation with respect to the Monthly Period relating to
such Transfer Date and (b) the Investor Percentage with respect to the Monthly
Period relating to such Transfer Date and (c) the amount of Collections of
Principal Receivables with respect to the Monthly Period relating to such
Transfer Date; provided, however, that such amount shall not exceed the Class C
Investor Interest after giving effect to any Class C Charge-Offs for such
Transfer Date.
"Reallocated Principal Collections" shall mean the sum of (a) Reallocated
Class B Principal Collections and (b) Reallocated Class C Principal Collections.
"Required Class C Investor Interest" shall mean (a) initially, $_______ and
(b) on any Transfer Date thereafter, __% 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 Investor Interest on the prior Transfer Date, after any
adjustments to be made on such date, but not less than $______;
provided, however, that (x) if either (i) there is a reduction in the Class C
Investor Interest pursuant to clause (c), (d) or (e) of the definition of such
term or (ii) a Pay Out Event with respect to the Investor Certificates has
occurred, the Required Class C Investor Interest for any Transfer Date shall
equal the Required Class C Investor Interest for
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the Transfer Date immediately preceding such reduction or Pay Out Event, (y) in
no event shall the Required Class C Investor Interest exceed the sum of the
outstanding principal amounts of (i) the Class A Certificates and (ii) the Class
B Investor Interest, each as of the last day of the Monthly Period preceding
such Transfer Date after taking into account the payments to be made on the
related Distribution Date and (z) the Required Class C Investor Interest may be
reduced at JCPR's option at any time to a lesser amount if the Rating Agency
Condition shall have been satisfied.
"Revolving Period" shall mean the period from and including the Closing
Date to, but not including, the Amortization Commencement Date.
"Series E" shall mean the Series of the JCP Master Credit Card Trust
represented by the Investor Certificates.
"Series E Termination Date" shall mean the earliest to occur of (a) the
Distribution Date on which the Investor Interest is paid in full, (b) the Final
Maturity Date and (c) the termination of the Trust pursuant to Section 12.1 of
the Pooling and Servicing Agreement.
"Servicing Fee Percentage" shall mean 2.0%.
"Tax Opinion" shall mean with respect to any action, an Opinion of Counsel
to the effect that, for federal income tax purposes, (a) such action will not
adversely affect the tax characterization as debt of Investor Certificates of
any outstanding Series that were characterized as debt at the time of their
issuance, (b) following such action the Trust will not be deemed to be an
association (or publicly traded partnership) taxable as a corporation and (c)
such action will not cause or constitute an event in which gain or loss would be
recognized by any Investor Certificateholder or the Trust.
"Transfer" shall have the meaning specified in subsection 9(a) hereof.
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SECTION 3. Servicing Compensation. The share of the Investor Monthly
Servicing Fee with respect to Series E allocable to the Class A Investor
Interest with respect to any Transfer Date (the "Class A Servicing Fee") shall
be equal to one-twelfth of the product of (i) the Class A Floating Allocation,
(ii) the Servicing Fee Percentage and (iii) the Adjusted Investor Interest as of
the first 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 $___________. The share of the Investor Monthly Servicing Fee with
respect to Series E allocable to the Class B Investor Interest with respect to
any Transfer Date (the "Class B Servicing Fee") shall be equal to one-twelfth of
the product of (i) the Class B Floating Allocation, (ii) the Servicing Fee
Percentage and (iii) the Adjusted Investor Interest as of the first 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
$___________. The share of the Investor Monthly Servicing Fee with respect to
Series E allocable to the Class C Investor Interest with respect to any Transfer
Date (the "Class C Servicing Fee") shall be equal to one-twelfth of the product
of (i) the Class C Floating Allocation, (ii) the Servicing Fee
Percentage and (iii) the Adjusted Investor Interest as of the first 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
$__________. The Class A Servicing Fee shall be payable to the Servicer solely
to the extent amounts are available for distribution in respect thereof pursuant
to subsections 4.16(a)(ii) and 4.18(a) hereof. The Class B Servicing Fee shall
be payable to the Servicer solely to the extent amounts are available for
distribution in respect thereof pursuant to subsection 4.18(e) or, if
applicable, subsections 4.16(b)(ii) and 4.18(c) hereof. The Class C Servicing
Fee shall be payable to the Servicer solely to the extent amounts are available
for distribution in respect thereof pursuant to subsection 4.18(g) or, if
applicable, subsection 4.16(c)(i) hereof.
SECTION 4. Reassignment and Transfer Terms. The Investor Interest
shall be subject to retransfer to JCPR at its option, in accordance with the
terms specified in subsection 12.2(a) of the Pooling and Servicing Agreement, on
any Distribution Date on or after the month following the Class A Expected Final
Distribution Date. The deposit required in connection with any such repurchase
shall be equal to the sum of (a) the Investor Interest and (b) accrued and
unpaid interest on the Investor Certificates through the day preceding the
Distribution Date on which the repurchase occurs.
SECTION 5. Delivery and Payment for the Series E Certificates. The Trustee
shall deliver the Class A Certificates when authenticated in accordance
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with Section 6.2 of the Pooling and Servicing Agreement to Credit Suisse First
Boston Corporation upon payment to JCPR of $_______.
SECTION 6. Form of Delivery of the Class A Certificates; Depository.
(a) The Class A Certificates shall be delivered as Book-Entry
Certificates as provided in Section 6.9 of the Pooling and Servicing Agreement.
(b) The Class A Certificates shall be initially registered in the
name of Cede & Co., as nominee of The Depository Trust Company.
SECTION 7. Article IV of the Pooling and Servicing Agreement as Applied to
Series E. Sections 4.1 through 4.9 shall be read in their entirety as provided
in the Pooling and Servicing Agreement, except as modified hereby. In addition,
the following Sections 4.11 through 4.20 shall be applicable to Series E.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.11 Rights of Series E Certificateholders, the Class B Investor
Interest Holder and the Class C Investor Interest Holder. The Investor
Certificates shall represent undivided interests in the Trust, consisting of the
right to receive, to the extent necessary to make the required payments with
respect to such Investor Certificates at the times and in the amounts specified
in this Agreement, (a) the Floating Investor Percentage and Fixed Investor
Percentage (as applicable from time to time) of Collections received with
respect to the Receivables and, without duplication, (b) funds on deposit in the
Collection Account, the Finance Charge Account, the Principal Account, the
Principal Funding Account and the Distribution Account. The Class C Investor
Interest shall be subordinate with respect to payment to the Class A
Certificates and the Class B Investor Interest. The Class B Investor Interest
shall be subordinate with respect to payment to the Class A Certificates.
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SECTION 4.12 Allocations for Series E.
With respect to the Investor Certificates, and notwithstanding anything in
the Pooling and Servicing Agreement to the contrary, with respect to any Monthly
Period (i) the Servicer will only be required to deposit Collections from the
Collection Account into the Finance Charge Account, the Principal Account or the
Principal Funding Account, as applicable, up to the required amount to be
deposited into any such account or, without duplication, distributed on or prior
to the related Distribution Date to the Investor Certificateholders and (ii) if
at any time prior to such Distribution Date the amount of Collections deposited
in the Collection Account exceeds the amount required to be deposited pursuant
to clause (i) above, the Servicer will be permitted to withdraw the excess from
the Collection Account.
SECTION 4.13 Determination of Monthly Interest.
(a) The amount of monthly interest distributable with respect to the
Class A Certificates shall be an amount equal to one-twelfth of the product of
(i) the Class A Certificate Rate times (ii) the outstanding principal balance of
the Class A Certificates determined as of the Record Date preceding the related
Transfer Date (the "Class A Monthly Interest"); provided, however, that with
respect to the _________, 1998 Distribution Date, Class A Monthly Interest shall
be $_____; provided, further, that in addition to the Class A Monthly Interest
an amount equal to the amount of any unpaid Class A Deficiency Amounts, as
defined below, plus an amount equal to the product of (A) the sum of the Class A
Certificate Rate plus 2% per annum and (B) any Class A Deficiency Amount from
the prior Transfer Date, as defined below (or the portion thereof which has not
theretofore been paid to Class A Certificateholders) (the "Class A Additional
Interest") shall also be distributable with respect to the Class A Certificates,
and on such Transfer Date the Trustee shall deposit such funds, to the extent
available, into the Distribution Account; provided further, that the "Class A
Deficiency Amount" for any Transfer Date shall be equal to the excess, if any,
of the aggregate amount accrued pursuant to this subsection 4.13(a) as of the
prior Interest Period over the amount actually transferred to the Distribution
Account for payment of such amount.
(b) The amount of monthly interest distributable with respect to the
Class B Investor Interest shall be an amount equal to one-twelfth of the product
of (i) the Class B Rate times (ii) the Class B Investor Interest determined as
of the Record Date preceding the related Transfer Date (the "Class B Monthly
Interest"); provided, however, that with respect to the ________, 1998
Distribution
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Date, Class B Monthly Interest shall be $0; provided, further, that in addition
to the Class B Monthly Interest an amount equal to the amount of any unpaid
Class B Deficiency Amounts, as defined below, plus an amount equal to the
product of (A) the sum of the Class B Rate plus 2% per annum and (B) any Class B
Deficiency Amount from the prior Transfer Date, as defined below (or the portion
thereof which has not theretofore been paid to the Class B Investor Interest
Holder) (the "Class B Additional Interest") shall also be distributable with
respect to the Class B Investor Interest, and on such Transfer Date the Trustee
shall deposit such funds, to the extent available, into the Distribution
Account; provided further, that the "Class B Deficiency Amount" for any Transfer
Date shall be equal to the excess, if any, of the aggregate amount accrued
pursuant to this subsection 4.13(b) as of the prior Interest Period over the
amount actually transferred to the Distribution Account for payment of such
amount. Notwithstanding the foregoing, until JCPR shall make the designation
referred to in the definition of "Class B Rate," no interest shall be payable
with respect to the Class B Investor Interest.
(c) The amount of monthly interest distributable with respect to the
Class C Investor Interest shall be an amount equal to one-twelfth of the product
of (i) the Class C Rate times (ii) the Class C Investor Interest determined as
of the Record Date preceding the related Transfer Date or, with respect to the
________, 1998 Transfer Date, the Class C Initial Investor Interest (the "Class
C Monthly Interest"). Notwithstanding the foregoing, until JCPR shall make the
designation referred to in the definition of "Class C Rate," no interest shall
be payable with respect to the Class C Investor Interest.
SECTION 4.14 Determination of Monthly Principal.
(a) The amount of monthly principal to be deposited in the Principal
Funding Account or the Distribution Account, as applicable, from the Principal
Account with respect to the Class A Certificates on each Transfer Date ("Class A
Monthly Principal"), beginning with the Transfer Date in the month following the
month in which the Controlled Accumulation Period or, if earlier, the Rapid
Amortization Period, begins, shall be equal to 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 (after taking into account
any adjustments to be made on such Transfer Date pursuant to Section 4.17
hereof) prior to any deposits or distributions with respect to such Transfer
Date.
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(b) The amount of monthly principal to be deposited in the Principal
Funding Account or the Distribution Account, as applicable, from the Principal
Account with respect to the Class B Investor Interest on each Transfer Date (the
"Class B Monthly Principal") with respect to the Controlled Accumulation Period
or the Rapid Amortization Period, beginning with the Transfer Date immediately
preceding the Distribution Date on which the Class A Investor Interest will be
paid in full (after taking into account payments to be made on such Distribution
Date), shall be an amount equal to 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 (after taking into account any adjustments to be made on such
Transfer Date pursuant to Sections 4.17 and 4.19 hereof) prior to any deposits
or distributions with respect to such Transfer Date.
(c) The amount of monthly principal to be deposited in the Principal
Funding Account or the Distribution Account, as applicable, from the Principal
Account with respect to the Class C Investor Interest on each Transfer Date (the
"Class C Monthly Principal") shall be (A) during the Revolving Period following
any reduction of the Required Class C Investor Interest pursuant to clause (z)
of the proviso in the definition thereof, an amount equal to the lesser of (1)
the excess, if any, of the Class C Investor Interest (after taking into account
any adjustments to be made on such Transfer Date pursuant to Sections 4.17 and
4.19 hereof) over the Required Class C Investor Interest on such Transfer Date
and (2) the Available Investor Principal Collections on such Transfer Date or
(B) during the Controlled Accumulation Period or the Rapid Amortization Period,
an amount equal to the lesser of (1) the excess, if any, of the Class C Investor
Interest (after taking into account any adjustments to be made on such Transfer
Date pursuant to Sections 4.17 and 4.19 hereof) over the Required Class C
Investor Interest on such Transfer Date and (2) the excess, if any, of (i) the
Available Investor Principal Collections on such Transfer Date over (ii) the sum
of the Class A Monthly Principal and the Class B Monthly Principal for such
Transfer Date.
SECTION 4.15 Coverage of Required Amount.
(a) On or before each Transfer Date, the Servicer shall determine the
amount (the "Class A Required Amount"), if any, by which the sum of (i) the
Class A Monthly Interest for the related Distribution Date, plus (ii) the Class
A Deficiency Amount, if any, for such Transfer Date, plus (iii) the Class A
Addi
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tional Interest, if any, for such Transfer Date, plus (iv) the Class A Servicing
Fee for the prior Monthly Period plus (v) the Class A Servicing Fee, if any, due
but not paid on any prior Transfer Date, plus (vi) the Class A Investor Default
Amount, if any, for the prior Monthly Period, exceeds the Class A Available
Funds for the related Monthly Period.
(b) On or before each Transfer Date, the Servicer shall also determine
the amount (the "Class B Required Amount"), if any, equal to the sum of (i) the
amount, if any, by which the sum of (A) the Class B Monthly Interest for the
related Distribution Date, plus (B) the Class B Deficiency Amount, if any, for
such Transfer Date, plus (C) the Class B Additional Interest, if any, for such
Transfer Date, plus (D) if JCPenney or an Affiliate thereof is no longer the
Servicer, the Class B Servicing Fee for the prior Monthly Period, plus (E) if
JCPenney or an Affiliate thereof is no longer the Servicer, the Class B
Servicing Fee, if any, due but not paid on any prior Transfer Date, exceeds the
Class B Available Funds for the related Monthly Period, plus (ii) the Class B
Investor Default Amount, if any, for the prior Monthly Period.
(c) In the event that the Class A Required Amount for such Transfer
Date is greater than zero, all or a portion of the Excess Spread with respect to
such Transfer Date in an amount equal to the Class A Required Amount, to the
extent available, for such Transfer Date shall be distributed from the Finance
Charge Account on such Transfer Date pursuant to subsection 4.18(a) hereof. In
the event that the Class A Required Amount for such Transfer Date exceeds the
amount of Excess Spread with respect to such Transfer Date, the Collections of
Principal Receivables allocable to the Class C Investor Interest and the
Collections of Principal Receivables allocable to the Class B Investor Interest
with respect to the prior Monthly Period shall be applied as specified in
Section 4.19 hereof. In the event that the Class B Required Amount for such
Transfer Date exceeds the amount of Excess Spread available to fund the Class B
Required Amount pursuant to subsection 4.18(c) hereof, the Collections of
Principal Receivables allocable to the Class C Investor Interest (after
application to the Class A Required Amount) shall be applied as specified in
Section 4.19 hereof; provided, however, that the sum of any payments pursuant to
this paragraph shall not exceed the sum of the Class A Required Amount and the
Class B Required Amount.
SECTION 4.16 Monthly Payments. On or before each Transfer Date, the
Servicer shall instruct the Trustee in writing to withdraw and the Trustee,
acting in accordance with such instructions, shall withdraw on such Transfer
Date or the related Distribution Date, as applicable, to the extent of available
funds, the amounts required to be withdrawn from the Finance Charge Account, the
Principal Account, the Principal Funding Account and the Distribution Account as
follows:
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(a) An amount equal to the Class A Available Funds deposited into the
Finance Charge Account for the related Monthly Period will be distributed on
each Transfer Date in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Transfer Date, plus the amount of any Class A Deficiency Amount for such
Transfer Date, plus the amount of any Class A Additional Interest for such
Transfer Date, shall be deposited by the Servicer or the Trustee into the
Distribution Account;
(ii) an amount equal to the Class A Servicing Fee for such
Transfer Date plus the amount of any Class A Servicing Fee due but not paid
to the Servicer on any prior Transfer Date shall be distributed to the
Servicer;
(iii) an amount equal to the Class A Investor Default Amount, if
any, for the preceding Monthly Period shall be treated as a portion of
Investor Principal Collections and deposited into the Principal Account on
such Transfer Date; and
(iv) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.18 hereof.
(b) An amount equal to the Class B Available Funds deposited into the
Finance Charge Account for the related Monthly Period will be distributed on
each Transfer Date in the following priority:
(i) an amount equal to the Class B Monthly Interest for such
Transfer Date, plus the amount of any Class B Deficiency Amount for such
Transfer Date, plus the amount of any Class B Additional Interest for such
Transfer Date, shall be deposited by the Servicer or the Trustee into the
Distribution Account;
(ii) if JCPenney or an Affiliate thereof is no longer the
Servicer, an amount equal to the Class B Servicing Fee for such Transfer
Date, plus the amount of any Class B Servicing Fee due but not paid to the
Servicer on any prior Transfer Date for such Transfer Date shall be
distributed to the Servicer; and
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(iii) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.18 hereof.
(c) An amount equal to the Class C Available Funds deposited into the
Finance Charge Account for the related Monthly Period will be distributed on
each Transfer Date 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 for such Transfer
Date plus the amount of any Class C Servicing Fee due but not paid to the
Servicer on any prior Transfer Date shall be distributed to the Servicer;
and
(ii) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.18 hereof.
(d) During the Revolving Period, an amount equal to the Available
Investor Principal Collections deposited into the Principal Account for the
related Monthly Period will be distributed on each Transfer Date in the
following priority:
(i) an amount equal to the Class C Monthly Principal shall be
distributed to the Class C Investor Interest Holder; and
(ii) an amount equal to the excess, if any, of (A) the Available
Investor Principal Collections for such Transfer Date over (B) the
applications specified in subsection 4.16(d)(i) above shall be paid to the
Holder of the Exchangeable Certificate, subject to the provisions of
Section 4.3(f) of the Pooling and Servicing Agreement.
(e) During the Controlled Accumulation Period or the Rapid
Amortization Period, an amount equal to the Available Investor Principal
Collections deposited into the Principal Account for the related Monthly Period
will be distributed on each Transfer Date in the following priority:
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(i) an amount equal to the Class A Monthly Principal for such
Transfer Date shall (A) during the Controlled Accumulation Period, be
deposited into the Principal Funding Account and (B) during the Rapid
Amortization Period, be deposited into the Distribution Account;
(ii) after giving effect to the distribution referred to in
clause (i) above, an amount equal to the Class B Monthly Principal shall
(A) during the Controlled Accumulation Period, be deposited into the
Principal Funding Account and (B) during the Rapid Amortization Period, be
deposited into the Distribution Account;
(iii) after giving effect to the distributions referred to in
clauses (i) and (ii) above, an amount equal to the Class C Monthly
Principal shall (A) during the Controlled Accumulation Period, be deposited
into the Principal Funding Account and (B) during the Rapid Amortization
Period, be distributed to the Class C Investor Interest Holder; and
(iv) an amount equal to the excess, if any, of (A) the Available
Investor Principal Collections over (B) the applications specified in
subsections 4.16(e)(i) through (iii) above shall be paid to the Holder of
the Exchangeable Certificate, subject to the provisions of Section 4.3(f)
of the Pooling and Servicing Agreement.
(f) On the earlier to occur of (i) the first Transfer Date with
respect to the Rapid Amortization Period and (ii) the Transfer Date immediately
preceding the Class A Expected Final Distribution Date, the Trustee, acting in
accordance with instructions from the Servicer, shall cause to be withdrawn from
the Principal Funding Account and (A) deposited in the Distribution Account, the
amount deposited into the Principal Funding Account pursuant to subsections
4.16(e)(i) and 4.16(e)(ii) above and (B) pay to the Class C Investor Interest
Holder the amount deposited into the Principal Funding Account pursuant to
subsection 4.16(e)(iii) above.
(g) On each Distribution Date, the Trustee shall cause to be paid (i)
to the Class A Certificateholders from the Distribution Account, the amount
deposited into the Distribution Account pursuant to subsection 4.16(a)(i) hereof
on the preceding Transfer Date and (ii) to the Class B Investor Interest Holder
from the Distribution Account, the amount deposited into
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the Distribution Account pursuant to subsection 4.16(b)(i) hereof on the
preceding Transfer Date.
(h) On the earlier to occur of (i) the first Distribution Date with
respect to the Rapid Amortization Period and (ii) the Class A Expected Final
Distribution Date, and on each Distribution Date thereafter, the Trustee, acting
in accordance with instructions from the Servicer, shall cause to be paid from
the Distribution Account the amount so deposited into the Distribution Account
pursuant to subsections 4.16(e) and 4.16(f) hereof on the related Transfer Date
in the following priority:
(i) an amount equal to the lesser of such amount deposited to
the Distribution Account and the Class A Investor Interest shall be paid to
the Class A Certificateholders; and
(ii) after giving effect to the distributions referred to in
clause (i) above, an amount equal to the lesser of such amount deposited
into the Distribution Account and the Class B Monthly Principal shall be
paid to the Class B Investor Interest Holder.
SECTION 4.17 Investor Charge-Offs.
(a) On or before each Transfer Date, the Servicer shall calculate the
Class A Investor Default Amount. If on any Transfer Date, the Class A Investor
Default Amount for the prior Monthly Period exceeds the sum of the amount
allocated with respect thereto pursuant to subsection 4.16(a)(iii), subsection
4.18(a) and Section 4.19 hereof with respect to such Monthly Period, 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 excess, but not by 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 Investor 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) will be reduced by the amount by which the Class C Investor
Interest would have been reduced below
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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 by more
than the Class A Investor Default Amount for such Transfer Date (a "Class A
Investor Charge-Off"). 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 pursuant to subsection 4.18(b) hereof.
(b) On or before each Transfer Date, the Servicer shall calculate the
Class B Investor Default Amount. If on any Transfer Date, the Class B Investor
Default Amount for the prior Monthly Period exceeds the amount of Excess Spread
and Reallocated Class C Principal Collections which are allocated and available
to fund such amount pursuant to subsection 4.18(c) and Section 4.19 hereof, 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 and any adjustments with respect thereto as described in subsection 4.17(a)
above) will be reduced by the amount of such excess but not by 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 Investor Charge-Offs and any
Reallocated Principal Collections on such Transfer Date and any adjustments with
respect thereto as described in subsection 4.17(a) above) 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 by
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 pursuant to Section 4.19 hereof and the amount of any portion
of the Class B Investor Interest allocated to the Class A Certificates to avoid
a reduction in the Class A Investor Interest pursuant to subsection 4.17(a)
above. The Class B Investor Interest will thereafter be reimbursed (but not to
an amount 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 subsection 4.18(d) hereof.
(c) On or before each Transfer Date, the Servicer shall calculate the
Class C Investor Default Amount. If on any Transfer Date, the Class C
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Investor Default Amount for the prior Monthly Period exceeds the amount of
Excess Spread which is allocated and available to fund such amount pursuant to
subsection 4.18(h) hereof, the Class C Investor Interest will be reduced by the
amount of such excess but not by 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"). The Class C Investor Interest will also be
reduced by the amount of Reallocated Principal Collections pursuant to Section
4.19 hereof and the amount of any portion of the Class C Investor Interest
allocated to the Class A Certificates or the Class B Investor Interest to avoid
a reduction in the Class A Investor Interest, pursuant to subsection 4.17(a)
hereof, or the Class B Investor Interest, pursuant to subsection 4.17(b) hereof,
respectively. The Class C Investor Interest will thereafter be reimbursed on any
Transfer Date by the amount of the Excess Spread allocated and available for
that purpose as described under subsection 4.18(i) hereof.
SECTION 4.18 Excess Spread. On or before each Transfer Date, the
Servicer shall instruct the Trustee in writing to apply Excess Spread with
respect to the related Monthly Period to make the following distributions on
each Transfer Date in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to such Transfer Date shall be used to fund the Class A Required Amount
and be applied in accordance with, and in the priority set forth in, subsection
4.16(a) hereof;
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed shall be treated as a
portion of Investor Principal Collections and deposited into the Principal
Account on such Transfer Date;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Transfer Date shall be used to fund the Class B Required Amount
and be applied first in accordance with, and in the priority set forth in,
subsection 4.16(b) hereof and then any remaining amount available to pay the
Class B Investor Default Amount shall be treated as a portion of Investor
Principal Collections and deposited into the Principal Account on such Transfer
Date;
(d) an amount equal to the aggregate amount by which the Class B
Investor Interest has been reduced below the Class B Initial Investor Interest
for reasons other than the payment of principal to the Class B
(e) if JCPenney or an Affiliate thereof is the Servicer, an amount
equal to the aggregate amount of accrued but unpaid Class B Servicing Fees shall
be paid to the Servicer,
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Investor Interest Holder (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as a
portion of Investor Principal Collections and deposited into the Principal
Account on such Transfer Date;
(f) an amount equal to the Class C Monthly Interest plus the amount of
any past due Class C Monthly Interest for the related Distribution Date shall be
distributed to the Class C Investor Interest Holder;
(g) if JCPenney or an Affiliate thereof is the Servicer, an amount
equal to the aggregate amount of accrued but unpaid Class C Servicing Fees shall
be paid to the Servicer;
(h) an amount equal to the Class C Investor Default Amount, if any,
for the prior Monthly Period shall be treated as a portion of Investor Principal
Collections and deposited into the Principal Account on such Transfer Date;
(i) an amount equal to the aggregate amount by which the Class C
Investor Interest has been reduced for reasons other than the payment of amounts
with respect to the Class C Monthly Principal (but not in excess of the
aggregate amount of such reductions which have not been previously reimbursed)
shall be treated as a portion of Investor Principal Collections and deposited
into the Principal Account on such Transfer Date; and
(j) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (i) above shall be paid to the Holder of
the Exchangeable Certificate.
SECTION 4.19 Reallocated Principal Collections. On or before each
Transfer Date, the Servicer shall instruct the Trustee in writing to withdraw
from the Principal Account and apply Reallocated Principal Collections (applying
all Reallocated Class C Principal Collections in accordance with subsections
4.19(a) and (b) hereof prior to applying any Reallocated Class B Principal
Collections in accordance with subsection 4.19(a) hereof for any amounts still
owing after the application of Reallocated Class C Principal Collections) with
respect to such Transfer Date, to make the following distributions on each
Transfer Date in the following priority:
(a) an amount equal to the excess, if any, of (i) the Class A Required
Amount, if any, with respect to such Transfer Date over (ii) the amount of
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Excess Spread with respect to the related Monthly Period, shall be applied
pursuant to subsections 4.16(a)(i), (ii) and (iii) hereof; and
(b) an amount equal to the excess, if any, of (i) the Class B Required
Amount, if any, with respect to such Transfer Date over (ii) the amount of
Excess Spread allocated and available to the Class B Investor Interest pursuant
to subsection 4.18(c) hereof on such Transfer Date shall be applied first
pursuant to subsections 4.16(b)(i) and (ii) hereof and then pursuant to
subsection 4.18(c) hereof.
On each Transfer Date, the Class C Investor Interest shall be reduced by
the amount of Reallocated Class C Principal Collections and by the amount of
Reallocated Class B Principal Collections for such Transfer Date. In the event
that such reduction would cause the Class C Investor Interest (after giving
effect to any Class C Investor Charge-Offs for such Transfer Date) to be a
negative number, the Class C Investor Interest (after giving effect to any Class
C Investor Charge-Offs for such Transfer Date) shall be reduced to zero and the
Class B Investor Interest shall be reduced by the amount by which the Class C
Investor Interest would have been reduced below zero. In the event that the
application of Reallocated Principal Collections would cause the Class B
Investor Interest (after giving effect to any Class B Investor Charge-Offs for
such Transfer Date) to be a negative number on any Transfer Date, Reallocated
Principal Collections shall be reallocated on such Transfer Date in an aggregate
amount not to exceed the amount which would cause the Class B Investor Interest
(after giving effect to any Class B Investor Charge-Offs for such Transfer Date)
to be reduced to zero.
SECTION 4.20 Principal Funding Account.
(a) The Trustee shall establish and maintain an account with a
Qualified Institution, which may be the Trustee, in the name of the Trust, on
behalf of the Trust, for the benefit of the Investor Certificateholders, which
account shall be a segregated trust account with the corporate trust department
of such Qualified Institution (the "Principal Funding Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Investor Certificateholders. The Trustee shall possess all right,
title and interest in all funds on deposit from time to time in the Principal
Funding Account and in all proceeds thereof. The Principal Funding Account shall
be under the sole dominion and control of the Trustee for the benefit of the
Investor Certificateholders. If at any time the institution holding the
Principal Funding Account ceases to be a Qualified Institution, JCPR shall
notify the Trustee, and the Trustee upon being notified (or the Servicer on its
behalf) shall,
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<PAGE>
within 10 Business Days, establish a new Principal Funding Account meeting the
conditions specified above with a Qualified Institution, and shall transfer any
cash or any investments to such new Principal Funding Account. The Trustee, at
the direction of the Servicer, shall (i) make withdrawals from the Principal
Funding Account from time to time, in the amounts and for the purposes set forth
in this Series Supplement, and (ii) on each Transfer Date (from and after the
commencement of the Controlled Accumulation Period) prior to the termination of
the Principal Funding Account make deposits into the Principal Funding Account
in the amounts specified in, and otherwise in accordance with, subsection
4.16(e) hereof.
(b) Funds on deposit in the Principal Funding Account shall be
invested at the direction of the Servicer by the Trustee in Permitted
Investments. Funds on deposit in the Principal Funding Account on any Transfer
Date, after giving effect to any withdrawals from the Principal Funding Account
on such Transfer Date, shall be invested in such investments that will mature so
that such funds will be available for withdrawal on or prior to the following
Transfer Date.
(c) On each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, the Trustee, acting at the Servicer's direction given on or before such
Transfer Date, shall transfer from the Principal Funding Account to the Finance
Charge Account the Principal Funding Investment Proceeds on deposit in the
Principal Funding Account for application as Class A Available Funds and Class B
Available Funds in accordance with Section 4.16 hereof. Principal Funding
Investment Proceeds (including reinvested interest) shall not be considered part
of the amounts on deposit in the Principal Funding Account for purposes of this
Series Supplement.
(d) On or before each Transfer Date with respect to the Controlled
Accumulation Period and on or before the first Transfer Date with respect to the
Rapid Amortization Period, the Servicer shall calculate the amount, if any, by
which the Covered Amount for such Transfer Date exceeds the Class A Account
Percentage of Principal Funding Investment Proceeds for such Transfer Date (the
"Principal Funding Investment Shortfall").
(e) In the event that for any Transfer Date there is a Principal
Funding Investment Shortfall, the Servicer shall deposit into the Finance Charge
Account for application as Class A Available Funds the lesser of (i) the
Principal Funding Investment Shortfall and (ii) the amount, if any, of
Collections of
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Finance Charge Receivables and Net Recoveries allocable to the Holder of the
Exchangeable Certificate for the related Monthly Period.
[End of Article IV]
SECTION 8. Series E Termination. The right of the Investor
Certificateholders to receive payments from the Trust will terminate on the
first Business Day following the Series E Termination Date.
SECTION 9. Transfers of the Class B Investor Interest and the Class C
Investor Interest.
(a) Unless otherwise consented to by JCPR, no portion of the Class B
Investor Interest or the Class C Investor Interest or any interest therein may
be sold, conveyed, assigned, hypothecated, pledged, participated, exchanged or
otherwise transferred (each, a "Transfer") except in accordance with this
Section 9 and only to a Permitted Assignee. Any attempted or purported transfer,
assignment, exchange, conveyance, pledge, hypothecation or grant other than to a
Permitted Assignee shall be void. Unless otherwise consented to by JCPR, no
portion of the Class B Investor Interest or the Class C Investor Interest or any
interest therein may be Transferred to any Person (each such Person acquiring
the Class B Investor Interest or the Class C Investor Interest or any interest
therein, an "Assignee") unless such Assignee shall have executed and delivered
to JCPR on or before the effective date of any Transfer a letter substantially
in the form of Exhibit __ hereto (an "Investment Letter"), with respect to such
Transfer.
(b) No portion of the Class B Investor Interest or the Class C Investor
Interest or any interest therein may be Transferred to, and each Assignee will
certify that it is not, (a) an "employee benefit plan" (as defined in Section
3(3) of ERISA), whether or not subject to Title I of ERISA, including
governmental plans, foreign plans and church plans, (b) any "plan" (as defined
in Section 4975(e)(1) of the Code), whether or not subject to Section 4975 of
the Code, including individual retirement accounts and Keogh plans, or (c) any
other entity whose underlying assets include "plan assets" (within the meaning
of Department of Labor Regulation Section 2510.3-101, 29 C.F.R. (S) 2510.3-101
or otherwise under ERISA) by reason of a plan's investment in the entity,
including, without limitation, an insurance company general account.
SECTION 10. Other Terms of Series E.
(a) For Series E, the period of time for segregation of collections,
as described in subsection 4.3(a) of the Pooling and Servicing Agreement, shall
be five (5) consecutive Business Days following the
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<PAGE>
Closing Date and for a period of two (2) consecutive Business Days each year
thereafter. JCPR shall have complete discretion with respect to the dates chosen
during the year for the two consecutive business day segregation.
(b) Interest on the Investor Certificates shall accrue from the
Closing Date to and including ________ __, 1998. Notwithstanding anything in
the Pooling and Servicing Agreement to the contrary, interest on the Investor
Certificates with respect to any Monthly Period shall accrue from and including
the Distribution Date in such Monthly Period to but excluding the next
succeeding Distribution Date.
(c) The Principal Amount (see Series C Supplement) in the case of
Series E shall be the Investor Interest.
(d) Subsections 9.1(h) and 9.1(i) of the Pooling and Servicing
Agreement shall not be applicable to Series E.
SECTION 11. Amendment and Ratification of Pooling And Servicing
Agreement.
(a) Following the payment in full of Series B and Series C, JCPenney
and JCPR may transfer all or a portion of JCPenney's or the Bank's consumer open
end credit card accounts and/or 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,
without the consent or approval of any of the Investor Certificateholders, if
the following conditions 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 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) the Trustee shall have received an Opinion of
Counsel with
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<PAGE>
respect to clauses (i) and (ii) above in form and substance satisfactory to the
Trustee and (v) the Trustee shall have received a Tax Opinion. After a permitted
transfer and assumption, neither JCPenney nor JCPR shall have further liability
or obligation under the Receivables Purchase Agreement or the Pooling and
Servicing Agreement, other than those liabilities that arose prior to such
transfer and assumption, and JCPenney and JCPR shall remain liable for all of
their respective representations, warranties and covenants made prior to such
transfer and assumption.
(b) Following the payment in full of Series B and Series C, an
amendment under Section 13.1(b) of the Pooling and Servicing Agreement may be
made without the consent or approval of any of the Investor Certificateholders
so long as the Rating Agency Condition shall be satisfied.
(c) This Series Supplement may be amended at any time by the Servicer,
JCPR and the Trustee with the consent solely of the Class B Investor Interest
Holder or the Class C Investor Interest Holder, as applicable, to add provisions
hereto that permit the Class B Investor Interest or the Class C Investor
Interest, as applicable, to be represented by a certificated security.
(d) As supplemented by this Series Supplement, the Pooling and
Servicing Agreement is in all respects ratified and confirmed and the Pooling
and Servicing Agreement as so supplemented by this Series Supplement shall be
read, taken, and construed as one and the same instrument.
SECTION 12. Counterparts. This Series Supplement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 13. Governing Law. This Series Supplement shall be construed
in accordance with and governed by the substantive laws of the State of New York
applicable to agreements made and to be performed therein.
33
<PAGE>
IN WITNESS WHEREOF, JCPR, the Servicer and the Trustee have caused
this Series Supplement to be duly executed by their respective officers as of
the day and year first above written.
JCP RECEIVABLES, INC.
By:
--------------------------------------
Name: C. A. Walther
Title: President
THE FUJI BANK AND TRUST COMPANY
By:
--------------------------------------
Name:
Title:
J. C. PENNEY COMPANY, INC.
By:
--------------------------------------
Name: R. B. Cavanaugh
Title: Vice President and Treasurer
34
<PAGE>
EXHIBIT 4.2
FORM OF INVESTOR CERTIFICATE
Unless this Certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to JCP
Receivables, Inc. or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede & Co.
or in such other name as requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
No. __ $___________
CUSIP NO.___________
JCP MASTER CREDIT CARD TRUST
___ % ASSET BACKED CERTIFICATE, SERIES E
Evidencing an undivided interest in a trust, the corpus of which consists of a
portfolio of J. C. Penney Company, Inc. ("JCPenney") credit card receivables
acquired by JCP Receivables, Inc. ("JCPR").
(NOT AN INTEREST IN OR OBLIGATION OF
JCPR OR JCPENNEY
EXCEPT AS STATED HEREIN OR
IN THE POOLING AND SERVICING AGREEMENT.)
This certifies that ________________ (the "Certificateholder") is the
registered owner of the undivided interest in a trust (the "Trust"), the corpus
of which consists of a portfolio of receivables (the "Receivables") now existing
or hereafter created under selected JCPenney credit card accounts (the
"Accounts") acquired by or to be acquired by JCPR and transferred by JCPR to the
Trust, all monies due or to become due with respect thereto and the other assets
and interests constituting the Trust pursuant to a Master Pooling and Servicing
Agreement dated as of September 5, 1988, as amended, by and among JCPR,
JCPenney, as Servicer, and The Fuji Bank and Trust Company, as Trustee, as
supplemented by the Series E Supplement ("Supplement") thereto (as so
supplemented, the "Pooling and Servicing Agreement"), a summary of certain of
the pertinent provisions of which is set forth below.
PRINCIPAL IN RESPECT OF THIS CERTIFICATE IS PAYABLE AS SET FORTH
HEREIN ON _______, _________, OR EARLIER UPON THE OCCURRENCE OF A PAY OUT EVENT.
ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE OF THIS CERTIFICATE AT ANY TIME MAY BE
LESS THAN THE PRINCIPAL BALANCE SET FORTH ABOVE. THIS CERTIFICATE DOES NOT
REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, JCPR OR THE SERVICER EXCEPT AS
STATED HEREIN AND IN THE POOLING AND SERVICING AGREEMENT. THIS CERTIFICATE IS
LIMITED IN RIGHT OF PAYMENT TO CERTAIN
<PAGE>
COLLECTIONS RESPECTING THE RECEIVABLES, ALL AS MORE SPECIFICALLY SET FORTH
HEREIN AND IN THE POOLING AND SERVICING AGREEMENT.
JCPR has structured the Pooling and Servicing Agreement, any Supplement
thereto and the Investor Certificates to facilitate a secured financing on
favorable terms with the intention that the Investor Certificates will
constitute indebtedness of JCPR for federal income and state and local tax
purposes; and each Investor Certificateholder by acceptance of its Certificate
agrees to recognize and report all Investor Certificates as indebtedness of JCPR
for purposes of federal, state and local income or franchise taxes and any other
tax imposed on or measured by income, and to report all receipts and payments
relating thereto in a manner that is consistent with such characterization.
Capitalized terms used herein have their respective meanings set forth in
the Pooling and Servicing Agreement. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which Pooling and Servicing Agreement, as amended and supplemented
from time to time, the Certificateholder by virtue of the acceptance hereof
assents and by which the Certificateholder is bound.
Although a summary of certain provisions of the Pooling and Servicing
Agreement is set forth below, this Certificate is qualified in its entirety by
the terms and provisions of the Pooling and Servicing Agreement for information
with respect to the interests, rights, benefits, obligations, proceeds, and
duties evidenced hereby and the rights, duties and obligations of the Trustee.
Interest will accrue on the Certificates at the rate of ___% per annum
from the Closing Date, as more specifically set forth in the Pooling and
Servicing Agreement, and will be distributed on the 15th day of each month or,
if such day is not a Business Day, on the next succeeding Business Day (a
"Distribution Date"), to the Certificateholders of record as of the last
Business Day of the calendar month preceding such Distribution Date. During the
Rapid Amortization Period, Available Investor Principal Collections will be
distributed to the Certificateholders on the Distribution Date of each calendar
month commencing in the month following the commencement of the Rapid
Amortization Period until the earlier of the date the Certificates are paid in
full and the termination of Series E. During the Controlled Accumulation
Period, the amount on deposit in the Principal Funding Account will be
distributed as principal to the Certificateholders on the ____ _____
Distribution Date, unless distributed earlier as a result of the commencement of
the Rapid Amortization Period in accordance with the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement permits, with certain exceptions, the
amendment thereof and the modification of the rights and obligations of the
Servicer and the rights of the Certificateholders under the Pooling and
Servicing Agreement at any time by the Servicer, JCPR and the Trustee (a) in
certain cases with the consent of Holders of Investor 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;
provided, however, that no such amendment may (a) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any Investor 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 required to consent to any such
amendment, in each case without the consent of each Investor Certificateholder
affected thereby.
This Certificate shall be governed by and construed in accordance with the
laws of the State of New York.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not be
entitled to any benefit under the Pooling and Servicing Agreement, or be valid
for any purpose.
2
<PAGE>
IN WITNESS WHEREOF, JCPR has caused this Certificate to be duly executed
under its official seal.
JCP RECEIVABLES, INC.
By:
-----------------------------
------------------- President
[Seal]
Attested to:
By:
------------------------------
Secretary
Date: ,
--------------------- -----
3
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates described in the Pooling and Servicing
Agreement.
THE FUJI BANK AND TRUST or THE FUJI BANK AND TRUST
COMPANY, As Trustee, COMPANY, As Trustee,
By: By:
------------------------ ------------------------
Authorized Officer As Authenticating Agent
For the Trustee
By:
------------------------
Authorized Officer
4
<PAGE>
EXHIBIT 4.3
================================================================================
JCP RECEIVABLES, INC.
Buyer
and
J. C. PENNEY COMPANY, INC.
Seller
================================================================================
RECEIVABLES PURCHASE AGREEMENT
Dated as of September 5, 1988
================================================================================
<PAGE>
RECEIVABLES PURCHASE
AGREEMENT
RECEIVABLES PURCHASE AGREEMENT, dated as of September 5, 1988, by and
between J. C. PENNEY COMPANY, INC., a Delaware corporation ("Seller"), and JCP
RECEIVABLES, INC., a Delaware corporation ("Buyer").
W I T N E S S E T H;
WHEREAS, Buyer desires to purchase from time to time certain Receivables
(hereinafter defined) due or to become due to Seller under certain specified
credit card accounts of Seller; and
WHEREAS, Seller desires to sell from time to time and assign certain
Receivables to Buyer upon the terms and conditions hereinafter set forth; and
WHEREAS, Buyer is a subsidiary of Seller and a portion of the Receivables
will be transferred to Buyer by Seller as part of the initial capitalization of
Buyer; and
WHEREAS, it is contemplated that the Receivables purchased hereunder will
be transferred by Buyer to the Trust (hereinafter defined) in connection with
the issuance of certain Certificates (hereinafter defined); and
WHEREAS, Buyer will grant to the Trustee (hereinafter defined) a security
interest in Buyer's rights relating to the Receivables under this Agreement, and
Seller agrees that all covenants and agreements made by Seller herein with
respect to the Accounts and Receivables shall also be for the benefit of the
Trustee and all holders of the Certificates;
NOW, THEREFORE, it is hereby agreed by and between Buyer and Seller as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Account" shall mean each Seller credit card account in one of Seller' s
Cycles which is an Eligible Account on the Cut Off Date, which is established
pursuant to a Credit Card Agreement and which is identified by account number
and by Receivable balance as of the Cut Off Date and shall also include
Additional Accounts (which may be in the same or different Cycles) as of each
Addition Date identified in each computer file or microfiche list delivered to
Buyer by Seller pursuant to Section 2.2. The term "Account" shall also be
deemed to refer to an Additional Account, but only from and after the Addition
Date with respect thereto, and the term "Account" shall be deemed to refer to
any Removed Account prior to but not after the Repurchase Date with respect
thereto.
"Addition Date" shall mean, with respect to any Additional Accounts, the
date five Business Days after the period or date when such Additional Accounts
are required or permitted to be designated hereunder pursuant to Section 2.2(a)
hereof or the date such Additional Account is added as an Account pursuant to
Section 2.2(b) hereof.
"Additional Accounts" shall mean the Eligible Accounts designated after the
Initial Closing Date in accordance with Section 2.2.
"Agreement" shall mean this Receivables Purchase Agreement and all
amendments hereof and supplements hereto.
"Business Day" shall mean each day which is neither a Saturday, a Sunday
nor any other day on which banking institutions or trust companies in the State
or City of New York or the State of Texas are authorized or obligated by law or
required by executive order or government decree to be closed.
"Buyer" shall mean JCP Receivables, Inc., a Delaware corporation.
"Certificate" shall mean any one of any Series of Investor Certificates or
the Exchangeable Certificate.
2
<PAGE>
"Certificateholder" or "Holder" shall mean the Person in whose name a
Certificate is registered in the Certificate Register.
"Certificate Register" shall mean the register maintained pursuant to
Section 6.3 of the Servicing Agreement, providing for the registration of the
Certificates and transfers and exchanges thereof.
"Conveyance Papers" shall have the meaning specified in Section 4.1(b).
"Credit Adjustment" shall have the meaning specified in Section 3.4 hereof.
"Credit Card Agreement" shall mean the Seller Retail Installment Credit
Agreement (Revolving Credit Agreement), Seller form 2218, attached as Exhibit D,
or a variant thereof reflecting a particular state's usury and retail
installment sales laws, as such agreement may be amended, modified or otherwise
changed from time to time by Seller.
"Credit Card Guidelines" shall mean Seller's policies and procedures
relating to the operation of its credit card business, including, without
limitation, the policies and procedures for determining the creditworthiness of
credit card customers, the extension of credit to credit card customers, the
terms on which repayments are required to be made, and relating to the
maintenance of credit card accounts and collection of credit card receivables,
as such policies and procedures may be amended from time to time by Seller.
"Credit Insurance" shall mean life, accident, health, disability or other
insurance of an Obligor to Seller to insure payment of any amount owing by such
Obligor under an Account and which proceeds of such insurance are payable to
Seller upon such Obligor's death or disability.
"Cut Off Date" shall mean September 5, 1988.
"Cycle" shall mean, with respect to any Account, the monthly billing cycle
for such Account as determined in accordance with the Credit Card Guidelines as
in effect on the date of this Agreement.
"Date of Processing" shall mean, with respect to any transaction, the date
on which such transaction is first recorded on the Seller's computer master file
of accounts (without regard to the effective date of such recordation).
3
<PAGE>
"Debtor Relief Laws" shall mean the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments, or similar debtor relief laws from time to time in effect affecting
the rights of creditors generally.
"Defaulted Account" shall have the meaning set forth in the Servicing
Agreement.
"Eligible Account" shall mean, as of the Cut Off Date (or, with respect to
Additional Accounts, as of the relevant Notice Date in respect of Additional
Accounts added pursuant to subsection 2.2(a) or as of the date such Account is
added to a Cycle in respect of Additional Accounts added pursuant to subsection
2.2(b)) each Account:
(a) which is payable in United States dollars; and
(b) which is serviced in any credit service center of Seller which
is located in the United States.
"Eligible Receivable" shall 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 Seller and Buyer and
pursuant to a Credit Card Agreement which complies, in all material respects,
with all Requirements of Law applicable to Seller and Buyer;
(c) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by Seller and Buyer in
connection with the creation of such Receivable or the execution, delivery and
performance by Seller and Buyer of the Credit Card Agreement pursuant to which
such Receivable was created, have been duly obtained, effected or given and are
in full force and effect as of such date of creation;
(d) as to which, at the time of the creation of such Receivable,
Seller, Buyer or the Trust had good and marketable title thereto free and clear
of all Liens
4
<PAGE>
arising under or through Seller or Buyer (other than Liens permitted pursuant to
subsection 5. l(d));
(e) which is the legal, valid and binding payment obligation of the
Obligor thereon, enforceable against such Obligor in accordance with its terms,
except as such enforceability may be limited by applicable Debtor Relief Laws,
and except as such enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity); and
(f) which constitutes an "account" under and as defined in Article 9
of the UCC as then in effect in any state where the Seller's chief executive
office or books and records relating to the Receivables are located.
"Exchangeable Certificate" shall mean the certificate designated the
"Exchangeable Certificate" under the Servicing Agreement executed by Buyer and
authenticated by the Trustee and exchangeable for one or more Series of Investor
Certificates and a reissued Exchangeable Certificate issued pursuant to the
Servicing Agreement.
"Finance Charge Receivables" shall have the meaning set forth in the
Servicing Agreement.
"Governmental Authority" shall mean the United States of America, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Ineligible Receivable" shall have the meaning specified in Section 6.1.
"Initial Accounts" shall have the meaning specified in Section 2.1.
"Initial Closing Date" shall mean September 21, 1988.
"Insurance Proceeds" shall mean any amounts paid to Seller pursuant to any
Credit Insurance policies covering any Obligor with respect to Receivables under
such Obligor's Account.
"Insurance Receivables" shall mean all Receivables payable by Obligors for
purchase of insurance, other than Receivables for Credit Insurance.
5
<PAGE>
"Investor Certificates" shall mean any one of the certificates executed by
Buyer and authenticated by the Trustee pursuant to the Servicing Agreement.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever, including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement under the Uniform Commercial Code (other than any such
financing statement filed for informational purposes only) or comparable law of
any jurisdiction to evidence any of the foregoing.
"Monthly Period" shall mean the period from and including the first day of
the calendar month preceding a related Settlement Date to and including the last
day of such calendar month, or, in the case of the first Monthly Period, the
period from the Initial Closing Date to the last day of the calendar month in
which such closing occurs.
"Notice Date" shall have the meaning specified in Section 2.2.
"Obligor" shall mean, with respect to any Account, the Person or Persons
obligated to make payments with respect to such Account, including any guarantor
thereof.
"Periodic Finance Charges" shall mean the finance charges specified in the
Credit Card Agreements.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Principal Receivable" shall have the meaning set forth in the Servicing
Agreement.
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Receivable" shall mean any amount owing by the Obligors under an Account
(including amounts in Defaulted Accounts) from time to time, including,
6
<PAGE>
without limitation, amounts owing for the payment of goods and services,
Periodic Finance Charges, late charges, returned check fees, Special Fees and
premiums for Credit Insurance, if any, but shall exclude therefrom for all
purposes Insurance Receivables unless provided to the contrary in any
Supplement.
"Reconveyance" shall mean an instrument substantially in the form and upon
the terms of Exhibit B hereto.
"Recoveries" shall have the meaning set forth in the Servicing Agreement.
"Removed Accounts" shall have the meaning set forth in Section 6.2.
"Requirements of Law" for any Person shall mean the certificate of incorpo-
ration or articles of association and bylaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
whether federal, state or local (including, without limitation, usury laws, the
Federal Truth in Lending Act and retail installment sales acts).
"Repurchase Date" shall have the meaning set forth in Section 6.2.
"Repurchase Notice Date" shall have the meaning set forth in Section 6.2.
"Repurchase Price" shall mean the Repurchase Price specified in subsection
6.1(c) or 6.2(a), as the case may be.
"Seller" shall mean J. C. Penney Company, Inc., a Delaware corporation.
"Series" shall mean any Series of Investor Certificates issued pursuant to
the Servicing Agreement.
"Servicer" shall mean initially Seller in such capacity and thereafter any
Person appointed as successor under the Servicing Agreement to service the
Receivables.
"Servicing Agreement" shall mean the Master Pooling and Servicing Agree
ment dated as of the date hereof among Seller, Buyer, and The Fuji Bank and
Trust
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Company, a New York banking corporation, as Trustee, and all amendments and
supplements thereto.
"Settlement Date" shall have the meaning specified in Section 3.5.
"Settlement Statement" shall mean a document substantially in the form of
Exhibit C hereto.
"Special Fees" shall mean Receivables which are fees which are not now but
may from time to time be assessed on the Accounts.
"Supplemental Conveyance" shall mean an instrument substantially in the
form and upon the terms of Exhibit A hereto.
"Trust" shall mean the trust created by the Servicing Agreement.
"Trustee" shall mean the institution executing the Servicing Agreement as
Trustee, or its successor in interest, or any successor or additional trustee
appointed as provided in the Servicing Agreement.
"UCC" shall mean the Uniform Commercial Code, as amended from time to time,
as in effect in any specified jurisdiction.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificate, other document, or Conveyance Paper made
or delivered pursuant hereto unless otherwise defined therein.
(b) All terms defined in the Servicing Agreement shall have the
defined meanings when used in this Agreement or in any certificate, document, or
Conveyance Paper made or delivered pursuant hereto, unless otherwise defined
herein or therein.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement or any Conveyance Paper shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section, Subsection, Schedule and Exhibit references contained in this Agreement
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are references to Sections, Subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified.
(d) All determinations of the principal or finance charge balance of
Receivables, and of any collections thereof, shall be made in accordance with
Section 1.3 of the Servicing Agreement.
ARTICLE II
PURCHASE AND CONVEYANCE OF RECEIVABLES
Section 2.1 Purchase. (a) Subject to and upon the terms and conditions
hereinafter set forth, Seller (i) hereby sells, transfers, conveys, and assigns
to Buyer, without recourse, all of Seller's right, title, and interest in, to,
and under the Receivables now existing and hereafter created in respect of
each Account listed on Schedule One hereto identified by account number and by
Receivable balance as of the Cut Off Date (the "Initial Accounts"), together
with all monies due or to become due with respect thereto (including all Finance
Charge Receivables), all proceeds thereof (including, without limitation,
"proceeds" as defined in the UCC in any state where Seller's or Servicer's chief
executive offices or books and records relating to Receivables are located),
and Insurance Proceeds relating thereto, and (ii) subject to the provisions of
Section 2.2, on each Addition Date, Seller shall sell, transfer, convey, and
assign to Buyer, without recourse, all of Seller's rights, titles, and interests
in, to, and under the Receivables then existing or thereafter created in respect
of each Additional Account designated in a Supplemental Conveyance effective on
the Addition Date therefor, together with all monies due or to become due with
respect thereto (including all Finance Charge Receivables), all proceeds thereof
(including, without limitation, "proceeds" as defined in the UCC in any state
where Seller's or Servicer's chief executive offices or books and records
relating to Receivables are located), and Insurance Proceeds relating thereto.
(b) In connection with such sale and conveyance, Seller shall, at its
own expense, on or prior to the Initial Closing Date (i) indicate in its
computer files that Receivables created in connection with the Initial Accounts
have been sold to Buyer in accordance with this Agreement and transferred to the
Trust pursuant to the Servicing Agreement for the benefit of the
Certificateholders and (ii) deliver to Buyer (or to the Trustee, if Buyer so
directs) a computer file or microfiche list
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containing a true and complete list of all such Accounts, identified by account
number and by the Receivables balance as of the Cut Off Date.
(c) In connection with such sale and conveyance, Seller agrees (i) to
record and file, at its own expense, any financing statement for the purchase of
accounts (as defined in Section 9-106 of the UCC as in effect in any state where
the Seller's or Servicer's chief executive offices or books and records relating
to the Receivables are located), with respect to the Receivables now existing
and hereafter created in respect of each Account (other than Receivables in
Additional Accounts), meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect the sale of the
Receivables from Seller to Buyer, and (ii) to deliver a file-stamped copy of
such financing statements or other evidence of such filings (which may, for
purposes of this Section 2.1, consist of telephone confirmations of such
filings) to Buyer (or to the Trustee, if Buyer so directs) on or prior to the
Initial Closing Date.
Section 2.2 Addition of Additional Accounts. (a) If from time to time,
Buyer becomes obligated to require Seller to designate Additional Accounts
pursuant to Section 2.6(a) of the Servicing Agreement, then Buyer shall give
Seller written notice thereof on or before the fifth Business Day (the "Notice
Date") prior to the Addition Date therefor and Seller shall on or before the
Addition Date designate sufficient Eligible Accounts to be included as
Additional Accounts so that after the inclusion thereof Buyer will be in
compliance with the requirements of said Section 2.6(a). Additionally, subject
to the limitations, if any, on Buyer's ability to add Additional Accounts under
Section 2.6(b) of the Servicing Agreement, from time to time Eligible Accounts
may be designated to be included as Additional Accounts, upon the mutual
agreement of Buyer and Seller. In either event, Seller shall have sole
responsibility for selecting the Additional Accounts and shall on or prior to
the Addition Date therefor execute and deliver a Supplemental Conveyance
identifying the Additional Accounts by account number and Receivables balance as
of the Addition Date, which Supplemental Conveyance shall be effective upon
receipt by Buyer.
(b) At any time that Receivables in substantially all Eligible Ac
counts of any Cycle have been transferred to the Trust, then, in accordance with
Section 2.6(c) of the Servicing Agreement, on each day that an Eligible Account
is added to such Cycle, such Eligible Account shall, until notice from either
party hereto to the other to the contrary, automatically be designated to be
included as an Additional Account effective as of such date of inclusion in such
Cycle. Seller shall
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on or before five Business Days after the first day of each calendar month next
succeeding the Monthly Period of such conveyance execute a Supplemental
Conveyance identifying all such Additional Accounts so designated during the
preceding Monthly Period, identifying such Additional Accounts by account number
and the aggregate amount of the Receivables in such Additional Accounts as of
such fifth Business Day of the month.
(c) On or before each Addition Date with respect to Additional
Accounts added pursuant to Section 2.2(a) and on or before five Business Days
after the first day of the Monthly Period next succeeding the calendar month in
which Additional Accounts were added pursuant to Section 2.2(b), Seller (i)
shall indicate in its computer files that the Receivables created in connection
with such Additional Accounts have been sold by Seller to Buyer in accordance
with this Agreement and transferred by Buyer to the Trust pursuant to the
Servicing Agreement, and (ii) shall deliver to Buyer a computer file or
microfiche list containing a true and complete list of all Additional Accounts
designated in the respective Supplemental Conveyance, or, if Buyer shall so
direct, such computer file or microfiche list shall be delivered to the Trustee
pursuant to the Servicing Agreement. Seller's failure to deliver the list prior
to termination shall not be deemed to render such transfer executory or
uncompleted.
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. Except as provided in Section 3.2, the
Purchase Price for the Receivables (including Receivables in Additional
Accounts) conveyed to the Buyer under this Agreement shall be a dollar amount
equal to the total recorded unpaid balance of the Principal Receivables on the
Cut Off Date in respect of the Initial Accounts and on each day thereafter that
additional Receivables are thereafter created in the Initial Accounts or in
Additional Accounts on or after the Addition Date in respect thereof.
Section 3.2 Capital Contribution. $5,250,000 of the Receivables conveyed
as of the Initial Closing Date are to be transferred by Seller to Buyer as a
capital contribution to Buyer.
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Section 3.3 Payment of Purchase Price. The Purchase Price for
Receivables, other than those contributed to capital as set forth in Section
3.2, shall be paid or provided for on the Initial Closing Date, each Addition
Date (other than Addition Dates arising under Section 2.2(b)), and each
Settlement Date, as the case may be, in either of the following ways (or any
combination thereof) as Buyer and Seller may mutually agree from time to time:
(i) by payment in cash in immediately available funds; or (ii) in the event that
the total Purchase Price is not paid in full in cash as aforesaid, by the sale,
transfer, and assignment by Buyer to Seller on the Initial Closing Date, each
Addition Date (other than Addition Dates arising under Section 2.2 (b)) and each
Settlement Date, as the case may be, of a participation interest in and to
Buyer's interest in the Trust, including, without limitation, Buyer's interest
in the Exchangeable Certificate, in the principal amount of such cash shortfall,
as such principal amount may be adjusted from time to time hereunder. The
characteristics of such participation interest shall be as follows:
(a) the principal amount of the participation interest
outstanding from time to time shall accrue interest from the initial date
of purchase until payment thereof, payable monthly on each Settlement Date
in respect of the number of days unpaid during the preceding Monthly
Period, at a monthly rate of interest (calculated on the basis of a 30-day
month) equal to the lesser of (A) 0.75% or (B) the monthly percentage
return equivalent to the amount paid to Buyer as holder of the Exchangeable
Certificate pursuant to subsection 4.3(c)(iii) of the Servicing Agreement
in respect of collections of Finance Charge Receivables during the Monthly
Period prior to such Settlement Date, after deducting from such payments
the amount of Servicing Fee paid or payable by Buyer with respect to such
Monthly Period pursuant to Section 3.2 of the Servicing Agreement, the
amount of the Default Amount allocated to the Exchangeable Certificate with
respect to such Monthly Period, and the amount of any fees or other amounts
payable by Buyer to any Letter of Credit Bank or Repurchase Letter of
Credit Bank with respect to such Monthly Period;
(b) the accrued interest payable with respect to any Monthly
Period shall be paid in cash on the Settlement Date next following the end
of such Monthly Period;
(c) the outstanding principal amount of such participation
interest shall be payable as, if and when the Buyer receives any of the
following amounts from the Trustee or the Servicer: (i) payments with
respect to
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Principal Receivables allocable to the Exchangeable Certificate; (ii)
payments of any portion of the Finance Charge Receivables paid with respect
to the Exchangeable Certificate, representing an amount equal to any
Default Amount allocable to the Exchangeable Certificate; (iii) payments of
any amounts paid to Buyer pursuant to subsections 4.3(c)(i)(B), 4.5(b), or
4.5(c) of the Servicing Agreement; and (iv) the proceeds arising from the
sale by Buyer of any Investor Certificates received upon an exchange of the
Exchangeable Certificate;
(d) unless otherwise agreed by Buyer and Seller, all additions
to, subtractions from and other adjustments to the principal balance of the
participation interest shall be deemed for all purposes hereof to be
effective as of the Settlement Date in the Monthly period during which the
event giving rise to such addition, subtraction or adjustment occurs; and
(e) the obligation of Buyer to repay the holder of the
participation interest from the amounts paid to Buyer in respect of Finance
Charge Receivables, Principal Receivables, and other sources of funds
described in items (a) and (c) immediately preceding in the manner
prescribed in this Section 3.3 shall be the sole and exclusive remedy
available to Seller or any holder of the participation interest and no
further or additional recourse shall be available against Buyer.
Buyer, at its option, may prepay all or any portion of the principal balance of
the participation interest at any time.
Section 3.4 Adjustments to Purchase Price. The Purchase Price shall be
adjusted on a monthly basis (a "Credit Adjustment") with respect to any
Receivable (i) which was created in respect of merchandise refused or returned
by the Obligor thereunder or as to which the Obligor thereunder has asserted a
counterclaim or defense, (ii) which is reduced by Seller by any rebate, refund,
chargeback, or adjustment, or (iii) which was created through a fraudulent or
counterfeit charge, as determined and allocated to the Accounts in the good
faith judgment of Servicer, or (iv) which was removed from an Account and
transferred to another Seller account which is not an Account by reason of a
request by the Obligor to change Cycles.
Section 3.5 Settlement. On each "Distribution Date" under the Servicing
Agreement (herein, a "Settlement Date"), Seller shall deliver to Buyer a
Settlement Statement in substantially the form of Exhibit C, showing the
aggregate Purchase
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Price of Receivables conveyed to Buyer during the previous Monthly Period, the
aggregate Repurchase Price of Receivables repurchased during such Monthly
Period, the amount of interest due on such Settlement Date with respect to such
Monthly Period, the amount of principal payments due with respect to such
Monthly Period and the amount which remained unpaid as of the end of such
Monthly Period, any Credit Adjustments made with respect to such Monthly Period
pursuant to Section 3.4 hereof and the amounts of any adjustments to the
principal balance of the participation interest during such Monthly Period. Any
balance due from Buyer to Seller or from Seller to Buyer as reflected on such
Settlement Statement which is not payable in immediately available funds
pursuant to Section 3.3 shall, unless otherwise agreed, automatically be
reflected as an adjustment to the principal balance of the participation
interest from Buyer to Seller maintained in accordance with Section 3.3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties. Seller hereby
represents and warrants to, and agrees with, Buyer as of the Initial Closing
Date that:
(a) Organization, Good Standing, and Qualification. Seller is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, and has full corporate power, authority, and right to
own its properties and to conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver, and
perform its obligations under this Agreement. Seller is duly qualified to do
business and is in good standing in each State of the United States where the
nature of its business requires it to be so qualified.
(b) Due Authorization. The execution and delivery of this Agreement,
any Supplemental Conveyance, the Servicing Agreement, or any other document or
instrument delivered pursuant hereto or thereto (the "Conveyance Papers") and
the consummation of the transactions provided for in this Agreement or any other
Conveyance Paper have been duly authorized by all necessary corporate action on
the part of Seller.
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(c) No Conflict. The execution and delivery of the Conveyance
Papers, the performance of the transactions contemplated by the Conveyance
Papers, and the fulfillment of the terms of the Conveyance Papers will not
conflict with, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of trust, or
other instrument to which Seller is a party or by which it or any of its
properties are bound.
(d) No Violation. The execution and delivery of the Conveyance
Papers, the performance of the transactions contemplated by the Conveyance
Papers, and the fulfillment of the terms of the Conveyance Papers will not
conflict with or violate any material Requirements of Law applicable to Seller.
(e) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of Seller, threatened against Seller, before
any Governmental Authority (i) asserting the invalidity of the Conveyance
Papers, (ii) seeking to prevent the consummation of any of the transactions
contemplated by the Conveyance Papers, (iii) seeking any determination or ruling
that, in the reasonable judgment of Seller, would materially and adversely
affect the performance by Seller of its obligations under the Conveyance Papers,
or (iv) seeking any determination or ruling that would materially and adversely
affect the validity or enforceability of the Conveyance Papers.
(f) All Consents Required. All approvals, licenses, authorizations,
consents, orders, or other actions of any Person or of any Governmental
Authority required in connection with the execution and delivery of the
Conveyance Papers, the performance of the transactions contemplated by the
Conveyance Papers, and the fulfillment of the terms of the Conveyance Papers
have been obtained.
(g) Identification of Accounts and Receivables. As of the Initial
Closing Date, Seller has (i) indicated in its computer files that Receivables
created in respect of the Initial Accounts have been sold to Buyer in accordance
with this Agreement and transferred to the Trust pursuant to the Servicing
Agreement for the benefit of Certificateholders and (ii) has delivered to Buyer
(or to the Trustee, if so directed by Buyer) a computer file or microfiche list
containing a true and complete list of all such Accounts, identified by account
number and by the Receivable balance as of the Cut Off Date.
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(h) Existing Financing Statements. There is no financing statement
or similar statement or instrument of registration under the law of any
jurisdiction now on file or registered in any public office covering any
interest of any kind in the Accounts or Receivables, or intended so to be, and
Seller will not execute or authorize there to be on file in any public office
any financing statement or similar statement or instrument of registration under
the laws of any jurisdiction relating to the Accounts or Receivables, except any
financing statements or assignments to be filed in respect of and covering any
security or other interest of Buyer or the Trustee pursuant to this Agreement or
the Servicing Agreement.
(i) Filings. All filings and recordings required to perfect the
title of Buyer to the Receivables purchased hereunder have been or will have
been accomplished prior to the Initial Closing Date and each Addition Date and
are in full force and effect, and Seller shall at its expense perform all acts
and execute all documents reasonably requested by Buyer at any time to evidence,
perfect, maintain, and enforce the title of Buyer in such Receivables and the
transfer thereof to the Trust. Seller will, at the reasonable request of
Borrower, execute and file additional financing statements reasonably
satisfactory in form and substance to Buyer.
(j) Binding Obligation. The Conveyance Papers constitute legal,
valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms, except as such enforceability may be limited by
Debtor Relief Laws and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity).
(k) Valid Conveyance. As of the Initial Closing Date, the Convey
ance Papers then in existence constitute a valid sale, assignment, and
conveyance to Buyer of all right, title, and interest of Seller in, to, and
under the Receivables then existing and thereafter created in the Accounts
(other than Receivables in the Additional Accounts), all monies due or to become
due with respect thereto (including all Finance Charge Receivables), together
with all proceeds (including, without limitation, "proceeds" as defined in the
UCC in any state where Seller' s or Servicer's chief executive offices or books
and records relating to Receivables are located) of such Receivables and
Insurance Proceeds relating thereto, and such property will be held free and
clear of any Lien of any Person claiming through or under Seller, except for
Liens permitted under subsection 5.1(d).
(l) Eligibility of Receivables. Seller hereby represents and
warrants to Buyer as of the Initial Closing Date that (i) each Receivable then
existing is an
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Eligible Receivable, (ii) each Receivable then existing has been conveyed to
Buyer free and clear of any Lien of any Person claiming through or under Seller
and in compliance, in all material respects, with all Requirements of Law
applicable to Seller and (iii) with respect to each Receivable then existing,
all consents, licenses, approvals, or authorizations of or registrations or
declarations with any Governmental Authority required to be obtained, effected
or given by Seller in connection with the transfer of such Receivable to Buyer
have been duly obtained, effected, or given and are in full force and effect. On
each day on which any new Receivable is conveyed by Seller to Buyer hereunder,
Seller shall be deemed to represent and warrant to Buyer that (i) each
Receivable conveyed on such day is an Eligible Receivable, (ii) each Receivable
conveyed on such day has been conveyed to Buyer free and clear of any Lien of
any Person claiming through or under Seller and in compliance, in all material
respects, with all Requirements of Law applicable to Seller, (iii) with respect
to each such Receivable, all consents, licenses, approvals or authorizations of
or registrations or declarations with, any Governmental Authority required to be
obtained, effected, or given by Seller in connection with the conveyance of
such Receivable to the Trust have been duly obtained, effected or given and are
in full force and effect, and (iv) the representations and warranties set forth
in Subsections 4.1(j) and (k) are true and correct with respect to each
Receivable transferred on such day as if made on such day.
(m) Eligible Accounts. As of the Cut Off Date, each Account (other
than Additional Accounts) is an Eligible Account.
Section 4.2 Seller's Representations and Warranties Regarding Additional
Accounts. Seller represents and warrants, and agrees with Buyer, as of each
Addition Date, that:
(a) Reconfirmation of Representations and Warranties. All
representations and warranties made by Seller pursuant to Section 4.1 hereof
remain true and correct in all respects as of such Addition Date as if made on
such date.
(b) Identification of Accounts and Receivables. Seller has, as of
the Addition Date with respect to Additional Accounts added pursuant to
subsection 2.2(a), and will have, as of the fifth Business Day after the first
day of the calendar month occurring after any Addition Date occurring under
subsection 2.2(b), (i) indicated in its computer files that Receivables created
in respect of the Additional Accounts have been sold to Buyer in accordance with
this Agreement and transferred to the Trust pursuant to the Servicing Agreement
for the benefit of the
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Certificateholders and (ii) delivered to Buyer (or to the Trustee, if so
directed by Buyer) a computer file or microfiche list containing a true and
correct list of all such Additional Accounts, identified by account number and
by the Receivable balance as of the Addition Date for Additional Accounts added
pursuant to subsection 2.2(a) hereof and as of such fifth Business Day of a
calendar month with respect to Additional Accounts added pursuant to subsection
2.2(b) hereof.
(c) Eligibility of Accounts. Each Additional Account is, as of the
Addition Date, an Eligible Account.
(d) Selection Procedures. No selection procedures believed by Seller
to be materially adverse to the interests of Buyer or its successors and assigns
were utilized by Seller in selecting the Additional Accounts from Seller's
available Eligible Accounts.
(e) Insolvency. Seller is not insolvent as of the Addition Date.
(f) Bankruptcy Proceeding. Seller has not filed a voluntary proceed-
ing under the federal bankruptcy laws and has no knowledge of the filing of any
involuntary proceeding against it under such laws.
(g) Valid Conveyance. As of each Addition Date, a valid sale,
assignment, and conveyance to Buyer of all right, title, and interest of Seller
in, to, and under the Receivables then existing and thereafter created in
respect of the Additional Accounts, all monies due or to become due with respect
thereto (including all Finance Charge Receivables), together with all proceeds
(including, without limitation, "proceeds" as defined in the UCC in any state
where Seller's or Servicer's chief executive offices or books and records
relating to the Receivables are located) of such Receivables and Insurance
Proceeds relating thereto, has been consummated, and such property will be held
free and clear of any Lien of any Person claiming through or under Seller,
except for Liens permitted under Section 5.1(d).
Section 4.3 Representations and Warranties of Buyer. As of the Initial
Closing Date, and each Addition Date, Buyer hereby represents and warrants to,
and agrees with, Seller that:
(a) Organization and Good Standing. Buyer is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware and has full corporate power, authority, and right to own its
properties and
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to conduct its business as such properties are presently owned and such business
is presently conducted, and to execute, deliver, and perform its obligations
under the Conveyance Papers.
(b) Due Qualification. Buyer is neither required to qualify, nor to
register, as a foreign corporation in any state other than the State of Texas,
in order to conduct its business, and has obtained all necessary licenses and
approvals with respect to Buyer required under federal and Delaware law.
(c) Due Authorization. The execution and delivery of the Conveyance
Papers and the consummation of the transactions provided for in the Conveyance
Papers have been duly authorized by Buyer by all necessary corporate action on
the part of Buyer.
(d) No Conflict. The execution and delivery of the Conveyance
Papers, the performance of the transactions contemplated by the Conveyance
Papers and the fulfillment of the terms of the Conveyance Papers will not
conflict with, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of trust, or
other instrument to which Buyer is a party or by which it or any of its
properties are bound.
(e) No Violation. The execution and delivery of the Conveyance
Papers, the performance of the transactions contemplated by the Conveyance
Papers, and the fulfillment of the terms of the Conveyance Papers will not
conflict with or violate any Requirements of Law applicable to Buyer.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of Buyer, threatened against Buyer, before any
Governmental Authority (i) asserting the invalidity of the Conveyance Papers,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by the Conveyance Papers, (iii) seeking any determination or ruling that, in the
reasonable judgment of Buyer, would materially and adversely affect the
performance by Buyer of its obligations under the Conveyance Papers, or (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of the Conveyance Papers.
(g) All Consents Required. All approvals, authorizations, licenses,
consents, orders, or other actions of any Person or of any Governmental
Authority
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required in connection with the execution and delivery of the Conveyance Papers,
the performance of the transactions contemplated by the Conveyance Papers, and
the fulfillment of the terms of the Conveyance Papers have been obtained.
The representations and warranties set forth in this Article IV shall
survive the conveyance of the Receivables to Buyer, and termination of the
rights and obligations of the Buyer and Seller under this Agreement. Upon
discovery by Buyer or Seller of a breach of any of the foregoing representations
and warranties, the party discovering such breach shall give prompt written
notice to the other.
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. Seller hereby covenants and agrees with
Buyer as follows:
(a) Credit Card Agreements and Guidelines. Seller shall comply with
and perform its obligations under the Credit Card Agreements relating to the Ac-
counts and the Credit Card Guidelines, except insofar as any failure so to
comply or conform would not materially and adversely affect the rights of the
Trust or the Certificateholders under the Servicing Agreement or under the
Certificates. In that regard, except as aforesaid, and so long as such changes
are made applicable to comparable segments of the revolving credit card accounts
owned and serviced by Seller which have characteristics the same as, or
substantially similar to, the Accounts pursuant to which the Receivables were
created, Seller shall be free to change the terms and provisions of such Credit
Card Agreements or the Credit Card Guidelines in any respect (including, without
limitation, the calculation of the amount, the timing, or charge-offs).
(b) Periodic Finance Charges and Other Fees. Except as otherwise
required by any Requirements of Law or as is deemed by Seller to be necessary in
order for Seller to maintain its business on a competitive basis based on a good
faith assessment by Seller of the nature of its competition in its business,
Seller shall not reduce at any time (x) the Periodic Finance Charges assessed in
respect of any Accounts, or (y) any other fees charged on any of the Accounts,
if as a result of such reduction, Seller's reasonable expectation of the
Portfolio Yield (as defined in the
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Servicing Agreement) as of such date would be less, than the highest of the Base
Rates (as defined in the Servicing Agreement) for the Series then outstanding.
(c) Receivables Not to be Evidenced by Promissory Notes or Chattel
Paper. Seller will take no action to cause any Receivable to be evidenced by
any "instrument" (as defined in the UCC as in effect in any state where Seller's
or Servicer's chief executive offices or books and records relating to such
Receivable are located). Each Receivable shall be payable pursuant to a
contract which does not create a Lien on any goods purchased thereunder;
provided, however, that any such contract which shall be governed by Florida law
may provide for the retention of a security interest in any goods purchased by
the Obligor, except those goods that are goods that are considered real property
under Florida law.
(d) Security Interests. Except for the conveyances hereunder, Seller
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on any Receivable, whether now
existing or hereafter created, or any interest therein; Seller will immediately
notify Buyer and the Trustee of the existence of any Lien on any Receivable; and
Seller shall defend the right, title, and interest of Buyer and its successors
and assigns in, to, and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under Seller;
provided, however, that nothing in this Section 5.l(d) shall prevent or be
deemed to prohibit Seller from suffering to exist upon any of the Accounts or
Receivables any Liens for state, municipal or other local taxes if such taxes
shall not at the time be due and payable or if Seller shall concurrently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(e) Location of Books and Records. Seller's copies of originals or
duplicates of all documents evidencing all Credit Card Agreements and Accounts
are kept by Seller at, and only at, the locations specified on Schedule Two
hereto, and Seller will not relocate such offices, its chief executive office,
or such documents or related records and books unless Seller shall have given to
Buyer not less than 15 days' written notice of its intention to do so, clearly
describing the new location. If as a result of such relocation, the applicable
provisions of the UCC or any other applicable law require the filing of any
amendment to any previously-filed financing or continuation statement or the
filing of a new financing statement, Seller shall file such financing statement
or amendment as may be necessary with respect to the transfer of Accounts (as
defined in Section 9-106 of the UCC in effect in any state where Seller's chief
executive office or books and records relating to the Receivables
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are located). Seller shall at all times maintain each office in which it
maintains records with respect to Receivables and its chief executive office
within the United States of America. Additionally, Seller shall clearly and
unambiguously identify each Account (including any Additional Account designated
pursuant to Section 2.2 hereof) in its computer or other records to reflect that
the Receivables arising in such Account have been sold to Buyer and transferred
by Buyer to the Trust pursuant to the Servicing Agreement. Seller shall, prior
to the sale or transfer to a third party of any receivable owned by Seller or
held in its custody, examine its computer and other records to determine that
such receivable is not a Receivable.
(f) Change of Name or Corporate Structure. Within 30 days after
Seller makes any change in its name, identity, or corporate structure which
would make any financing statement or continuation statement filed in accordance
with Section 2.1 above seriously misleading within the meaning of Section
9-402(7) of the UCC as in effect in the state where such financing statement or
continuation statement was filed, Seller shall file such financing statements or
amendments as may be necessary with respect to the transfer of Accounts.
(g) Servicing Agreement. On or before the Initial Closing Date,
Seller shall enter into the Servicing Agreement with Buyer and the Trustee.
(h) Further Assurances. Seller will make, execute or endorse,
acknowledge, and file or deliver to Buyer from time to time such schedules,
confirmatory assignments, conveyances, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Receivables and other rights covered by this
Agreement, as Buyer may request and reasonably require.
(i) Indemnification. Seller agrees to indemnify, defend and hold
Buyer harmless from and against any and all loss, liability, damage, judgment,
claim, deficiency, or expense (including interest, penalties, reasonable
attorneys' fees and amounts paid in settlement) to which Buyer may become
subject insofar as such loss, liability, damage, judgment, claim, deficiency, or
expense arises out of or is based upon (i) a breach by Seller of its warranties
and covenants contained in Section 4. 1 or (ii) the representations of Seller
contained in Section 4.2, or any information certified in any Schedule delivered
by Seller hereunder, being untrue in any material respect at any time. The
obligations of Seller under this Section 5.1(i) shall be considered to have been
relied upon by Buyer and shall survive the execution,
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delivery, and performance of this Agreement regardless of any investigation made
by Buyer or on its behalf.
(j) Municipal and Local Taxes. Seller shall be responsible for
collecting all state, local, and municipal taxes associated with the Accounts
and Receivables and for remitting the same to the appropriate Governmental
Authority, together with all tax returns, reports, or affidavits required by
such Governmental Authority in connection therewith.
(k) Conveyance of Accounts. Seller shall not convey, assign,
exchange, or otherwise transfer the Accounts to any Person prior to termination
of this Agreement and the Servicing Agreement.
(l) Purchase of Additional Participation in Exchangeable Certificate.
If Buyer shall become obligated to purchase any Series of Investor Certificates
pursuant to Section 12.2(a) of the Servicing Agreement, all conditions precedent
to such purchase have been satisfied other than the deposit into the
Distribution Account as required thereby and Buyer does not have sufficient cash
to make such deposit, Seller shall purchase an participation interest in the
Exchangeable Certificate in an amount equal to the amount of the deposit into
the Distribution Account which Buyer is required to make pursuant to subsection
12.2(a) of the Servicing Agreement; the purchase of such participation
interest shall be effected on or prior to the date Buyer is required to make
such deposit into the Distribution Account. The participation interest
purchased pursuant hereto shall increase and be in addition to any participation
interest purchased by Seller from Buyer pursuant to Section 3.3 hereof, and
shall have the same characteristics as the participation interest described in
such Section 3.3, accruing interest from the date of purchase until repaid at
the rate specified in Section 3.3.
Section 5.2 Buyer Covenants Regarding Nondisclosure; Inspection. Buyer
hereby covenants and agrees with Seller (and agrees to cause the Trustee) not to
disclose to any Person any of the account numbers or other information contained
in the computer files or microfiche lists delivered to Buyer (or to Trustee if
Buyer so directs) pursuant to Sections 2.1, 2.2, 7.1(c), and 7.2(c) hereof,
except as is required in connection with the performance of the Trustee's duties
under the Servicing Agreement or in enforcing the rights of the
Certificateholders and except such disclosures as are required upon appointment
of a successor Servicer under the Servicing Agreement. Buyer agrees (and shall
cause the Trustee) to take such measures as shall be reasonably requested by
Seller to protect and maintain the
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security and confidentiality of such information, and in connection therewith,
shall allow Seller to inspect the applicable security and confidentiality
arrangements from time to time in normal business hours. Buyer shall (and shall
cause the Trustee) to give Seller five days prior written notice of any
disclosure pursuant to this Section 5.2.
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Mandatory Repurchase.
(a) Ineligible Receivables. In the event of a breach of any
representation and warranty set forth in subsection 4.1(1) hereof, within 60
days (or with the prior written consent of Buyer, such longer period specified
in such consent) of the earlier to occur of the discovery of such breach by
Seller, or receipt by Seller of written notice of such breach given by Buyer,
Seller shall repurchase and Buyer shall convey, without recourse,
representation, or warranty, all of Buyer's right, title, and interest in each
Principal Receivable to which such breach relates (an "Ineligible Receivable")
on the terms and conditions set forth below; provided, however, that no such
repurchase shall be required to be made with respect to such Ineligible Receiv-
able if, on any day within such 60-day period (or such longer period as may be
specified in the consent), either (i) the representations and warranties in the
second sentence of subsection 4.l(l) with respect to such Ineligible Receivable
shall then be true and correct in all material respects with respect to such
Ineligible Receivable as if such Ineligible Receivable had been conveyed to
Buyer on such day, or (ii) the aggregate amount of Ineligible Receivables
outstanding at any time and with respect to which such representations and
warranties continue to be incorrect in any material respect does not in the sole
reasonable judgment of an officer of Buyer have a material adverse effect on the
interest of the Trust in the Receivables as a whole, including the ability of
the Servicer in its sole reasonable judgment to collect the Receivables.
(b) In the event of a breach of the representations and warranties
set forth in subsections 4.1(j) and (k) hereof, Buyer may give Seller written
notice directing Seller to repurchase all of the Principal Receivables after 45
days of such notice (or within such longer period as may be specified in such
notice); whereupon, Seller shall repurchase and Buyer shall convey, without
recourse, representation, or
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warranty, all of Buyer's right, title, and interest in all of the Principal
Receivables on a Settlement Date first occurring after such applicable period on
the terms and conditions set forth below; provided, however, that no such
repurchase shall be required to be made if, at any time during such applicable
period the representations and warranties contained in subsections 4.1(j) and
(k) shall then be true and correct in all material respects.
(c) The Repurchase Price for the Principal Receivables shall be an
amount equal to: (i) for Ineligible Receivables repurchased pursuant to
subsection 6.l(a) hereof, the aggregate face amount of each such Ineligible
Receivables on the date of repurchase, and (ii) for Principal Receivables
repurchased pursuant to subsection 6.l(b) hereof, an amount equal to the
"deposit amount" paid pursuant to subsection 2.4(e) of the Servicing Agreement.
Payment of the Repurchase Price may be made, at the option of Seller: (i) in
immediately available funds; (ii) as a reduction in the Seller's interest in and
to any participation interest in the Buyer's interest in the Trust, including,
without limitation, Buyer's interest in the Exchangeable Certificate held by
Seller pursuant to Sections 3.3 and 5.1(1) hereof in an amount equal to the
unpaid portion of the Repurchase Price; or (iii) any combination of the
foregoing; provided, however, that Seller must make payment of a sufficient
portion of the Repurchase Price in immediately available funds to enable Buyer
to make any cash payment to the Trust then required under the Servicing
Agreement.
Section 6.2 Optional Repurchases. (a) Buyer shall have the option to
require Seller to repurchase all of Buyer's rights, titles, and interests in,
to, and under all Receivables created pursuant to certain Accounts designated by
Buyer (the "Removed Accounts"); provided that, Buyer shall only be entitled to
require such repurchase (i) if Buyer is able to effect a retransfer of such
Receivables from the Trust in compliance with Sections 2.7 or 10.2 of the
Servicing Agreement, and (ii) if Buyer and Seller mutually agree as to the
designation of the Removed Accounts. On or before the fifth Business Day (the
"Repurchase Notice Date") prior to the date on which the Removed Accounts will
be designated by Buyer, Buyer shall give Seller written notice of its election
to require Seller to so repurchase the Receivables of the Removed Accounts on
the date specified in such notice (the "Repurchase Date"). The Repurchase Price
for an optional repurchase effected pursuant to this Section 6.2(a) shall be:
(i) for Receivables purchased pursuant to Section 2.7 of the Servicing
Agreement, an amount equal to the unpaid Principal Receivables repurchased on
the Repurchase Date and (ii) for Receivables purchased pursuant to Section 10.2
of the Servicing Agreement, an amount equal to the "deposit amount" paid in
compliance with Section 10.2 of the Servicing Agreement. Upon execution
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and delivery of any Reconveyance effecting any repurchase as contemplated in
this Section 6.2(a), Buyer shall have no further right, title, or interest in
any Receivables from the Removed Accounts.
(b) Payment of the Repurchase Price as specified in Section 6. 2(a)
above shall be made in any manner provided for in Section 6. 1 hereof; provided,
however, that Seller must make payment of a sufficient portion of the Repurchase
Price in immediately available funds to enable Buyer to make any cash payment to
the Trust then required under the Servicing Agreement.
Section 6.3 Conveyance of Repurchased Receivables. On or prior to the
date that Seller is required to repurchase Receivables under Section 6.1, or on
the date Seller is permitted to purchase any Receivables under Section 6.2, or
on any Repurchase Date, as the case may be, Buyer shall execute and deliver to
Seller a Reconveyance substantially in the form and upon the terms of Exhibit B
hereto, pursuant to which Buyer conveys to Seller all of Buyer's right, title,
and interest in the repurchased Receivables and, with respect to repurchases
effected pursuant to Section 6.2 hereof, within three Business Days thereafter,
a computer file or microfiche list containing a true and complete list of all
Removed Accounts identified by account number and the aggregate amount of the
Receivables in such Removed Accounts as of the Repurchase Notice Date. Buyer
shall (and shall cause the Trustee to) execute such other documents or
instruments of conveyance or take such other actions as Seller may reasonably
require to effect any repurchase of Receivables pursuant to this Article VI.
Section 6.4 Sole Remedy. The obligation of Seller to repurchase the
Ineligible Receivables pursuant to Section 6.1 hereof shall constitute the sole
remedy available to Buyer, the Trustee, any Certificateholder, any Letter of
Credit Bank, or any other Person respecting any breach of the representations
and warranties set forth in subsections 4.1(j), (k), and (1) with respect to
such Receivables.
Section 6.5 Selection of Removed Accounts. By giving the written notice
on the Repurchase Notice Date as required in Section 6.2 and by acceptance of
the Reconveyance, Seller represents and warrants that no selection procedures
believed by Seller to be materially adverse to the interests of Buyer or the
holders of the Certificates were utilized in selecting the Removed Accounts.
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ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Buyer's Obligations Regarding Initial
Receivables. The obligations of Buyer to purchase the Receivables in Initial
Accounts on the Initial Closing Date shall be subject to the satisfaction of the
following conditions:
(a) All representations and warranties of Seller contained in this
Agreement shall be true and correct on the Initial Closing Date with the same
effect as though such representations and warranties had been made on such date;
(b) All information concerning the Initial Accounts provided to Buyer
shall be true and correct as of the Cut Off Date in all material respects;
(c) Seller shall have delivered to Buyer a computer file or
microfiche list containing a true and complete list of all Initial Accounts
identified by account number and by the Receivables balance as of the Cut Off
Date and shall have substantially performed all other obligations required to be
performed by the provisions of this Agreement;
(d) Seller shall have recorded and filed, at its expense, any
financing statement with respect to the Receivables (other than Receivables in
Additional Accounts) now existing and hereafter created for the transfer of
accounts (as defined in Section 9-106 of the UCC as in effect in any state where
the Seller's or Servicer's chief executive offices or books and records relating
to the Receivables are located) meeting the requirements of applicable state law
in such manner and in such jurisdictions as are necessary to perfect the sale of
the Receivables from Seller to Buyer, and shall deliver a file-stamped copy of
such financing statements or other evidence of such filings (which may, for
purposes of this paragraph, consist of telephone confirmations of such filings)
to Buyer;
(e) On or before the Initial Closing Date, Seller, Buyer, and the
Trustee shall have entered into the Servicing Agreement and the initial closing
under the Servicing Agreement shall take place simultaneously with the initial
closing hereunder; and
(f) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Buyer, and Buyer shall have received
from Seller
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copies of all documents (including, without limitation, records of corporate
proceedings) relevant to the transactions herein contemplated as Buyer may
reasonably have requested.
Section 7.2 Conditions to Buyer's Obligations Regarding Supplemental
Conveyances. The obligations of Buyer to purchase any Receivables created under
any Additional Accounts shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of Seller contained in this
Agreement shall be true and correct on the Addition Date with the same effect as
though such representations and warranties had been made on such date;
(b) All information concerning the Additional Accounts provided or to
be provided to Buyer shall be true and correct in all material respects as of
the Addition Date with respect to Additional Accounts added pursuant to
subsection 2.2(a) and as of the fifth Business Day after the first day of the
calendar month occurring after any Addition Date arising under subsection
2.2(b);
(c) Seller shall have, on or before each Addition Date with respect
to Additional Accounts added pursuant to subsection 2. 2(a) and on or before the
fifth Business Day after the first day of the Monthly Period occurring after any
Addition Date arising under subsection 2.2(b): (i) indicated in its computer
files that Receivables created in respect of the Additional Accounts have been
sold to Buyer in accordance with this Agreement and transferred to the Trust
pursuant to the Servicing Agreement for the benefit of the Certificateholders,
(ii) delivered to Buyer (or to the Trustee, if so directed by Buyer) a computer
file or microfiche list containing a true and correct list of all such
Additional Accounts, identified by account number and by the Receivable balance
as of the Addition Date for Additional Accounts added pursuant to subsection
2.2(a) or as of such fifth Business Day of a Monthly Period with respect to
Additional Accounts added pursuant to subsection 2.2(b) hereof; and (iii)
substantially performed all other obligations required to be performed by the
provisions of this Agreement;
(d) Seller shall have executed and delivered a Supplemental Convey-
ance in conformity with the requirements of Section 2.2 hereof; and
(e) Seller shall have recorded and filed, at its expense, any
financing statement with respect to the Receivables in such Additional Accounts
now existing
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and hereafter created in connection with the transfer of accounts (as defined in
Section 9-106 of the UCC as in effect in any state where Seller's or Servicer' s
chief executive offices or books and records relating to the Receivables are
located) meeting the requirements of applicable state law in such manner and in
such jurisdictions as are necessary to perfect the sale of the Receivables from
Seller to Buyer, and shall deliver a file-stamped copy of such financing
statements or other evidence of such filings (which may, for purposes of this
paragraph, consist of telephone confirmations of such filings) to Buyer.
Section 7.3 Conditions Precedent to Seller's Obligations. The obligations
of Seller to sell Receivables on the Initial Closing Data and on any Addition
Date shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.3 and 3.4 hereof.
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Seller, and Seller shall have received
from Buyer copies of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein contemplated as
Seller may reasonably have requested.
ARTICLE VIII
TERM & TERMINATION
Section 8.1 Term. This Agreement shall commence as of the date of
execution and delivery hereof and shall continue in full force and effect until:
(a) the Trust terminates; or (b) upon the occurrence of any of the following
events: Buyer or Seller shall (i) become insolvent, (ii) fail to pay its debts
generally as they become due, (iii) voluntarily seek, consent to, or acquiesce
in the benefit or benefits of any Debtor Relief Law, (iv) become a party to (or
be made the subject of) any proceeding provided for by any Debtor Relief Law,
other than as a creditor or claimant, and,
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in the event such proceeding is involuntary, the petition instituting same is
not dismissed within 90 days after its filing; provided, however, that Buyer
shall have no duty to continue to purchase Receivables or accept designation of
Additional Accounts from and after the filing of an involuntary petition but
prior to dismissal; or (v) become unable for any reason to convey or reconvey
Receivables in accordance with the provisions of this Agreement; provided,
however, that the termination of this Agreement pursuant to this subsection
8.1(b) hereof shall not discharge any Person from any obligations incurred prior
to such termination, including, without limitation, any obligations with respect
to Receivables sold prior to such termination.
Section 8.2 Effect of Termination. No termination nor rejection or
failure to assume the executory obligations of this Agreement in the bankruptcy
of Seller or Buyer shall be deemed to impair or affect the obligations
pertaining to any executed sale or executed obligations, including, without
limitation, pretermination breaches of representations and warranties by Seller
or Buyer. Without limiting the foregoing, prior to termination, neither the
failure of Seller to deliver computer records of Additional Accounts or
Settlement Statements, nor the failure of Buyer to pay a Settlement Statement
shall render such transfer or obligation executory, nor shall the continued
duties of the parties pursuant to Section 5 or Section 9.1 of this Agreement
render an executed sale executory.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any other Conveyance Papers and
the rights and obligations of the parties hereunder may not be changed orally,
but only by an instrument in writing signed by Buyer and Seller in accordance
with this Section 9.1. This Agreement and any other Conveyance Papers may be
amended from time to time by Buyer and Seller to correct or supplement any
provisions herein which may be inconsistent with any other provisions herein or
in any other Conveyance Papers or to add any other provisions with respect to
matters or questions arising under this Agreement or any other Conveyance Papers
which shall not be inconsistent with the provisions of this Agreement or any
other Conveyance Papers; provided, however, that such action shall not (as
evidenced by an Opinion of Counsel delivered to the Trustee) adversely affect in
any material respect the interests of the Trustee for the benefit of the
Certificates, unless the Trustee shall consent thereto. Any Supplemental
Conveyance or Reconveyance executed in accordance with the provisions hereof
shall not be considered amendments to this Agreement.
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Section 9.2 Governing Law. This Agreement and the other Conveyance Papers
shall be construed in accordance with the laws of the State of New York, without
reference to its conflict of law provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.
Section 9.3 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to (a) in
the case of Seller, 2700 West Plano Parkway, Plano, Texas 75075, Attention:
President, (b) in the case of Buyer, 14841 North Dallas Parkway, Dallas, Texas
75240, Attention: Treasurer; or, as to each party, at such other address as
shall be designated by such party in a written notice to each other party.
Section 9.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement or any other
Conveyance Paper shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement or any
other Conveyance Paper and shall in no way affect the validity or enforceability
of the other provisions of this Agreement or of any other Conveyance Paper.
Section 9.5 Assignment. Notwithstanding anything to the contrary
contained herein, other than Buyer's assignment of its rights, title, and
interests in, to, and under this Agreement to the Trustee for the benefit of the
Certificateholders as contemplated by the Servicing Agreement and Section 9.6
hereof, this Agreement and all other Conveyance Papers may not be assigned by
the parties hereto.
Section 9.6 Acknowledgment and Agreement of Seller. By execution below,
Seller expressly acknowledges and agrees that all of Buyer's rights, titles, and
interests in, to, and under this Agreement, including, without limitation, all
of Buyer's rights, titles, and interests in and to Receivables purchased
pursuant to this Agreement, shall be assigned by Buyer to the Trustee for the
benefit of the Certificateholders, and Seller consents to such assignment.
Additionally, Seller agrees fox the benefit of Trustee and the Letter of Credit
Banks that any amounts payable by Seller to Buyer hereunder which are to be paid
by Buyer to the Trustee for the benefit of the Certificateholders, including,
without limitation, payments to be made under subsections 5.1(1), 6.1(b), and
6.2 hereof, shall be paid by Seller, on behalf of Buyer, directly to the
Trustee.
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Section 9.7 Further Assurances. Buyer and Seller agree to do and perform,
from time to time, any and all acts and to execute any and all further
instruments required or reasonably requested by the other party more fully to
effect the purposes of this Agreement and the other Conveyance Papers,
including, without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other law of any applicable
jurisdiction.
Section 9.8 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Buyer or Seller, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privilege
provided by law.
Section 9.9 Counterparts. This Agreement and all other Conveyance Papers
may be executed in two or more counterparts (and by different parties on
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 9.10 Binding Effect; Third-Party Beneficiaries. This Agreement and
the other Conveyance Papers will inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. The
Trustee shall be considered a third-party beneficiary of this Agreement.
Section 9.11 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement and the other Conveyance Papers set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement
and the other Conveyance Papers. This Agreement and the other Conveyance Papers
may not be modified, amended, waived or supplemented except as provided herein.
Section 9.12 Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
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Section 9.13 Schedules and Exhibits. The schedules and exhibits attached
hereto and referred to herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
Section 9.14 Estimation and Calculation of Finance Charge Receivables. At
all times and for all purposes of this Agreement, the amount of Finance Charge
Receivables outstanding at any point in time shall be determined in the manner
described in Section 1.3 of the Servicing Agreement.
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be duly
executed by their respective officers as of the day and year first above
written.
JCP RECEIVABLES, INC.
By: /s/ Michael D. Porter
--------------------------------
Title: President
J. C. PENNEY COMPANY, INC.
By: /s/ Donald A. McKay
--------------------------------
Title: Vice President
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EXHIBIT 5
November 12, 1998
JCP Receivables, Inc.
6501 Legacy Drive - MS 1318
Plano, Texas 75024-3698
Re: JCP Receivables Inc.
Class A Asset Backed Certificates, Series E
Registration Statement No. 333-64649
Ladies and Gentlemen:
As the Executive Vice President, Secretary and General Counsel of J. C.
Penney Company, Inc., a Delaware corporation ("JCPenney"), I am familiar with
JCP Receivables, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of JCPenney ("JCPR"), and the proposed offering by JCPR of Class A
Asset Backed Certificates, Series E ("Certificates"), to be issued pursuant to a
Master Pooling and Servicing Agreement, as amended, ("Pooling and Servicing
Agreement") among JCPR, JCPenney and The Fuji Bank and Trust Company, as Trustee
("Trustee"), as supplemented by the Series E Supplement ("Supplement") thereto
relating to the Certificates, by JCP Master Credit Card Trust, a trust
originated by JCPR and created under the Pooling and Servicing Agreement
("Trust").
In that connection I have examined originals, or copies certified or
otherwise identified to my satisfaction, of such documents, corporate records
and other instruments as I have deemed necessary or appropriate for the purposes
of this opinion, including (a) the Certificate of Incorporation, as amended, and
the Bylaws of JCPR, (b) resolutions adopted by the Board of Directors of JCPR by
unanimous written consent dated as of September 25, 1998, and (c) the Pooling
and Servicing Agreement. In rendering such opinion, I have relied upon
certificates of officers of JCPR and public officials with respect to the
accuracy of factual matters in such certificates.
Based upon such examination, I am of the opinion that:
1. JCPR has been duly incorporated and is validly existing under the
laws of the State of Delaware.
2. The execution and delivery of the Pooling and Servicing Agreement by
JCPR has been duly authorized and constitutes a valid and binding obligation of
JCPR.
<PAGE>
3. The Supplement, when duly executed and delivered, will constitute a
valid and binding obligation of JCPR.
4. The Certificates, when duly executed by JCPR, authenticated by the
Trustee in accordance with the Pooling and Servicing Agreement and issued by the
Trust and sold by JCPR as contemplated by the Registration Statement (as defined
below), will be validly issued, fully paid and nonassessable and will be
entitled to the benefits of the Pooling and Servicing Agreement.
I hereby consent to the reference to me under the heading "Legal Matters"
in the prospectus included in the Registration Statement on Form S-1 relating to
the Certificates (Registration No. 333-64649) and filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 ("Registration
Statement") and to the filing of this opinion as an exhibit to said Registration
Statement.
Very truly yours,
/s/ Charles R. Lotter
Executive Vice President
Secretary and General Counsel
<PAGE>
EXHIBIT 8
November 12, 1998
JCP Receivables, Inc.
6501 Legacy Drive, Mail Stop 1318
Plano, Texas 75024
Re: JCP Master Credit Card Trust
Asset Backed Certificates, Series E
Ladies and Gentlemen:
In connection with the issuance of the Class A Asset Backed
Certificates, Series E (the "Certificates") pursuant to the Pooling and
Servicing Agreement dated as of September 5, 1988, as amended to the date
hereof, and the Series E supplement thereto (together, the "Agreement"),/1/
between JCP Receivables, Inc., J. C. Penney Company, Inc., as servicer, and The
Fuji Bank and Trust Company, as trustee, you have requested our opinion
regarding certain descriptions of tax consequences contained in the prospectus
(the "Prospectus") relating to the Certificates included in the Registration
Statement on Form S-1 being filed with the Securities and Exchange Commission
(the "Registration Statement").
Our opinion is based on an examination of the form of Agreement, the
Prospectus, the form of Certificates, and such other documents, instruments, and
information as we considered necessary. Our opinion is also based upon the
Internal Revenue Code of 1986, as amended, administrative rulings, judicial
decisions, Treasury regulations and other applicable authorities. The statutory
provisions, regulations, and interpretations on
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/1/ Capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Agreement.
<PAGE>
JCP Receivables, Inc.
November 12, 1998
Page 2
which our opinion is based are subject to changes, and such changes could apply
retroactively. In addition, there can be no assurance that positions contrary to
those stated in our opinion may not be taken by the Internal Revenue Service.
Based on the foregoing, it is our opinion that the statements in the
Registration Statement under the heading "Certain U.S. Federal Income Tax
Consequences," to the extent that they constitute matters of federal law or
legal conclusions with respect thereto, accurately describe the material Federal
income tax consequences to holders of the Certificates, under existing law and
the assumptions stated therein.
We express no opinion with respect to the matters addressed in this letter
other than as set forth above.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to Skadden, Arps, Slate, Meagher & Flom LLP under
the captions "Prospectus Summary--Tax Status," "Certain U.S. Federal Income Tax
Consequences" and "Legal Matters" in the Prospectus included in the Registration
Statement.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
