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EXHIBIT 4.2
CREDIT ENHANCEMENT AGREEMENT
AMONG
U.S. BANK NATIONAL ASSOCIATION
AS TRUSTEE,
GREENWOOD TRUST COMPANY
AS MASTER SERVICER, SERVICER AND SELLER
AND
DISCOVER RECEIVABLES FINANCING CORPORATION
AS CREDIT ENHANCEMENT PROVIDER
-----------------------------
DATED AS OF APRIL 9, 1998
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DISCOVER CARD MASTER TRUST I
SERIES 1998-4
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TABLE OF CONTENTS
PAGE
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Section 1. Defined Terms. ...........................................................................................2
Section 2. Loan......................................................................................................3
Section 3. Calculation of Amount of Interest Payable on the Loan.....................................................3
Section 4. Payment of Interest on the Loan...........................................................................4
Section 5. Repayment of Principal of the Loan........................................................................4
Section 6. Payments to the Holder of the Seller Certificate and the Master Servicer..................................5
Section 7. Deposits to and Withdrawals from the Credit Enhancement Account...........................................6
Section 8. Certain Additional Loans..................................................................................6
Section 9. Limited Obligation; Waiver of Setoff; Obligations Absolute................................................7
Section 10. Investments and Information..............................................................................8
Section 11. Servicing Transfer.......................................................................................8
Section 12. Representations and Warranties...........................................................................9
Section 13. Covenants...............................................................................................10
Section 14. Governing Law...........................................................................................10
Section 15. Termination.............................................................................................11
Section 16. Notices.................................................................................................11
Section 17. Bankruptcy..............................................................................................12
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Section 18. Limitation of Remedies..................................................................................12
Section 19. No Petition.............................................................................................12
Section 20. Amendments..............................................................................................13
Section 21. Successors and Assigns; Replacement of Credit Enhancement Provider......................................13
Section 22. Participation...........................................................................................13
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CREDIT ENHANCEMENT AGREEMENT, dated as of April 9, 1998, among
U.S. BANK NATIONAL ASSOCIATION (formerly First Bank National Association,
successor trustee to Bank of America Illinois, formerly Continental Bank,
National Association) as trustee (together with its successors and assigns as
trustee, the "Trustee") for Discover Card Master Trust I (the "Trust"),
GREENWOOD TRUST COMPANY ("Greenwood") as Master Servicer, Servicer and Seller
with respect to the Trust and DISCOVER RECEIVABLES FINANCING CORPORATION as cash
collateral depositor (the "Credit Enhancement Provider").
W I T N E S S E T H
WHEREAS, Greenwood as Master Servicer, Servicer and Seller and
the Trustee have entered into a Pooling and Servicing Agreement, dated as of
October 1, 1993 (as the same may from time to time be amended, modified or
otherwise supplemented, the "Pooling and Servicing Agreement"), and that certain
Series Supplement, dated as April 9, 1998 (as the same may from time to time be
amended, modified or otherwise supplemented, the "Series Supplement");
WHEREAS, the Trust, pursuant to the Pooling and Servicing
Agreement and the Series Supplement, is issuing $526,316,000 in aggregate
principal amount of Investor Certificates of Discover Card Master Trust I,
Series 1998-4 (the "Series"), which will entitle the holders thereof to interest
during the Revolving Period, the Accumulation Period, and the Amortization
Period, if any, and principal on the Class A Expected Final Payment Date, the
Class B Expected Final Payment Date and during the Amortization Period, if any;
WHEREAS, the principal and interest payments on the Investor
Certificates are to be funded by Principal Collections and Finance Charge
Collections received by the Trust on the Receivables;
WHEREAS, it is a condition to the issuance of the Investor
Certificates that at the closing on the date hereof, the Credit Enhancement
Provider make a term loan (the "Loan") to the Trust, for the benefit of the
Investor Certificateholders of the Series, of $21,052,640 (4.0% of the Series
Initial Investor Interest), for deposit in the Credit Enhancement Account to
provide additional funds to make payments on the Investor Certificates under
certain circumstances;
WHEREAS, principal on the Loan will be payable to the Credit
Enhancement Provider after the Investor Certificates are paid in full, except
for certain prepayments funded by certain Finance Charge Collections with
respect to the Receivables, as set forth herein; and
WHEREAS, interest on the Loan will be payable monthly to the
Credit Enhancement Provider, as available, by the Trust at one rate to the
extent the amount in the Credit Enhancement Account equals or exceeds the unpaid
principal on the Loan and at a higher rate to the extent the unpaid principal on
the Loan exceeds the amount in the Credit Enhancement Account.
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NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby expressly acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINED TERMS. (a) The capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to them
in the Pooling and Servicing Agreement or the Series Supplement, as applicable.
(b) The following terms have the definitions set forth below:
"Interest Period" means (i) with respect to the initial
Distribution Date, the period commencing on the Series Closing Date and ending
on the day immediately preceding the initial Distribution Date and (ii) with
respect to each subsequent Distribution Date, the period commencing on the
preceding Distribution Date and ending on the day immediately preceding such
Distribution Date.
"Lender Rate" means, with respect to each Interest Period, the
prime commercial lending rate per annum established by the Trustee, as in effect
on each day in the Interest Period.
"LIBOR-Based Rate" means, with respect to each Interest
Period, the per annum interest rate equal to the London Interbank Offered Rate
as shown on the Reuters Screen LIBO Page at approximately 11:00 a.m. (London
time) two LIBOR Business Days prior to the first day of such Interest Period for
deposits of United States dollars for a period of time comparable to the
Interest Period, and in an amount comparable to the principal amount of the
Loan, plus 0.45%.
"Portfolio Yield" means, with respect to any Due Period, the
annualized percentage equivalent of a fraction, the numerator of which shall be
the sum of (i) the amount of Finance Charge Collections received during such Due
Period, (ii) the amount of Series Yield Collections for each Series then
outstanding for such Due Period and (iii) the amount of Series Additional Funds
for each Series then outstanding for such Due Period, and the denominator of
which shall be the total amount of Principal Receivables in the Trust as of the
first day of such Due Period.
"Provider Amount" means, with respect to each Distribution
Date, the lesser of (i) the unpaid principal amount of the Loan (including any
amounts loaned by the Credit Enhancement Provider pursuant to Section 8 hereof)
and (ii) the amount on deposit in the Credit Enhancement Account, in each case
before giving effect to any payments, allocations or distributions on such
Distribution Date.
"Series Interest Payment Amount" means, for any Distribution
Date, an amount equal to the amount of interest payable on the Loan on such
Distribution Date, including any accrued but unpaid interest with respect to
previous Interest Periods and interest thereon, less the
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amount paid to the Credit Enhancement Provider on such Distribution Date
pursuant to Section 4(a) hereof. The Series Interest Payment Amount shall be the
amount of interest payable pursuant to this Agreement for purposes of
calculating the "Credit Enhancement Fee" for the purpose of, and as such term is
defined in, the Series Supplement and such amount shall be paid in accordance
with the provisions of the Series Supplement.
SECTION 2. LOAN. The Credit Enhancement Provider hereby makes
a term loan to the Trust, for the benefit of the Investor Certificateholders of
the Series, on the Series Closing Date in an amount equal to $21,052,640 (which
amount is the Stated Class B Credit Enhancement Amount), receipt of which is
hereby acknowledged by the Trustee. The amount of such Loan shall be increased
by the amount of any additional loan made by the Credit Enhancement Provider
pursuant to Section 8 hereof.
SECTION 3. CALCULATION OF AMOUNT OF INTEREST PAYABLE ON THE
LOAN.
(a) The Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum determined for such day
as follows. To the extent the unpaid portion of the principal of the Loan during
such Interest Period equals or is less than the amount on deposit in the Credit
Enhancement Account, the rate for such Interest Period on such principal portion
shall be the LIBOR-Based Rate. To the extent any portion of the unpaid principal
of the Loan exceeds such amount on deposit, the rate for such Interest Period on
such principal portion shall be the Lender Rate.
(b) Interest shall be payable monthly in arrears on each
Distribution Date. Interest on the Loan shall be calculated on the basis of the
actual number of days elapsed during the applicable Interest Period divided by
(i) 360, to the extent the LIBOR-Based Rate is applicable, or (ii) 365 or 366,
as the case may be, to the extent the Lender Rate is applicable. The Trustee
shall, as soon as practicable, notify the Seller, the Master Servicer and the
Credit Enhancement Provider of each determination of the Lender Rate and of the
LIBOR-Based Rate. Each determination thereof by the Trustee pursuant to the
provisions of this Agreement shall be conclusive and binding on the Seller, the
Master Servicer and the Credit Enhancement Provider, in the absence of manifest
error.
(c) If any portion of interest due and payable on a
Distribution Date is not paid on such Distribution Date, the unpaid portion of
such interest shall be due and payable on the next succeeding Distribution Date.
Any interest that is not paid on the due date thereof shall accrue interest from
the Distribution Date on which such interest was due and payable to the date
such interest is actually paid at a rate per annum equal to the Lender Rate.
SECTION 4. PAYMENT OF INTEREST ON THE LOAN. On each
Distribution Date, the Trustee as administrator of the Credit Enhancement shall
pay or cause to be paid to the Credit Enhancement Provider the amount of accrued
but unpaid interest on the Loan from the funds and in the order of priority set
forth below; provided, however, that such payments shall not exceed
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the amount of accrued but unpaid interest on the Loan and that such payments
will be made only to the extent such funds are available:
(a) interest and earnings (net of losses and investment
expenses) accrued since the preceding Distribution Date on the Provider Amount;
and
(b) the Series Interest Payment Amount, to the extent such
amount has been paid to the Trustee as administrator of the Credit Enhancement
pursuant to the Series Supplement.
SECTION 5. REPAYMENT OF PRINCIPAL OF THE LOAN. The principal
amount of the Loan shall be due and payable on the Series Termination Date. The
Trust shall repay the unpaid principal balance of the Loan in full on or before
the Series Termination Date in accordance with the provisions of this Agreement;
provided, however, that the unpaid principal amount of the Loan shall only be
paid from the funds described below, and only to the extent such funds are
available.
(a) On each Distribution Date an amount equal to the lesser of
(i) the amount, if any, paid to the Trustee as administrator of the Credit
Enhancement pursuant to Section 9(b)(27) of the Series Supplement, and (ii) the
unpaid principal amount of the Loan, shall be paid to the Credit Enhancement
Provider for application toward the unpaid principal amount of the Loan.
(b) If, as of any Distribution Date, after giving effect to
all other deposits to and withdrawals from the Credit Enhancement Account as of
such Distribution Date, the amount on deposit in the Credit Enhancement Account
exceeds the Total Maximum Credit Enhancement Amount, the amount of such excess,
up to the unpaid principal amount of the Loan, shall be withdrawn from the
Credit Enhancement Account and paid to the Credit Enhancement Provider for
application toward the unpaid principal amount of the Loan.
(c) On the earlier to occur of (i) the Series Termination Date
and (ii) the day on which the Class Invested Amount with respect to each Class
of the Series is paid in full, and after payment of any amounts to be paid on
such day from the Credit Enhancement Account to or for the benefit of the
Investor Certificateholders of the Series, all amounts remaining on deposit in
the Credit Enhancement Account, up to the amount of the unpaid principal amount
of the Loan, shall be withdrawn from such account and paid to the Credit
Enhancement Provider for application toward the unpaid principal amount of the
Loan.
SECTION 6. PAYMENTS TO THE HOLDER OF THE SELLER CERTIFICATE
AND THE MASTER SERVICER.
(a) On each Distribution Date, the Trustee as administrator of
the Credit Enhancement shall pay or cause to be paid to Greenwood on behalf of
the Holder of the Seller
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Certificate (i) the interest and earnings (net of losses and investment
expenses) accrued since the preceding Distribution Date on an amount equal to
the positive difference, if any, between (x) the amount on deposit in the Credit
Enhancement Account and (y) the Provider Amount and (ii) the positive
difference, if any, between (x) the amount of interest and earnings (net of
losses and investment expenses) accrued since the preceding Distribution Date on
the Provider Amount and (y) the amount paid to the Credit Enhancement Provider
on such Distribution Date pursuant to Section 4(a).
(b) On each Distribution Date, an amount equal to (i) the
amount, if any, paid to the Trustee as administrator of the Credit Enhancement
pursuant to Section 9(b)(27) of the Series Supplement, less (ii) the amount, if
any, paid to the Credit Enhancement Provider pursuant to Section 5(a) hereof,
shall be paid to Greenwood on behalf of the Holder of the Seller Certificate.
(c) If, as of any Distribution Date, and after any payment to
the Credit Enhancement Provider pursuant to Section 5(b) has been made, the
amount remaining on deposit in the Credit Enhancement Account exceeds the Total
Maximum Credit Enhancement Amount, the amount of such excess shall be withdrawn
from the Credit Enhancement Account and paid to Greenwood on behalf of the
Holder of the Seller Certificate.
(d) On the earlier to occur of (i) the Series Termination Date
and (ii) the day on which the Class Invested Amount with respect to each Class
of the Series is paid in full, and after payment of any amounts to be paid on
such day from the Credit Enhancement Account to or for the benefit of the
Investor Certificateholders of the Series, any amounts remaining on deposit in
the Credit Enhancement Account that are not paid to the Credit Enhancement
Provider pursuant to Section 5(c) hereof shall be withdrawn from such account
and paid to Greenwood on behalf of the Holder of the Seller Certificate.
SECTION 7. DEPOSITS TO AND WITHDRAWALS FROM THE CREDIT
ENHANCEMENT ACCOUNT.
(a) The proceeds of the Loan made by the Credit Enhancement
Provider pursuant to Section 2 hereof, and the proceeds of any additional loan
made by the Credit Enhancement Provider pursuant to Section 8 hereof, shall be
deposited into the Credit Enhancement Account. In addition, any amounts paid to
the Trustee as administrator of the Credit Enhancement on any Distribution Date
with respect to the Total Available Credit Enhancement Amount or the Available
Class B Credit Enhancement Amount pursuant to the terms of the Series Supplement
also shall be deposited into the Credit Enhancement Account upon receipt of such
funds by the Trustee.
(b) Any withdrawals from the Credit Enhancement Account for
the benefit of the Investor Certificateholders pursuant to Section 9 of the
Series Supplement may be made by the Master Servicer or by the Trustee as
administrator of the Credit Enhancement and shall be
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deemed to be made first from amounts on deposit in the Credit Enhancement
Account as a result of payments of Series Excess Servicing and other amounts to
the Trustee as administrator of the Credit Enhancement to fund the Total
Available Credit Enhancement Amount, including any Series Excess Servicing or
other such amounts on deposit in the Credit Enhancement Account as a result of
an Alternative Credit Support Election having been made or as a result of the
occurrence of a Supplemental Credit Enhancement Event, and only after such
amounts are exhausted shall any such withdrawals be deemed to be made from
amounts on deposit in the Credit Enhancement Account that are attributable to
the Loan.
(c) On or before any Distribution Date on which Greenwood is
the Master Servicer, all payments made pursuant to this Agreement or the Series
Supplement between the Master Servicer or the Holder of the Seller Certificate
and the Credit Enhancement Account, may be aggregated for such Distribution Date
such that Greenwood, acting as Master Servicer and as agent of the Holder of the
Seller Certificate, may make only one payment to the Credit Enhancement Account
in satisfaction of all payments of the Master Servicer and the Holder of the
Seller Certificate pursuant to this Agreement or the Series Supplement, to the
extent that all payment obligations of the Master Servicer and the Holder of the
Seller Certificate to the Credit Enhancement Account on such Distribution Date
exceed all payment obligations of the Credit Enhancement Account to the Master
Servicer and the Holder of the Seller Certificate on such Distribution Date.
SECTION 8. CERTAIN ADDITIONAL LOANS.
(a) ALTERNATIVE CREDIT SUPPORT ELECTION. In the event that an
Alternative Credit Support Election is made pursuant to the provisions of the
Series Supplement, Greenwood on behalf of the Holder of the Seller Certificate
may cause the Additional Credit Support Amount to be funded by Series Excess
Servicing and other amounts paid to the Trustee as administrator of the Credit
Enhancement to fund the Available Class B Credit Enhancement Amount, pursuant to
Section 9 of the Series Supplement, or may request that the Credit Enhancement
Provider make an additional loan in the amount of the Additional Credit Support
Amount. If Greenwood on behalf of the Holder of the Seller Certificate makes
such request, and if the Credit Enhancement Provider elects to make such loan,
the amount of such loan shall be added to the unpaid principal amount of the
Loan. In the event that the Alternative Credit Support Election does not become
effective, the Additional Credit Support Amount (or, if the entire amount of the
Additional Credit Support Amount is not then on deposit in the Credit
Enhancement Account, the portion of the Additional Credit Support Amount that is
then on deposit) shall be withdrawn from the Credit Enhancement Account and
repaid to Greenwood on behalf of the Holder of the Seller Certificate (or, if
such amount was loaned by the Credit Enhancement Provider, returned to the
Credit Enhancement Provider).
(b) SUPPLEMENTAL CREDIT ENHANCEMENT EVENT. In the event that a
Supplemental Credit Enhancement Event occurs, Greenwood as Servicer may cause
the
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Supplemental Credit Enhancement Amount to be funded by Series Excess
Servicing and other amounts paid to the Trustee as administrator of the Credit
Enhancement to fund the Available Class B Credit Enhancement Amount, or may
request that the Credit Enhancement Provider make an additional loan in the
amount of the Supplemental Credit Enhancement Amount. If Greenwood as Servicer
makes such a request, and if the Credit Enhancement Provider elects to make such
loan, the amount of such loan shall be equal to the Supplemental Credit
Enhancement Amount and shall be added to the unpaid principal amount of the
Loan.
(c) NOTICE. The Credit Enhancement Provider shall give prior
written notice to ▇▇▇▇▇'▇ of the making of any loan by the Credit Enhancement
Provider other than the additional loans described in this Section 8.
SECTION 9. LIMITED OBLIGATION; WAIVER OF SETOFF; OBLIGATIONS
ABSOLUTE.
(a) Notwithstanding any provision in any other section of this
Agreement to the contrary, the obligation to repay the Loan, together with
interest thereon, shall be without recourse to any Seller, the Master Servicer,
any Servicer, the Trustee, the Trust, any Certificateholder, or any affiliate,
officer, director, employee or person acting on behalf of any of them, and the
obligation to pay such amounts shall be limited solely to the application of
funds pursuant to this Agreement, in the manner and to the extent such funds are
available, except for the direct recourse indemnification obligation of each
successor Master Servicer pursuant to Section 11 hereof. The Credit Enhancement
Provider agrees that its interest in funds on deposit in the Credit Enhancement
Account is subordinated to the interests of the Investor Certificateholders of
the Series, as provided in this Agreement and in the Series Supplement. The
Credit Enhancement Provider further agrees that it shall have no right of setoff
or lender's lien against any Seller, the Master Servicer, any Servicer, the
Trustee, the Trust, or any Certificateholder.
(b) The obligations of the Seller, the Trustee, the Credit
Enhancement Provider and the Master Servicer under this Agreement shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement.
SECTION 10. INVESTMENTS AND INFORMATION.
(a) The Trustee shall from time to time during the term of
this Agreement invest all amounts on deposit in the Credit Enhancement Account
as the Master Servicer shall direct, which investments shall at all times be
made in compliance with the terms of the Pooling and Servicing Agreement and the
Series Supplement.
(b) The Master Servicer shall provide the Credit Enhancement
Provider with such background information and data with respect to the Credit
Enhancement Account as the Credit Enhancement Provider may reasonably request.
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(c) The Master Servicer shall obtain the consent of the Credit
Enhancement Provider prior to the investment in any Permitted Investments with a
stated maturity, the maturity of which is longer than as would cause them to
mature on or prior to the following Distribution Date as provided in Section
8(e) of the Series Supplement.
SECTION 11. SERVICING TRANSFER. In the event that a successor
Master Servicer is appointed pursuant to the Pooling and Servicing Agreement,
from and after the effective date of such transfer of servicing, the successor
Master Servicer appointed pursuant to the Pooling and Servicing Agreement, and
not the former Master Servicer, shall (a) be responsible for the performance of
all servicing functions to be performed from and after such date, (b) agree to
be bound by the terms, covenants and conditions contained herein applicable to
the Master Servicer and be subject to the duties and obligations of the Master
Servicer hereunder, and (c) agree to indemnify and hold harmless the Credit
Enhancement Provider from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which the Credit Enhancement Provider
may incur (or which may be claimed against the Credit Enhancement Provider) by
reason of the gross negligence or willful misconduct of the successor Master
Servicer in exercising its powers and carrying out its obligations under the
Pooling and Servicing Agreement and the Series Supplement. Such transfer of
servicing shall not affect any rights or obligations of the former Master
Servicer under this Agreement that arose prior to the effective date of the
transfer of servicing, except that such former Master Servicer shall have no
obligation to indemnify the Credit Enhancement Provider as a result of any act
or failure to act of any successor Master Servicer in the performance of the
servicing functions.
SECTION 12. REPRESENTATIONS AND WARRANTIES.
(a) The Credit Enhancement Provider hereby represents and
warrants to the Master Servicer and the Trustee that:
(i) The Credit Enhancement Provider has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the State of Delaware, and has the corporate power and
authority to execute, deliver and perform its obligations under this
Agreement.
(ii) This Agreement has been duly authorized, executed and
delivered on the part of the Credit Enhancement Provider.
(iii) When executed and delivered, this Agreement will
constitute a valid and binding agreement of the Credit Enhancement
Provider enforceable against the Credit Enhancement Provider in
accordance with its terms, except (A) as the same may be limited by
insolvency, bankruptcy or reorganization or other laws relating to or
affecting the enforcement of creditors' rights and (B) as the same may
be limited by general equity principles (whether considered in a
proceeding at law or in equity) and by the discretion of the court
before which any proceeding therefor may be brought.
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(b) The Master Servicer hereby represents and warrants to the
Credit Enhancement Provider and the Trustee that:
(i) The Master Servicer has been duly incorporated and is
validly existing as a banking corporation in good standing under the
laws of the State of Delaware, and has the corporate power and
authority to execute, deliver and perform its obligations under the
Pooling and Servicing Agreement, the Series Supplement and this
Agreement.
(ii) This Agreement, the Pooling and Servicing Agreement and
the Series Supplement have been duly authorized, executed and delivered
on the part of the Master Servicer.
(iii) When executed and delivered, each of this Agreement, the
Pooling and Servicing Agreement and the Series Supplement will
constitute a valid and binding agreement of the Master Servicer
enforceable against the Master Servicer in accordance with its terms,
except (A) as the same may be limited by insolvency, bankruptcy,
receivership or reorganization or other laws relating to or affecting
the enforcement of creditors' rights and (B) as the same may be limited
by general equity principles (whether considered in a proceeding at law
or in equity) and by the discretion of the court before which any
proceeding therefor may be brought.
(c) The Trustee hereby represents and warrants to the Credit
Enhancement Provider and the Master Servicer that:
(i) The Trustee is organized, existing and in good standing
under the laws of the United States of America.
(ii) The Trustee has full power, authority and right to
execute, deliver and perform this Agreement, the Pooling and Servicing
Agreement and the Series Supplement, and has taken all necessary action
to authorize the execution, delivery and performance by it of this
Agreement, the Pooling and Servicing Agreement and the Series
Supplement.
(iii) Each of this Agreement, the Pooling and Servicing
Agreement and the Series Supplement have been duly executed and
delivered by the Trustee.
SECTION 13. COVENANTS. Greenwood, as Master Servicer and on
behalf of the Holder of the Seller Certificate, covenants and agrees that, so
long as this Agreement shall remain in effect or any monetary obligation arising
hereunder or under the Series Supplement shall remain unpaid, it will change the
terms and provisions of a Credit Agreement with respect to a Greenwood Discover
Card Account or any other Account with respect to which it is the Servicer
(including, without limitation, the calculation of the amount, or the timing, of
charge-offs) only if it does not believe, after a good faith assessment of the
expected effects of such
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change, that such change will result in a reduction of the Portfolio Yield, for
any Due Period beginning prior to the termination of the Series, to less than
the Base Rate unless such change (i) is required by any Requirements of Law or
(ii) is deemed necessary by Greenwood in its sole reasonable judgment to
maintain its credit card business on a competitive basis. For purposes of this
Section 13, "Base Rate" shall mean (i) the weighted average of the Certificate
Rates for each Class of each Series then outstanding plus (ii) 1% per annum. For
purposes of the immediately preceding sentence, the Certificate Rate for each
Class that does not have a fixed Certificate Rate shall be the actual
Certificate Rate for such Class for the Interest Accrual Period commencing in
the immediately preceding Due Period. In the event that any Additional Seller
shall transfer Receivables in Additional Accounts to the Trust, Greenwood on
behalf of the Holder of the Seller Certificate shall cause the Servicer with
respect to such Additional Accounts to make the covenant set forth above with
respect to such Additional Accounts.
SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE INTERNAL 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 15. TERMINATION. This Agreement shall terminate on the
date on which the Series terminates in accordance with the provisions of the
Pooling and Servicing Agreement and the Series Supplement; provided, however,
that this Agreement may be terminated by the Master Servicer at any time,
without penalty, provided that such termination does not cause the ratings of
the Investor Certificates to be lowered or withdrawn by either of the Rating
Agencies; and provided, further, that all amounts owing to the Credit
Enhancement Provider hereunder with respect to principal and interest on the
Loan shall have been paid in full. Notwithstanding the foregoing, the Credit
Enhancement Provider shall have no rights under this Agreement, and shall not be
entitled to any payments hereunder, if and for so long as there is no Loan
outstanding hereunder and no accrued but unpaid interest.
SECTION 16. NOTICES. Unless specifically indicated otherwise
herein, all notices and other communications provided for hereunder shall be in
writing and, if to the Credit Enhancement Provider, addressed to:
Discover Receivables Financing Corporation
▇▇ ▇▇▇▇'▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Executive Vice President and Secretary
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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or, if to the Seller or the Master Servicer, addressed to:
Greenwood Trust Company
▇▇ ▇▇▇▇'▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or, if to the Trustee, addressed to:
U.S. Bank National Association
One Illinois Center
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or as to any party at such other address as shall be designated by such party in
a written notice to the other parties.
Any notice or other communication shall be sufficiently given
and shall be deemed given when delivered to the addressee in writing or when
transmitted by telecopier, receipt of which by the addressee is confirmed by
telephone.
SECTION 17. BANKRUPTCY. To the extent that the Trustee, the
Master Servicer or Greenwood on behalf of the Holder of the Seller Certificate
makes a payment to the Credit Enhancement Provider or the Credit Enhancement
Provider receives any payment or proceeds with respect to the Loan, which
payment or proceeds or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any state or federal insolvency or
bankruptcy law then, to the extent such payment or proceeds are set aside, the
amount or part thereof intended to be satisfied shall be revived and continue in
full force and effect, as if such payment or proceeds had not been received by
the Credit Enhancement Provider.
SECTION 18. LIMITATION OF REMEDIES. The Credit Enhancement
Provider shall not have the right to cause the Loan or any portion thereof to
become due and payable prior to the due date for the Loan as set forth herein.
SECTION 19. NO PETITION.
(a) The Credit Enhancement Provider, by entering into this
Agreement, hereby covenants and agrees that it will not at any time institute,
join in or otherwise cause the institution of, against any Seller, the Master
Servicer or the Trust, any bankruptcy,
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reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state or similar law prior to a
year and a day after the final payment of all investor certificates issued by
any trust with respect to which Greenwood is the seller.
(b) Each of Greenwood and the Trustee, by entering into this
Agreement, hereby covenants and agrees that it will not at any time institute,
join in or otherwise cause the institution of, against the Credit Enhancement
Provider, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state or
similar law prior to a year and a day after the final payment of all investor
certificates issued by any trust with respect to which Greenwood is the seller.
SECTION 20. AMENDMENTS. This Agreement shall not be amended or
modified without the written consent of each of the parties hereto. No amendment
hereto shall become effective without prior confirmation from the Rating
Agencies that such amendment will not cause a lowering or withdrawal of the then
current ratings of the Investor Certificates of the Series. The Master Servicer
shall provide a copy of any amendment hereto to the Rating Agencies.
SECTION 21. SUCCESSORS AND ASSIGNS; REPLACEMENT OF CREDIT
ENHANCEMENT PROVIDER.
(a) This Agreement shall be binding upon, and inure to the
benefit of, the Trustee, the Sellers, the Servicers, the Master Servicer and the
Credit Enhancement Provider and their respective successors and permitted
assigns.
(b) No Seller shall assign its interests hereunder and under
the Pooling and Servicing Agreement or the Series Supplement, or any portion of
such interests, except by an assignment that transfers each such interest to the
same assignee.
(c) In the event that a successor trustee is appointed
pursuant to the provisions of the Pooling and Servicing Agreement to replace the
then current Trustee, such successor trustee, from and after its appointment,
shall be the Trustee for purposes of this Agreement and shall assume all of the
rights and obligations of the Trustee hereunder.
(d) The Credit Enhancement Provider may not assign any of its
rights or obligations hereunder without the prior written consent of Greenwood
on behalf of the Holder of the Seller Certificate and without prior written
confirmation from the Rating Agencies that such assignment will not result in
the lowering or withdrawal of the rating of any Class of any Series then
outstanding.
SECTION 22. PARTICIPATION. Any successor Credit Enhancement
Provider that is not a special-purpose corporation that is an affiliate of
Greenwood may, without the consent of the Trustee, the Trust, any Seller, the
Master Servicer, any Servicer or any Certificateholder of
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the Series, sell participations to one or more banks or other entities in all or
a portion of its rights under this Agreement (including all or a portion of the
Loan); provided, however, that (a) the Credit Enhancement Provider's obligations
under this Agreement shall remain unchanged, (b) the Credit Enhancement Provider
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (c) the Trustee, the Trust, the Sellers and the Master
Servicer shall continue to deal solely and directly with the Credit Enhancement
Provider in connection with the Credit Enhancement Provider's rights and
obligations under this Agreement, and (d) the Credit Enhancement Provider shall
retain the sole right to enforce the obligations of the Trustee, the Trust, the
Sellers or the Master Servicer under this Agreement and to approve any
amendment, modification or waiver of any provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereby have caused this
Agreement to be duly executed and delivered by the undersigned thereunto duly
authorized as of the day and year first above written.
DISCOVER RECEIVABLES FINANCING
CORPORATION,
as Credit Enhancement Provider
By /s/ ▇▇▇▇▇▇▇ ▇. York
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. York
Title: Vice President
GREENWOOD TRUST COMPANY,
as Master Servicer, Servicer and Seller
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President, Director of
Accounting and Treasurer
U.S. BANK NATIONAL ASSOCIATION, as
Trustee
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President
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