Document:

EXHIBIT 4.5

 

 

 

 

 

 

 

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Servicer,

WACHOVIA MORTGAGE LOAN TRUST, LLC [_____] TRUST

as Issuer,

WACHOVIA BANK, NATIONAL ASSOCIATION

as Paying Agent

and

[_________________]

as Indenture Trustee

_________________________

SERVICING AGREEMENT

Dated as of _____ __, 200_

_________________________

 

 

 

	
            
 

 

 

 

TABLE OF CONTENTS

 

	
            Page
 

 

 

 

 

	
            ARTICLE I
 	
            Definitions
 	
            1
 
	
            Section 1.01
 	
            Definitions
 	
            1
 
	
            Section 1.02
 	
            Other Definitional Provisions
 	
            1
 
	
            Section 1.03
 	
            Interest Calculations
 	
            2
 
	
            ARTICLE II
 	
            Representations and Warranties
 	
            2
 
	
            Section 2.01
 	
            Representations and Warranties Regarding the Servicer
 	
            2
 
	
            Section 2.02
 	
            Representations and Warranties of the Issuer
 	
            3
 
	
            Section 2.03
 	
            Enforcement of Representations and Warranties
 	
            4
 
	
            ARTICLE III
 	
            Administration and Servicing of Mortgage Loans
 	
            5
 
	
            Section 3.01
 	
            The Servicer
 	
            5
 
	
            Section 3.02
 	
            Collection of Certain Mortgage Loan Payments
 	
            7
 
	
            Section 3.03
 	
            Custodial Duties
 	
            8
 
	
            Section 3.04
 	
            Withdrawals from the Custodial Account
 	
            10
 
	
            Section 3.05
 	
            Maintenance of Hazard Insurance; Property Protection Expenses
 	
            12
 
	
            Section 3.06
 	
            Modification Agreements
 	
            13
 
	
            Section 3.07
 	
            Trust Estate; Related Documents
 	
            14
 
	
            Section 3.08
 	
            Realization upon Defaulted Mortgage Loans
 	
            14
 
	
            Section 3.09
 	
            Management and Sale of REO Property
 	
            15
 
	
            Section 3.10
 	
            Issuer and Indenture Trustee to Cooperate
 	
            15
 
	
            Section 3.11
 	
            Compensation; Payment of Certain Expenses
 	
            16
 
	
            Section 3.12
 	
            Annual Statement as to Compliance
 	
            17
 
	
            Section 3.13
 	
            Annual Servicing Report
 	
            17
 
	
            Section 3.14
 	
            Access to Certain Documentation and Information Regarding the Mortgage Loans
 	
            17
 
	
            Section 3.15
 	
            Maintenance of Certain Servicing Insurance Policies
 	
            17
 
	
            Section 3.16
 	
            Information Required by the Internal Revenue Service and Reports of Foreclosures and Abandonments of Mortgaged Property
 	
            18
 
	
            Section 3.17
 	
            Assignments; Recordings of Assignments
 	
            18
 
	
            Section 3.18
 	
            [Reserved]
 	
            19
 

 

 

 

	
                                                           
 	
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TABLE OF CONTENTS

(Continued)

	
            Page
 

 

 

 

 

	
            Section 3.19
 	
            Funding Account and Distribution Account
 	
            19
 
	
            Section 3.20
 	
            [Reserved]
 	
            20
 
	
            Section 3.21
 	
            P&I Advances
 	
            20
 
	
            Section 3.22
 	
            Transfer of Mortgage Loans
 	
            20
 
	
            ARTICLE IV
 	
            Servicing Certificate
 	
            22
 
	
            Section 4.01
 	
            Statements to Securityholders
 	
            22
 
	
            Section 4.02
 	
            Tax Returns and 1934 Act Reports
 	
            24
 
	
            ARTICLE V
 	
            Note Payment Account
 	
            25
 
	
            Section 5.01
 	
            Note Payment Account
 	
            25
 
	
            ARTICLE VI
 	
            The Servicer
 	
            25
 
	
            Section 6.01
 	
            Liability of the Servicer
 	
            25
 
	
            Section 6.02
 	
            Merger or Consolidation of, or Assumption of the Obligations of, the Servicer
 	
            25
 
	
            Section 6.03
 	
            Limitation on Liability of the Servicer and Others
 	
            26
 

	
            Section 6.04
 	
            Servicer Not to Resign
 	
            27
 
	
            Section 6.05
 	
            Delegation of Duties
 	
            27
 
	
            Section 6.06
 	
            Payment of Indenture Trustee’s, the Paying Agent’s and Owner Trustee’s Fees and Expenses; Indemnification
 	
            27
 
	
            ARTICLE VII
 	
            Default
 	
            29
 
	
            Section 7.01
 	
            Servicing Default
 	
            29
 
	
            Section 7.02
 	
            Indenture Trustee to Act; Appointment of Successor
 	
            31
 
	
            Section 7.03
 	
            Notification to Securityholders
 	
            32
 
	
            ARTICLE VIII
 	
            Miscellaneous Provisions
 	
            33
 
	
            Section 8.01
 	
            Amendment
 	
            33
 
	
            Section 8.02
 	
            Exhibits
 	
            33
 
	
            Section 8.03
 	
            GOVERNING LAW
 	
            33
 
	
            Section 8.04
 	
            Notices
 	
            33
 
	
            Section 8.05
 	
            Severability of Provisions
 	
            34
 
	
            Section 8.06
 	
            Protection of Confidential Information
 	
            34
 
	
            Section 8.07
 	
            Third-Party Beneficiaries
 	
            34
 

 

 

 

	
                                                           
 	
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TABLE OF CONTENTS

(Continued)

	
            Section 8.08
 	
            Counterparts
 	
            34
 
	
            Section 8.09
 	
            Effect of Headings and Table of Contents
 	
            34
 
	
            Section 8.10
 	
            Termination upon Purchase by the Servicer or Liquidation of All Mortgage Loans; Partial Redemption
 	
            34
 
	
            Section 8.11
 	
            Certain Matters Affecting the Indenture Trustee and the Paying Agent
 	
            35
 
	
            Section 8.12
 	
            Owner Trustee, Paying Agent and Indenture Trustee Not Liable for Related Documents
 	
            35
 
	
             
 	
             
 	
             
 
	
            EXHIBITS
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
            EXHIBIT A – 
 	
            MORTGAGE LOAN SCHEDULE
 	
            A-1
 
	
             
 	
             
 	
             
 
	
            EXHIBIT B – 
 	
            COLLECTION POLICY
 	
            B-1
 
	
             
 	
             
 	
             
 
	
            EXHIBIT C – 
 	
            LIMITED POWER OF ATTORNEY
 	
            C-1
 
	
             
 	
             
 	
             
 
	
            EXHIBIT D – 
 	
            FORM OF REQUEST FOR RELEASE
 	
            D-1
 

 

	
                                                           
 	
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This Servicing Agreement, dated as of _____ __, 200_ (the “Agreement”), is among Wachovia Bank, National Association, as servicer (the “Servicer”), the Wachovia Mortgage Loan Trust, LLC [______] Trust, as issuer (the “Issuer”), Wachovia Bank, National Association, as Paying Agent (the “Paying Agent”), and [_________________], as indenture trustee (the “Indenture Trustee”).

WITNESSETH:

WHEREAS, pursuant to the terms of the Purchase Agreement (as defined herein), Wachovia Bank, National Association, as seller (in such capacity, “Seller”) and as servicer, will sell to Wachovia Mortgage Loan Trust, LLC, as purchaser (in such capacity, the “Purchaser”), the Initial Mortgage Loans on the Closing Date, and may sell Subsequent Mortgage Loans on one or more Subsequent Transfer Dates, together with the Related Documents on the Closing Date and any Subsequent Transfer Date, and thereafter all Additional Balances created on or after the Cut-Off Date and any such Subsequent Transfer Date;

WHEREAS, Wachovia Mortgage Loan Trust, LLC, as depositor (in such capacity, the “Depositor”), will sell the Initial Mortgage Loans and assign all of its rights under the Purchase Agreement to the Issuer, together with the Related Documents on the Closing Date, and thereafter Subsequent Mortgage Loans and Additional Balances relating to the Mortgage Loans created on or after the Cut-Off Date;

WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer will issue the Certificates;

WHEREAS, pursuant to the terms of the Indenture, the Issuer will issue the Notes; and

WHEREAS, pursuant to the terms of this Agreement, the Servicer will service the Mortgage Loans directly or through one or more Subservicers.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I

 

Definitions

Section 1.01   Definitions.  For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions contained in Appendix A to the indenture dated as of _____ __, 200_ (the “Indenture”), among the Issuer, the Paying Agent and the Indenture Trustee, which is incorporated by reference herein.  All other capitalized terms used herein shall have the meanings specified herein.

Section 1.02   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.

 

 

	
            
 	
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(b)   As used in this Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such certificate or other document, and accounting terms partly defined in this Agreement or in any such certificate or other document, to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles.  To the extent that the definitions of accounting terms in this Agreement or in any such certificate or other document are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained in this Agreement or in any such certificate or other document shall control.

(c)   The words “hereof,” “herein,” “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; Section and Exhibit references contained in this Agreement are references to Sections and Exhibits in or to this Agreement unless otherwise specified; the term “including” shall mean “including without limitation” “or” shall include “and/or” and the term “proceeds” shall have the meaning ascribed thereto in the UCC.

(d)   The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as the feminine and neuter genders of such terms.

(e)   Any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; references to a Person are also to its permitted successors and assigns.

Section 1.03   Interest Calculations.  All calculations of interest hereunder that are made in respect of the Principal Balance of a Mortgage Loan shall be made on a daily basis using a 365-day year.  All calculations of interest on the Notes shall be made on the basis of the actual number of days in an Interest Period and a year assumed to consist of 360-days.  The calculation of the Servicing Fee shall be made on the basis of a 360-day year consisting of twelve 30-day months.  All dollar amounts calculated hereunder shall be rounded to the nearest penny with one-half of one penny being rounded up.

ARTICLE II

 

Representations and Warranties

Section 2.01   Representations and Warranties Regarding the Servicer.  The Servicer represents and warrants to the Issuer, the Enhancer and for the benefit of the Indenture Trustee, as pledgee of the Mortgage Loans, as of the Closing Date:

(a)   The Servicer is a national banking association duly organized and validly existing under the laws of the United States of America and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan;

 

 

	
            
 	
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(b)   The Servicer has the power and authority to make, execute, deliver and perform its obligations under this Agreement and all of the transactions contemplated under this Agreement, has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement, and has duly executed and delivered this Agreement;

(c)   The Servicer is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Agreement, except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be;

(d)   The execution and delivery of this Agreement by the Servicer and the performance and compliance with the terms of this Agreement by the Servicer will not violate the Articles of Association or Bylaws of the Servicer, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Servicer is a party or which may be applicable to the Servicer or any of its respective assets;

(e)   No litigation is currently pending, or to the knowledge of the Servicer threatened, against the Servicer, that in the opinion of the Servicer has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Agreement;

(f)   This Agreement constitutes a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights in general, as they may be applied in the context of the insolvency of a national banking association, and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law), and by public policy considerations underlying the securities laws, to the extent that such public policy considerations limit the enforceability of the provisions of this Agreement which purport to provide indemnification from liabilities under applicable securities laws; and

(g)   The Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Servicer or its respective properties or might have consequences that would materially adversely affect the respective performance of the Servicer hereunder.

The foregoing representations and warranties shall survive any termination of the Servicer hereunder.

Section 2.02   Representations and Warranties of the Issuer.  The Issuer hereby represents and warrants to the Servicer and for the benefit of the Indenture Trustee, as pledgee of the Mortgage Loans, as of the Closing Date:

(a)   the Issuer is a statutory trust duly formed and in good standing under the laws of the State of Delaware and has full power, authority and legal right to execute and deliver this Agreement 

 

 

	
            
 	
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and to perform its obligations under this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and

(b)   the execution and delivery by the Issuer of this Agreement and the performance by the Issuer of its obligations under this Agreement will not violate any provision of any law or regulation governing the Issuer or any order, writ, judgment or decree of any court, arbitrator or governmental authority or agency applicable to the Issuer or any of its assets.  Such execution, delivery, authentication and performance will not require the authorization, consent or approval of, the giving of notice to, the filing or registration with, or the taking of any other action with respect to, any governmental authority or agency regulating the activities of limited liability companies.  Such execution, delivery, authentication and performance will not conflict with, or result in a breach or violation of, any mortgage, deed of trust, lease or other agreement or instrument to which the Issuer is bound.

Section 2.03   Enforcement of Representations and Warranties.  The Servicer, on behalf of and subject to the direction of the Indenture Trustee, as pledgee of the Mortgage Loans, or the Issuer, shall enforce the representations and warranties of the Seller pursuant to the Purchase Agreement.  Upon the discovery by the Seller, the Depositor, the Servicer, the Indenture Trustee, the Enhancer or the Issuer of a breach of any of the representations and warranties made by the Seller in the Purchase Agreement, in respect of any Mortgage Loan which materially and adversely affects the interests of the Securityholders or the Enhancer, the party discovering such breach shall give prompt written notice to the other parties.  The Servicer shall promptly notify the Seller of such breach and request that, pursuant to the terms of the Purchase
Agreement, the Seller either (i) cure such breach in all material respects within 90 days from the date the Seller was notified of such breach or (ii) purchase such Mortgage Loan from the Issuer at the price and in the manner set forth in Section 3.1(d) of the Purchase Agreement; provided, however, that the Seller shall, subject to the conditions set forth in the Purchase Agreement, have the option to substitute an Eligible Substitute Loan or Loans for such Mortgage Loan.  In the event that the Seller elects to substitute one or more Eligible Substitute Loans pursuant to Section 3.1(d) of the Purchase Agreement, the Seller shall deliver to the Servicer, in accordance with the Purchase Agreement, with respect to such Eligible Substitute Loans, the original Loan Agreement, the Mortgage, and such other documents and agreements as are required by the Purchase Agreement.  Payments due
with respect to Eligible Substitute Loans in the month of substitution shall not be transferred to the Issuer and will be retained by the Servicer and remitted by the Servicer to the Seller on the next succeeding Payment Date except to the extent that a payment less than the applicable Minimum Monthly Payment has been received by the Issuer for such month in respect of the Mortgage Loan to be removed.  The Servicer shall amend or cause to be amended the Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the substitution of the Eligible Substitute Loans and the Servicer shall promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and Indenture Trustee.

It is understood and agreed that the obligation of the Seller to cure such breach or purchase or substitute for such Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to the Issuer and the Indenture Trustee, as pledgee of the Mortgage Loans, against the Seller.  In connection with the purchase of or substitution for any such Mortgage Loan by the Seller, the Issuer shall assign to the Seller all of its right, title and interest in respect of the Purchase Agreement applicable to such Mortgage Loan.

 

 

	
            
 	
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ARTICLE III

 

Administration and Servicing of Mortgage Loans

Section 3.01   The Servicer.

(a)   The Issuer, by execution and delivery of this Agreement, does hereby appoint the Servicer for, and subject to the terms of this Agreement, the Servicer assumes responsibility for, the servicing of the Mortgage Loans.  Each original Mortgage File and any Related Documents delivered to the Servicer by the Seller pursuant to the provisions of this Agreement and any Subsequent Transfer Agreement shall be held in trust by the Servicer for the benefit of the Trust in accordance with the terms of this Agreement.  The Servicer’s possession of any portion of any original Mortgage File, any Related Documents or copies thereof shall be maintained in accordance with the provisions of this Agreement to facilitate the servicing of the related Mortgage Loans pursuant to this Agreement.

(b)   The Servicer shall service and administer the Mortgage Loans in a manner generally consistent with the terms of this Agreement and the collection policy set forth on Exhibit B (the “Collection Policy”) and in a manner that shall be normal and usual in its mortgage servicing activities.  Subject to the Collection Policy and the terms of this Agreement (including without limitation Sections 3.08 and 3.09), the Servicer shall have full power and authority to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, it being understood, however, that the Servicer shall at all times remain responsible to the Issuer, the Paying Agent, the Indenture Trustee and, as a third-party beneficiary hereunder, the Enhancer for the performance of its duties and obligations hereunder.

The Servicer will at all times apply the same standards and follow the same procedures with respect to the decision to commence litigation, and in prosecuting and litigating with respect to the Mortgage Loans as it applies and follows with respect to mortgage loans like the Mortgage Loans generally.

(c)   The Servicer shall enforce the respective rights and interests of the Issuer and the Indenture Trustee in and under each Mortgage Loan, including the Mortgaged Property and any other related security.  The Servicer is hereby authorized and empowered, in performing its duties hereunder, subject to the limitations set forth herein, to execute and deliver, on behalf of itself, the Issuer, the Indenture Trustee or any of them, 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 Mortgage Loans and the Mortgaged Properties.  The Issuer and the Indenture Trustee, as applicable, shall execute any powers of attorney and other documents furnished to them by the Servicer and necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder.
 In addition, the Servicer may, at its own discretion, obtain credit information in the form of a “credit score” from a credit repository.  On the Closing Date, the Indenture Trustee shall deliver to the Servicer a limited power of attorney substantially in the form of Exhibit C hereto.

No costs incurred by the Servicer in respect of Servicing Advances shall, for the purposes of distributions to the Noteholders, be added to the amount owing under the related Mortgage Loan.

 

 

	
            
 	
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Notwithstanding anything to the contrary contained herein, the Servicer, in servicing and administering the Mortgage Loans, shall employ or cause to be employed procedures (including collection, foreclosure and management procedures with respect to REO Property) and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account, in accordance with accepted mortgage servicing practices of prudent lending institutions servicing mortgage loans similar to the Mortgage Loans and giving due consideration to the Noteholders’, the Enhancer’s and the Trust’s reliance on the Servicer.

If the Mortgage did not have a Lien senior to the related Mortgage Loan on the related Mortgaged Property as of the Cut-Off Date or related Subsequent Cut-Off Date, as applicable, then the Servicer, in such capacity, may not consent to the placing of a Lien senior to that of the Mortgage on the related Mortgaged Property.  If the Mortgage had a Lien senior to the related Mortgage Loan on the related Mortgaged Property as of the Cut-Off Date or related Subsequent Cut-Off Date, as applicable, then the Servicer, in such capacity, may consent to the refinancing of such prior senior Lien, provided that (i) the resulting CLTV of such Mortgage Loan is no higher than the greater of the CLTV prior to such refinancing or 100%; (ii) the interest rate for the loan evidencing the refinanced senior Lien is no higher than the interest rate on the loan evidencing the existing senior Lien immediately
prior to the date of such refinancing (meaning, in the case of an adjustable rate loan, a substantially similar index and a gross margin no higher than that of the existing senior Lien); and (iii) the loan evidencing the refinanced senior Lien is not subject to negative amortization.

In connection with servicing the Mortgage Loans, the Servicer may take reasonable actions to encourage or effect the termination of Loan Agreements that have become dormant.

The relationship of the Servicer (and of any successor to the Servicer as servicer under this Agreement) to the Issuer, the Paying Agent and the Indenture Trustee under this Agreement is intended by the parties to be that of an independent contractor and not that of a joint venturer, partner or agent.

(d)   The Servicer may enter into Subservicing Agreements with Subservicers for the servicing and administration of certain of the Mortgage Loans, provided that notwithstanding such appointment, the Servicer shall remain liable for the performance of all servicing duties delegated by it. The Servicer shall provide written notice to the Indenture Trustee, the Paying Agent and the Enhancer upon entering into a Subservicing Agreement.  References in this Agreement to actions taken or to be taken by the Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Servicer and any amount actually received by such Subservicer in respect of a Mortgage Loan shall be deemed to have been received by the Servicer whether or not actually received by the Servicer.  Each Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Agreement and as the Servicer and the Subservicer have agreed.  With the approval of the Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicers will remain obligated under the related Subservicing Agreements.  The Servicer and the Subservicer may enter into amendments to the related Subservicing Agreements; provided, however, that any such amendments shall not cause the Mortgage Loans to be serviced in a manner that would be materially inconsistent with the standards set forth in this Agreement.  The Servicer shall be entitled to terminate any Subservicing Agreement in accordance with the terms and conditions thereof and without any limitation by virtue of this Agreement; provided, however, that in the event of termination
of any Subservicing Agreement by 

 

 

	
            
 	
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the Servicer or the Subservicer, the Servicer shall either act as servicer of the related Mortgage Loan or enter into a Subservicing Agreement with a successor Subservicer which will be bound by the terms of the related Subservicing Agreement.  The Servicer shall be entitled to enter into any agreement with a Subservicer for indemnification of the Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification.

In the event that the rights, duties and obligations of the Servicer are terminated hereunder, any successor to the Servicer in its sole discretion may, to the extent permitted by applicable law, terminate the existing Subservicing Agreement with any Subservicer in accordance with the terms of the applicable Subservicing Agreement or assume the terminated Servicer’s rights and obligations under such subservicing arrangements which termination or assumption will not violate the terms of such arrangements.

As part of its servicing activities hereunder, the Servicer, for the benefit of the Indenture Trustee, the Paying Agent, the Enhancer and the Securityholders, shall use reasonable efforts to enforce the obligations of each Subservicer under the related Subservicing Agreement, to the extent that the non-performance of any such obligation would have a material adverse effect on a Mortgage Loan.  Such enforcement, including, without limitation, the legal prosecution of claims, termination of Subservicing Agreements and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Servicer, in its good faith business judgment, would require were it the owner of the related Mortgage Loans.  The Servicer shall pay the costs of such enforcement at its own expense, and shall be reimbursed therefor only (i) from a general recovery
resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys fees against the party against whom such enforcement is directed.

Section 3.02   Collection of Certain Mortgage Loan Payments.  

(a)   The Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and generally consistent with the Collection Policy, follow such collection procedures as shall be normal and usual in its general mortgage servicing activities and consistent with the procedures the Servicer employs in servicing all other Mortgage Loans in the servicing portfolio with characteristics similar to those of the Mortgage Loans.  Consistent with the foregoing, and without limiting the generality of the foregoing, the Servicer may in its discretion (i) waive any late payment charge, penalty interest or other fees which may be collected in the ordinary course of servicing a Mortgage Loan and (ii) arrange with a Mortgagor a schedule for the payment of
principal and interest due and unpaid; provided, however, that such arrangement is consistent with the Servicer’s policies with respect to home equity mortgage loans.  The Servicer may also extend the Due Date for payment due on a Mortgage Loan in accordance with the Collection Policy; provided, however, that the Servicer shall first determine that any such waiver or extension will not impair the coverage of any related insurance policy or materially adversely affect the Lien of the related Mortgage or the interests of the Securityholders or the Enhancer, and the Servicer shall not grant any such waiver or extension that would have any such effect.  Consistent with the terms of this Agreement, the Servicer may also: 

(i)   waive, modify or vary any term of any Mortgage Loan (including reduce the Credit Limit);

 

 

	
            
 	
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(ii)   consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor;

(iii)   arrange with a Mortgagor a schedule for the payment of principal and interest due and unpaid;

(iv)   forgive any portion of the amounts contractually owed under the Mortgage Loan;

(v)   capitalize past due amounts owed under the Mortgage Loan by adding any amounts in arrearage to the existing principal balance of the Mortgage Loan (a “Capitalization Workout”) which will result in an increased monthly payment amount, provided that: (A) the amount added to the existing principal balance of the Mortgage Loan (the “Capitalized Amount”) shall be no greater than five times the Mortgagor’s current Minimum Monthly Payment amount; and (B) the Servicer shall not enter into a Capitalization Workout unless the CLTV of the Mortgage Loan prior to the Capitalization Workout equals or exceeds 80% and the Mortgagor has qualified for the Capitalization Workout under the Servicer’s servicing guidelines; or

(vi)   reset the maturity date for the Mortgage Loan, but in no event shall such reset date extend beyond the end of the Collection Period preceding the Final Payment Date;

or any combination of the foregoing, if in the Servicer’s determination such waiver, modification, postponement or indulgence is not materially adverse to the interests of the Securityholders or the Enhancer; provided, however, that the Servicer may not, pursuant to this Section 3.02, modify or permit any Subservicer to modify any Mortgage Loan (including without limitation any modification that would change the Loan Rate, forgive the payment of any principal or interest (unless in connection with the liquidation of the related Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless such Mortgage Loan is in default or, in the judgment of the Servicer, such default is reasonably foreseeable or except as provided in Section 3.06.  In connection with any such waiver, modification,
postponement or indulgence, the Servicer shall use reasonable efforts to maximize the receipt of principal and interest thereon.  The general terms of any waiver, modification, forgiveness, postponement or indulgence with respect to any of the Mortgage Loans will be included in the Servicing Certificate, and such Mortgage Loans will not be considered “delinquent” for the purposes of the Basic Documents so long as the Mortgagor complies with the terms of such waiver, modification, forgiveness, postponement or indulgence.

Section 3.03   Custodial Duties  

(a)   The Servicer is hereby appointed as custodian of the documents in each Mortgage File.

(b)   The Servicer shall establish the Custodial Account, which shall be an Eligible Account, titled “Wachovia Mortgage Loan Trust, LLC [______] Trust Custodial Account,” in which the Servicer or the Issuer, as applicable, shall deposit or cause to be deposited any amounts representing payments and collections in respect of the Mortgage Loans received by it subsequent to the applicable Cut-Off Date or Subsequent Cut-Off Date (other than in respect of the payments referred to in the following paragraph), within one Business Day following receipt thereof (or otherwise on or prior to the Closing Date), including the following payments and collections received or made by it (without duplication):

 

 

	
            
 	
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(i)   all payments of principal of or interest on the Mortgage Loans (other than amounts in respect of the Excluded Amount) received or advanced by the Servicer, net of any portion of the interest thereof retained by any Subservicer as subservicing fees;

(ii)   Net Liquidation Proceeds (net of any related Foreclosure Profit) and all Subsequent Recovery Amounts;

(iii)   all proceeds of any Mortgage Loans repurchased by the Seller pursuant to the Purchase Agreement, including any indemnity payments paid by the Seller pursuant to Section 3.1(d) of the Purchase Agreement, and all Substitution Adjustment Amounts required to be deposited in connection with the substitution of an Eligible Substitute Loan pursuant to the Purchase Agreement;

(iv)   Insurance Proceeds, other than Net Liquidation Proceeds, resulting from any insurance policy maintained on a Mortgaged Property;

(v)   REO proceeds and Condemnation Proceeds; and

(vi)   amounts required to be paid by the Servicer pursuant to Section 8.10;

provided, however, that with respect to each Collection Period, the Servicer shall be permitted to retain from payments in respect of interest on the Mortgage Loans, the Servicing Fee for such Collection Period.  The foregoing requirements respecting deposits to the Custodial Account are exclusive, it being understood that, without limiting the generality of the foregoing, the Servicer need not deposit in the Custodial Account amounts representing Foreclosure Profits, fees (including annual fees) or late charge penalties, payable by Mortgagors (such amounts to be retained as additional servicing compensation in accordance with Section 3.10 hereof), or amounts received by the Servicer for the accounts of Mortgagors for application towards the payment of taxes, insurance premiums, assessments and similar items.  In the event any
amount not required to be deposited in the Custodial Account is so deposited, the Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding, and pay such amount to the Person entitled to such amount.  The Servicer shall retain all Foreclosure Profits as additional servicing compensation.  Payments and collections allocable to an Excluded Amount shall not be deposited into the Custodial Account, the Distribution Account or the Note Payment Account, but shall be distributed by the Servicer to the Seller pursuant to Section 3.04.

If the Servicer makes any P&I Advances pursuant to Section 3.21 the Servicer shall be entitled to reimbursement itself by withdrawing from the Custodial Account, as provided herein, any amounts so advanced.  The Servicer may cause the institution maintaining the Custodial Account to invest any funds in the Custodial Account in Permitted Investments, which investments shall mature not later than the Business Day preceding the next succeeding Payment Date, and which investments shall not be sold or disposed of prior to maturity.  In addition, no such Permitted Investment shall be purchased at a price in excess of par.  Except as provided above, all income and gain realized from any such investment shall inure to the benefit of the Servicer and shall be subject to its withdrawal or order from time to time.  The amount of any losses incurred in respect of the principal amount of any
such investments shall be deposited in the Custodial Account by the Servicer out of its own funds immediately as realized.

 

 

	
            
 	
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(c)   The Servicer shall promptly report in writing to the Owner Trustee, the Paying Agent and the Indenture Trustee any material failure on the Servicer’s part to hold the Mortgage Files and maintain its records and computer systems as herein provided and promptly take appropriate action to remedy any such failure.  Following the occurrence of a Servicing Default as set forth in Section 7.01(a)(iii) or (iv), the Issuer or the Indenture Trustee shall immediately terminate the rights of the Servicer to perform the duties as custodian with respect to the Mortgage Files for the Mortgage Loans.  Following the occurrence of a Servicing Default as set forth in Section 7.01(a)(i) or (ii), the Issuer or the Indenture Trustee shall, upon 60 days prior written notice, terminate the rights of the Servicer to perform the duties as custodian with respect to the Mortgage Files for
the Mortgage Loans.  Upon the termination of the Servicer’s rights to perform the duties as custodian with respect to any Mortgage Files, the Servicer shall deliver each such Mortgage File to the Indenture Trustee or its designee in accordance with the instructions of the Indenture Trustee.

(d)   Upon taking possession of the Mortgage Files, the Servicer shall (i) maintain possession of the Mortgage Files and (ii) exercise the same degree of care with respect to the possession of the Mortgage Files as it would if they were its own property.  The Mortgage Files shall at all times be held by the Servicer segregated from any similar documents.  In performing its duties as custodian, the Servicer shall act with reasonable care, using that degree of skill and attention that other servicers exercise with respect to the loan files relating to all comparable loans that they service.  Mortgage Files shall be held for the benefit of the Indenture Trustee, the Enhancer and the Securityholders.

Section 3.04   Withdrawals from the Custodial Account.  The Servicer shall, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.02 that are attributable to the Mortgage Loans for the following purposes:

(a)   on each Determination Date, the Servicer shall determine the pro rata portion of the Interest Collections deposited into the Custodial Account with respect to the related Collection Period that relate to the Additional Balance Increase Amount and, prior to 1:00 p.m. (EST) on the Business Day prior to the related Payment Date, the Servicer shall withdraw such amounts from the Custodial Account and deposit such amounts into the Distribution Account established by the Certificate Paying Agent for distribution to the Certificateholders pursuant to Section 5.01 of the Trust Agreement;

(b)   on each Determination Date, the Servicer shall determine the aggregate amounts to be withdrawn from the Custodial Account and applied pursuant to Section 3.05(a) of the Indenture and, prior to 1:00 p.m. (EST) on the Business Day prior to the related Payment Date, the Servicer shall withdraw such amounts from the Custodial Account and deposit such amounts into the Note Payment Account, the Funding Account or the Distribution Account, as applicable, for distribution by the Paying Agent, in each case in accordance with Section 3.05 of the Indenture and in the order of priority set forth in Section 3.05(a) of the Indenture for such Payment Date and in accordance with the Servicing Certificate;

(c)   to pay to the Seller any monthly payments received from the Mortgagors that do not constitute Transferred Property; 

(d)   prior to the commencement of the Rapid Amortization Period, from Principal Collections on the Mortgage Loans, and, on and after the Payment Date in ______ 200_, if 

 

 

	
            
 	
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Principal Collections are not sufficient from Excess Spread, to pay to the Seller, as assignee of the Depositor, the amount of any Additional Balances, as and when created during the related Collection Period, but only to the extent that amounts on deposit in the Funding Account are not sufficient for such purpose; provided that Excess Spread shall not be so applied if the Enhancer has not been reimbursed for all draws made under the Policy, with interest; and provided further that Excess Spread (calculated with respect to the following Payment Date) in the Custodial Account will not be applied to purchase Additional Balances to the extent that after such purchase the Overcollateralization Amount would exceed the Overcollateralization Target Amount, calculated in each case as of the following Payment Date;

(e)   to the extent deposited to the Custodial Account, to reimburse itself or the related Subservicer for previously unreimbursed expenses incurred in maintaining individual insurance policies pursuant to Section 3.05, for Servicing Advances, for fees payable pursuant to Section 3.08, for expenses payable pursuant to Section 3.10, for amounts reimbursable pursuant to Section 6.03 or Liquidation Expenses, paid pursuant to Section 3.08 or otherwise reimbursable pursuant to the terms of this Agreement (to the extent not payable pursuant to Section 3.10), such withdrawal right being limited to amounts received on particular Mortgage Loans (other than any Repurchase Price in respect thereof) that represent late recoveries of the payments for which such advances were made, or from related Net Liquidation Proceeds or the proceeds of the purchase of such Mortgage Loan;

(f)   to pay itself an amount equal to the related Servicing Fee (to the extent not retained pursuant to Section 3.03);

(g)   to the extent deposited in the Custodial Account, to pay to the Servicer as additional servicing compensation any (i) interest or investment income earned on funds deposited in the Custodial Account that it is entitled to withdraw pursuant to Section 3.03, and (ii) Foreclosure Profits (to the extent permitted by law);

(h)   to pay to the Seller, with respect to any Mortgage Loan or property acquired in respect thereof that has been purchased or otherwise transferred to the Seller, the Servicer or other entity, all amounts received thereon and not required to be distributed to Securityholders as of the date on which the related Purchase Price or Repurchase Price is determined;

(i)   to withdraw any other amount, determined without duplication with respect to an other amount provided for in this Section 3.04, deposited in the Custodial Account that was not required to be deposited therein pursuant to Section 3.03;

(j)   to pay to the Servicer, with respect to any Mortgage Loan for which the Servicer has made a P&I Advance that has not been previously reimbursed to the extent of receipts of late recoveries of such payments from the related Mortgagor, out of related Net Liquidation Proceeds or the proceeds of the purchase of such Mortgage Loan; and

(k)   to reimburse the Servicer for any advances or expenses that have not been previously reimbursed pursuant to such clauses (e) or (j).

Since, in connection with withdrawals pursuant to clauses (c), (e), (f), (h) and (j), the Servicer’s entitlement thereto is limited to collections or other recoveries on the related Mortgage Loan, the Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage 

 

 

	
            
 	
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Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses.  Notwithstanding any other provision of this Agreement, the Servicer shall be entitled to be reimbursed itself for any previously unreimbursed expenses incurred pursuant to Section 3.08 or otherwise reimbursable pursuant to the terms of this Agreement that the Servicer determines to be otherwise nonrecoverable, by withdrawal from the Custodial Account of amounts on deposit therein attributable to the Mortgage Loans on any Business Day prior to the Payment Date succeeding the date of such determination.

If any deposit required to be made by the Servicer pursuant to Section 3.04(b) is not made when due, the Servicer shall pay to the Paying Agent, out of the Servicer’s own funds, one day of interest on such late payment, at a per annum rate equal to the effective Federal Funds Rate for such date.  Such interest shall be remitted to the Paying Agent on the same day that the Servicer remits the late remittance to the Paying Agent.

Section 3.05   Maintenance of Hazard Insurance; Property Protection Expenses.  To the extent permitted under the related Loan Agreement and Mortgage, and to the extent the Servicer receives notice that a hazard insurance policy has been cancelled, the Servicer shall cause to be maintained for each Mortgage Loan hazard insurance naming the Servicer or related Subservicer as loss payee thereunder providing extended coverage in an amount which is at least equal to the lesser of (i) the maximum insurable value of the improvements securing such Mortgage Loan from time to time or (ii) the combined principal balance owing on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time to time; provided, however, that such
coverage may not be less than the minimum amount required to fully compensate for any loss or damage on a replacement cost basis.  The Servicer shall use its best efforts to monitor that hazard insurance is maintained as described in the previous sentence in the same manner as it would for mortgage loans in its own portfolio.  The Servicer shall cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire insurance with extended coverage in an amount which is at least equal to the amount necessary to avoid the application of any co-insurance clause contained in the related hazard insurance policy, the premium for which shall be a Servicing Advance within the meaning of Section 3.08.  Amounts collected by the Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the
Servicer’s normal servicing procedures) shall be deposited in the Custodial Account to the extent called for by Section 3.03.  In cases in which any Mortgaged Property is located at any time during the life of a Mortgage Loan in a federally designated flood area, to the extent permitted under the related Loan Agreement and Mortgage, and to the extent the Servicer receives notice that the related flood insurance has been cancelled, the hazard insurance to be maintained for the related Mortgage Loan shall include flood insurance (to the extent available).  All such flood insurance shall be in amounts equal to the lesser of (i) the amount required to compensate for any loss or damage to the related Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for such Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program).  The
Servicer shall use its best efforts to monitor such flood insurance as described in the previous sentence in the same manner as it would for mortgage loans in its own portfolio.  The Servicer shall be under no obligation to require that any Mortgagor maintain earthquake or other additional insurance and shall be under no obligation itself to maintain any such additional insurance on property acquired in respect of a Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance.  If the 

 

 

	
            
 	
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Servicer shall obtain and maintain a blanket policy consistent with its general mortgage servicing activities insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.05, it being understood and agreed that such policy may contain a deductible clause, in which case the Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first sentence of this Section 3.05 and there shall have been a loss which would have been covered by such policy, deposit in the Custodial Account the amount of such loss that would have otherwise been covered.  Any such deposit by the Servicer shall be made on the last Business Day of the Collection Period in the month in which payments under any such policy would have been
deposited in the Custodial Account.  In connection with its activities as servicer of the Mortgage Loans, the Servicer agrees to present, on behalf of itself, the Issuer and the Indenture Trustee, claims under any such blanket policy.

Section 3.06   Modification Agreements.  

(a)   The Servicer or the related Subservicer, as the case may be, shall be entitled to (a) execute assumption agreements, substitution agreements, and instruments of satisfaction or cancellation or of partial or full release or discharge, or any other document contemplated by this Agreement and other comparable instruments with respect to the Mortgage Loans and with respect to the related Mortgaged Properties (and the Issuer and the Indenture Trustee each shall promptly execute any such documents on request of the Servicer) and (b) approve the granting of an easement thereon in favor of another Person, any alteration or demolition of such Mortgaged Properties or other similar matters, if it has determined, exercising its good faith business judgment in the same manner as it would if it were the owner of the related Mortgage Loans, that the security for, and the timely and full
collectability of, such Mortgage Loans would not be adversely affected thereby.  A partial release pursuant to this Section 3.06 shall be permitted only if the CLTV for the related Mortgage Loan after such partial release does not exceed the CLTV for such Mortgage Loan as of the Cut-Off Date or related Subsequent Cut-Off Date, as applicable.  Any fee collected by the Servicer or the related Subservicer for processing such request will be retained by the Servicer or such Subservicer as additional servicing compensation.

(b)   Notwithstanding any other provision of this Agreement to the contrary, the Servicer, at its option and in its sole discretion, may modify any Mortgage Loan to (i) change the Loan Rate payable on the related Mortgage Loan, (ii) increase the credit limit on the related Mortgage Loan above the limit stated in the related Loan Agreement, (iii) refinance the existing senior Lien or place a new senior Lien related to a Mortgage Loan resulting in a CLTV Ratio above the previous CLTV Ratio for such Mortgage Loan, or (iv) make any other material modification to the related Mortgage Loan; provided, however, that without the consent of the Enhancer, the aggregate Principal Balance of the Mortgage Loans modified by this Section 3.06(b) shall not exceed five percent (5%) of the Pool Balance
as of the Cut-Off Date; provided, further, that any decision by the Servicer to modify a Mortgage Loan shall be normal and usual in accordance with its general mortgage servicing activities and consistent with the procedures the Servicer employs in servicing all other Mortgage Loans in the servicing portfolio with characteristics similar to those of the Mortgage Loans (including, but not limited to, analysis of credit scores, overall customer relationships and comparable industry standards) and provided, further, that, any Mortgage Loan modified in connection with a Promotional Advance will not be included in the five percent (5%) limitation described herein.

 

 

	
            
 	
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Section 3.07   Trust Estate; Related Documents.

(a)   When required by the provisions of this Agreement, the Issuer or the Indenture Trustee shall execute instruments furnished to them by the Servicer to release property from the terms of the Trust Agreement or Indenture, as applicable, or convey the Issuer’s or the Indenture Trustee’s interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Agreement.  No party relying upon an instrument executed by the Issuer or the Indenture Trustee as provided in this Section 3.07 shall be bound to ascertain the Issuer’s or the Indenture Trustee’s authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys.

(b)   Upon receipt of a Request for Release from the Servicer, substantially in the form of Exhibit D hereto, to the effect that a Mortgage Loan has been the subject of a final payment or a prepayment in full and such Mortgage Loan has been terminated or that substantially all Net Liquidation Proceeds that have been determined by the Servicer in its reasonable judgment to be finally recoverable have been recovered, and upon deposit to the Custodial Account of such final monthly payment, prepayment in full together with accrued and unpaid interest to the date of such payment with respect to such Mortgage Loan or, if applicable, Net Liquidation Proceeds, the Indenture Trustee shall execute such Related Documents furnished to it, along with such documents as the Servicer or the related Mortgagor may request to evidence satisfaction and discharge of such Mortgage Loan, upon request of the Servicer.

Section 3.08   Realization upon Defaulted Mortgage Loans.  

(a)   The Servicer shall, consistent with the provisions of the Mortgage and the Collection Policy, foreclose upon or otherwise comparably convert (which may include acquisition of an REO Property) the ownership of any Mortgaged Property securing a Mortgage Loan (but shall not sell or convey such Mortgage Loan) in the event of a default under the Mortgage when no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.02, subject to the provisions contained in this Section 3.08(a) and only if the Servicer determines that there is sufficient equity in the related Mortgaged Property to justify such foreclosure.  In connection with such foreclosure or other conversion, the Servicer shall use reasonable efforts to realize upon such defaulted Mortgage Loan in such manner as will maximize the receipt of principal and interest thereon,
taking into account, among other things, the timing of foreclosure proceedings.  The Servicer shall pay all costs and expenses incurred by it in any such proceedings; provided, however, that such costs and expenses shall be deemed to be a “Servicing Advance” and the Servicer shall be reimbursed therefor as provided in Section 3.04 hereof; provided, further, that, in any case in which the Mortgaged Property shall have suffered damage such that the complete restoration thereof is not fully reimbursable by insurance policies required to be maintained with respect thereto, the Servicer shall not be required to expend its own funds to restore such Mortgaged Property unless it shall determine, in good faith, that such restoration will increase
the Liquidation Proceeds to the Trust after reimbursement to itself for such expenses.  In addition to the reimbursement of its costs and expenses, the Servicer shall be entitled to a reasonable and customary fee as agreed to by the Servicer and the Issuer for performing any foreclosure activities pursuant to this Section 3.08(a), which fee shall be payable pursuant to Section 3.04.

 

 

	
            
 	
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(b)   Any Liquidation Proceeds, Insurance Proceeds, REO Proceeds or Condemnation Proceeds received in respect of a Mortgaged Property shall be deposited in the Custodial Account pursuant to Section 3.03 and applied pursuant to Section 3.04.

(c)   In connection with such foreclosure or other conversion, the Servicer shall exercise collection and foreclosure procedures in accordance with the Collection Policy and with the same degree of care and skill in its exercise or use as it would exercise or use under the circumstances in the conduct of its own affairs.  The Servicer shall take into account the existence of any hazardous substances, hazardous wastes or solid wastes, as such terms are defined in the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, or other federal, state or local environmental legislation, on a Mortgaged Property in determining whether to foreclose upon or otherwise comparably convert the ownership of a Mortgaged Property.  Any amounts advanced in connection with such foreclosure or other action shall constitute
“Servicing Advances.”

Section 3.09   Management and Sale of REO Property.  The Servicer shall manage, conserve, protect and operate each REO Property solely for the purpose of its prudent and prompt disposition and sale; provided, however, that the Servicer shall complete such sale and disposition no later than, and the Trust shall not retain ownership of any REO Property for longer than, 36 months after the date on which such REO Property is acquired by the Trust.  The Servicer shall, either itself or through an agent selected by the Servicer, manage, conserve, protect and operate the REO Property in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in
the same locality as the REO Property is managed.  The Servicer shall attempt to sell the same (and may temporarily rent the same) on such terms and conditions as the Servicer deems to be in the best interest of the Securityholders, the Enhancer and the Trust.

The Servicer shall cause to be set aside pursuant to Section 3.03, no later than five Business Days after the receipt thereof, all revenues received with respect to the conservation and disposition of the related REO Property net of funds necessary for the proper operation, management and maintenance of the REO Property and the fees of any managing agent acting on behalf of the Servicer. 

The disposition of REO Property shall be carried out by the Servicer for cash at such price, and upon such terms and conditions, as the Servicer deems to be in the best interest of the Securityholders, the Enhancer and the Trust.  The cash proceeds of sale of the REO Property shall be promptly set aside pursuant to Section 3.03 as received from time to time and, as soon as practicable thereafter, the expenses of such sale shall be paid.  Any costs or advances of the Servicer pursuant to this Section 3.09 also shall constitute Servicing Advances.  The Servicer shall reimburse itself for any related unreimbursed Servicing Advances and unpaid Servicing Fees pursuant to Section 3.04.

Section 3.10   Issuer and Indenture Trustee to Cooperate.  Upon receipt of payment in full, the Servicer is authorized to execute, pursuant to the authorization contained in Section 3.01(c), an instrument of satisfaction regarding the related Mortgage, which instrument of satisfaction shall be recorded by the Servicer if required by applicable law and be delivered to the Person entitled thereto.  It is understood and agreed that any expenses incurred in connection with such instrument of satisfaction or transfer shall be reimbursed from amounts deposited in the Custodial Account as 

 

 

	
            
 	
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provided in Section 3.04.  From time to time and as appropriate for the servicing or foreclosure of any Mortgage Loan and in accordance with the provisions hereof, upon request of the Servicer to the Issuer, of a Request for Release, in the form attached hereto as Exhibit D, Issuer or Indenture Trustee shall promptly execute such documents, in the forms provided by the Servicer, as shall be necessary for the prosecution of any such proceedings or the taking of other servicing actions.

In order to facilitate the foreclosure of the Mortgage securing any Mortgage Loan that is in default following recordation of the related Assignment of Mortgage to the Indenture Trustee or the Issuer if required in accordance with the provisions of the Purchase Agreement or this Agreement, the Indenture Trustee or the Issuer shall, if so requested in writing by the Servicer, promptly execute an appropriate assignment in the form provided by the Servicer to assign such Mortgage Loan for the purpose of collection to the Servicer (any such assignment shall unambiguously indicate that the assignment is for the purpose of collection only), and, upon such assignment, the Servicer as assignee for collection will thereupon bring all required actions in its own name and otherwise enforce the terms of such Mortgage Loan and deposit or credit the Net Liquidation Proceeds, exclusive of Foreclosure
Profits, received with respect thereto into the Custodial Account.  In the event that all delinquent payments due under any such Mortgage Loan are paid by the Mortgagor and any other defaults are cured, then the Servicer as assignee for collection shall promptly reassign such Mortgage Loan to the Indenture Trustee and return all Related Documents to the place where the related Mortgage File was being maintained.

In connection with the Issuer’s obligation to cooperate as provided in this Section 3.10 and all other provisions of this Agreement requiring the Issuer to authorize or permit any actions to be taken with respect to the Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Loans and as assignee of record of the Mortgage Loans on behalf of the Issuer pursuant to Section 3.13 of the Indenture, expressly agrees, on behalf of the Issuer, to take all such actions on behalf of the Issuer and promptly to execute and return all instruments reasonably required by the Servicer in connection therewith; provided, however, that if the Servicer requests a signature of the Indenture Trustee on behalf of the Issuer, then the Servicer shall deliver to the Indenture Trustee an
Officer’s Certificate stating that such signature is necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement.

Section 3.11   Compensation; Payment of Certain Expenses.  

(a)   As compensation for its services hereunder, the Servicer shall be entitled to receive the Servicing Fee in accordance with Section 3.03(b) and Section 3.04 as compensation for its services hereunder.  Moreover, late payment charges and the other amounts specified in Section 3.03(b) shall be retained by the Servicer as additional servicing compensation.

(b)   The Servicer shall be required to pay all expenses incurred by it in connection with its servicing or administrative activities hereunder, and all fees and expenses of the Owner Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar and the Indenture Trustee, and shall not be entitled to reimbursement therefor except as otherwise provided in this Agreement.

 

 

	
            
 	
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Section 3.12   Annual Statement as to Compliance.

(a)   Within 90 days after December 31 of each year, commencing with 200_, the Servicer shall deliver to the Issuer, the Indenture Trustee, the Paying Agent, the Depositor and the Underwriter, with a copy to the Enhancer, an Officer’s Certificate stating that (i) a review of the activities of the Servicer during the preceding calendar year and of its performance under any servicing agreements to which it is a party, including this Agreement, has been made under such officer’s supervision and (ii) to the best of such officer’s knowledge, based on such review, the Servicer has complied in all material respects with the minimum servicing standards set forth in the Uniform Single Attestation Program for Mortgage Bankers and has fulfilled all of its material obligations in all material respects throughout such year, or, if there has been material noncompliance with such
servicing standards or a default in the fulfillment in all material respects of any such obligation relating to this Agreement, such statement shall include a description of such noncompliance or specify each such default, as the case may be, known to such officer and the nature and status thereof.

(b)   The Servicer shall deliver to the Issuer and the Indenture Trustee, with a copy to the Enhancer and the Paying Agent, promptly after having obtained knowledge thereof, but in no event later than five Business Days thereafter, written notice by means of an Officer’s Certificate of any event which with the giving of notice or the lapse of time or both, would become a Servicing Default.

Section 3.13   Annual Servicing Report.  Within 90 days after December 31 of each year, beginning with 200_, the Servicer at its expense shall cause a firm of nationally recognized independent public accountants (which firm may also render other services to the Servicer) to furnish a report to the Issuer, each Rating Agency, the Paying Agent and the Indenture Trustee, with a copy to the Enhancer, stating its opinion that, on the basis of an examination conducted by such firm substantially in accordance with standards established by the American Institute of Certified Public Accountants, the assertions made pursuant to Section 3.12 regarding compliance with the minimum servicing standards set forth in the Uniform Single Attestation Program for Mortgage Bankers during the preceding calendar year are fairly stated in all material
respects, subject to such exceptions and other qualifications that, in the opinion of such firm, such accounting standards require it to report.

Section 3.14   Access to Certain Documentation and Information Regarding the Mortgage Loans.  Whenever required by statute or regulation, the Servicer shall provide to the Enhancer, any Securityholder upon reasonable request (or a regulator for a Securityholder) or the Indenture Trustee, reasonable access to the documentation regarding the Mortgage Loans.  Such access shall be afforded without charge, but only upon reasonable request and during normal business hours at the offices of the Servicer.  Nothing in this Section 3.14 shall derogate from the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding Mortgagors, and the failure of the Servicer to provide access as provided in this Section 3.14 as a result of such obligation shall not constitute a breach of this Section 3.14.

Section 3.15   Maintenance of Certain Servicing Insurance Policies.  The Servicer shall, during the term of its service as Servicer, maintain in force and effect  (i) a policy or policies of insurance covering errors and omissions in the performance of its obligations as Servicer hereunder and (ii) a fidelity bond in respect of its officers, employees or agents.  Each such policy or policies 

 

 

	
            
 	
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and fidelity bond shall be at least equal to the coverage that would be required by Fannie Mae or Freddie Mac, whichever is greater, for Persons performing servicing for mortgage loans purchased by such entity.  The Servicer shall furnish a copy of such policy or policies and/or fidelity bond to the Enhancer upon the Enhancer’s reasonable request therefor.

Section 3.16   Information Required by the Internal Revenue Service and Reports of Foreclosures and Abandonments of Mortgaged Property.  The Servicer shall prepare and deliver all federal and state information reports with respect to the Mortgage Loans when and as required by all applicable state and federal income tax laws.  In particular, with respect to the requirement under Section 6050J of the Code to the effect that the Servicer or Subservicer shall make reports of foreclosures and abandonments of any mortgaged property for each year beginning in 200_, the Servicer or Subservicer shall file reports relating to each instance occurring during the previous calendar year in which the Issuer (a) acquired an interest in any Mortgaged Property through foreclosure or other comparable conversion in full or partial satisfaction of
a Mortgage Loan, or (b) knew or had reason to know that any Mortgaged Property had been abandoned.  The reports from the Servicer or Subservicer shall be in form and substance sufficient to meet the reporting requirements imposed by Section 6050J and Section 6050H (reports relating to mortgage interest received) of the Code.

Section 3.17   Assignments; Recordings of Assignments.

(a)   Concurrently herewith, the Depositor has contracted to acquire the Mortgage Loans from the Seller and the Issuer has Granted its right, title and interest in the Mortgage Loans and other Transferred Property constituting the Trust Estate to the Indenture Trustee to secure payments on the Notes.  The Seller will deliver the original Loan Agreements to the Servicer on behalf of the Depositor, endorsed or assigned in blank, to effect the transfer to the Issuer of the Loan Agreements and all related Mortgages and other loan documents.  The parties hereto acknowledge and agree that the Mortgage Loans shall for all purposes be deemed to have been transferred from the Seller to the Depositor, from the Depositor to the Issuer and from the Issuer to the Indenture Trustee.

(b)   If the credit rating of Wachovia is withdrawn or reduced to “____” by Standard & Poor’s or “____” by Moody’s, the Servicer shall, within 30 days of any such withdrawal or reduction, at its own expense, prepare Assignments of Mortgage (which may be included in one or more blanket assignments if permitted by applicable law) in recordable form from the Seller to “[____________], as Indenture Trustee under that certain Indenture dated as of _____ __, 200_, for Wachovia Mortgage Loan Trust, LLC [______] Trust”.  In addition, if the credit rating of Wachovia is withdrawn or reduced to below “____” by Standard & Poor’s or below “____” by Moody’s, the Servicer shall, within 60 days of any such withdrawal or reduction, at its own expense, complete and submit for recording in the appropriate public office for
real property records the Assignments of Mortgage for each Mortgage Loan, provided that no such recordation will be required in any state where, in the opinion of counsel acceptable to the Enhancer, such recording is not required to protect the Indenture Trustee’s interests in the Mortgage Loan against the claim of any subsequent transferee or any creditor of the Seller.  While such assignment to be recorded is being recorded, the Servicer shall retain a photocopy of such assignment.  If any assignment is lost or returned unrecorded to the Servicer because of any defect therein, the Servicer shall prepare a substitute assignment or cure such defect, as the case may be, and the Servicer shall cause such 

 

 

	
            
 	
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assignment to be recorded in accordance with this paragraph.  Any Assignment of Mortgage required to be recorded hereunder shall be retained in the Mortgage File.

Section 3.18   [Reserved].

Section 3.19   Funding Account and Distribution Account.

(a)   No later than the Closing Date, the Indenture Trustee shall establish and maintain on behalf of the Enhancer and the Noteholders one or more segregated trust accounts, which shall be Eligible Accounts, titled “Funding Account, [_________________], as Indenture Trustee for Wachovia Mortgage Loan Trust, LLC [______] Trust” (the “Funding Account”).  On the Business Day prior to each Payment Date during the Revolving Period, the Servicer shall withdraw from the Custodial Account and deposit (x) into the Funding Account (i) the aggregate amount of Principal Collections remaining after the purchase of all Additional Balances and Subsequent Mortgage Loans, and (ii) on and after the Payment Date occurring in [_____] 200_, from Excess Spread the amount necessary to be applied so that the Overcollateralization Amount is not less than the Overcollateralization Target
Amount, and (y) into the Distribution Account established by the Certificate Paying Agent, the Additional Balance Increase Amount, in each case to the extent available and subject to the provisions of Section 3.05(a) of the Indenture.  

(b)   On each Subsequent Transfer Date, the Servicer shall instruct the Indenture Trustee in writing to withdraw from the Funding Account an amount equal to the aggregate Principal Balance as of the related Subsequent Cut-Off Date of the Subsequent Mortgage Loans to be sold to the Trust on such Subsequent Transfer Date and allocate such withdrawal to amounts on deposit in the Funding Account, and to pay such amount to or upon the order of the Seller upon satisfaction of the conditions set forth in this Agreement, in the Purchase Agreement and in the related Subsequent Transfer Agreement with respect thereto.

(c)   The Servicer may cause the institution maintaining the Funding Account to invest any funds therein in Permitted Investments having a maturity of up to 90 days or maturing or otherwise available not later than the Business Day preceding the related Payment Date on which funds are scheduled to be withdrawn to purchase Subsequent Mortgage Loans or Additional Balances, provided that no such investment may be sold or disposed of prior to maturity.  If no instructions are received as to which Permitted Investments the funds are to be invested in, the funds shall be invested in Permitted Investments described in clause (v) of such definition.  In addition, no such Permitted Investment shall be purchased at a price in excess of par.  At any time when the Indenture Trustee is maintaining the Funding Account, any request by the Servicer to invest funds on deposit therein shall be in
writing, delivered to the Indenture Trustee at or before 10:30 a.m., New York time, if such investment is to be made on such day.  The Servicer shall certify that the requested investment is a Permitted Investment maturing at or prior to the time required hereby.  Any such investment shall be registered in the name of the Indenture Trustee or its nominee, and to the extent that any such investment is certificated, such investment shall be maintained with the Indenture Trustee at its Corporate Trust Office.  All net income or other gain received from any such investment shall be deposited into or credited to the Custodial Account as Interest Collections, and may be withdrawn therefrom in accordance with Section 3.05 of the Indenture.

(d)   From time to time the Indenture Trustee shall make withdrawals from the Funding Account in accordance with written instructions from the Servicer as follows:

 

 

	
            
 	
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(i)   on each Payment Date during the Revolving Period, any amounts on deposit in the Funding Account, including Excess Spread, shall be withdrawn and applied, to the extent available to the Seller, as designee of the Depositor, as payment for Additional Balances, if any, in an amount equal to (A) the aggregate of all Draws during the related Collection Period or (B) if the Servicer has applied amounts on deposit in the Custodial Account representing Principal Collections received during such Collection Period to the purchase of Additional Balances, the excess, if any, of the aggregate of all Draws during the related Collection Period over the amount on deposit in the Funding Account;

(ii)   on each Subsequent Transfer Date, any amounts on deposit in the Funding Account, to the extent not used to purchase Additional Balances, shall be withdrawn and applied as payment for Subsequent Mortgage Loans, if any, in an amount equal to the aggregate Principal Balance as of the related Subsequent Cut-Off Date of the Subsequent Mortgage Loans; 

(iii)   prior to 3:00 p.m. (EST) on the Business Day prior to the Payment Date immediately following the last day of the Revolving Period, any amounts remaining on deposit in the Funding Account, if any, after giving effect to clauses (i) and (ii) above, shall be first deposited into the Distribution Account in an amount equal to the lesser of (A) the Additional Balance Increase Amount and (B) the amount on deposit in the Funding Account, and then shall be deposited to the Note Payment Account for payment to the Noteholders pursuant to Section 3.05 of the Indenture.

Section 3.20   [Reserved].

Section 3.21   P&I Advances.

(a)   The Servicer, in its sole discretion, may deposit into the Custodial Account (from its own funds) an amount equal to the aggregate amount of principal of or interest on Mortgage Loans that were delinquent as of the end of any Collection Period (“P&I Advances”).  The Servicer shall notify the Indenture Trustee and the Paying Agent by a certificate of the Servicing Officer of (i) the aggregate amount of P&I Advances for a Payment Date and (ii) the amount of any Nonrecoverable P&I Advances for such Payment Date.

(b)   Notwithstanding anything herein to the contrary, no P&I Advance shall be required to be made hereunder or shall be made hereunder if such P&I Advance would, if made, constitute a Nonrecoverable P&I Advance.  On the fourth Business Day before each Payment Date, the Servicer shall determine whether each P&I Advance made with respect to any previous Payment Date is a Nonrecoverable P&I Advance.

Section 3.22   Transfer of Mortgage Loans.

(a)   Subject to the conditions set forth below, the Servicer, upon receipt of written notice and direction from the Issuer, shall cause the retransfer of Mortgage Loans from the Trust Estate to the Issuer as of the close of business on a Payment Date (the “Transfer Date”).  On the fifth Business Day (the “Transfer Notice Date”) prior to the Transfer Date designated in such notice, the Servicer shall give the Indenture Trustee, the Rating Agencies, the Paying Agent and the Enhancer a notice of the proposed retransfer that contains a list of the Mortgage Loans to be retransferred.  Such retransfers of Mortgage Loans shall be permitted upon satisfaction of the following conditions:

(i)   No Rapid Amortization Event has occurred;

 

 

	
            
 	
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(ii)   On the Transfer Date, the Overcollateralization Amount (after giving effect to the removal from the Trust Estate of the Mortgage Loans proposed to be retransferred) will equal or exceed the Overcollateralization Target Amount;

(iii)   The retransfer of any Mortgage Loans on any Transfer Date during the Managed Amortization Period shall not, in the reasonable belief of the Servicer, cause a Rapid Amortization Event to occur or an event which with notice or lapse of time or both would constitute a Rapid Amortization Event;

(iv)   On or before the Transfer Date, the Servicer shall have delivered to the Indenture Trustee and the Paying Agent a revised Mortgage Loan Schedule showing that the Mortgages Loans transferred to the Certificateholders are no longer owned by the Trust Estate;

(v)   The Servicer shall represent and warrant that the Mortgage Loans to be removed from the Trust Estate were selected at random and the Servicer shall have received the consent of the Enhancer as to the selection of the particular Mortgage Loans to be removed; and

(vi)   The Enhancer shall have consented to the Transfer;

(vii)   Notice of such removal has been given to the Rating Agencies;

(viii)   Such transfer may only occur once per month;

(ix)   The Outstanding Principal Balance of the Transferred Mortgage Loans shall not be greater than the Outstanding Additional Balance Increase Amount immediately prior to such transfer; and

(x)   The Servicer shall have delivered to the Indenture Trustee, the Paying Agent and the Enhancer an Officer’s Certificate certifying that the items set forth in subparagraphs (i) through (ix), inclusive, have been performed or are true and correct, as the case may be.  The Indenture Trustee and the Paying Agent may conclusively rely on such Officer’s Certificate, shall have no duty to make inquiries with regard to the matters set forth therein and shall incur no liability in so relying.

The Servicer shall not be permitted to effect the retransfer of any Mortgage Loan except under the conditions specified above.  Upon receiving the requisite notice and direction from the Issuer, the Servicer shall perform in a timely manner those acts required of it, as specified above.  Upon satisfaction of the above conditions, on the Transfer Date the Servicer shall deliver, or cause to be delivered, to the Issuer a written itemization of each Mortgage Loan being transferred, together with the Mortgage File for each such Mortgage Loan, and the Indenture Trustee shall execute and deliver to the Issuer or its designee such other documents prepared by the Servicer as shall be reasonably necessary to transfer such Mortgage Loans to the Certificateholders.  Any such transfer of the Trust Estate’s right, title and interest in and to Mortgage Loans shall be without recourse,
representation or warranty by or of the Indenture Trustee or the Trust Estate to the Issuer or its designee.

 

 

	
            
 	
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ARTICLE IV

 

Servicing Certificate

Section 4.01   Statements to Securityholders.

(a)   With respect to each Payment Date, on the Business Day following the related Determination Date, the Servicer shall forward the Servicing Certificate to the Indenture Trustee and the Paying Agent, and the Paying Agent, pursuant to Section 3.26 of the Indenture, shall on such Payment Date make such Servicing Certificate available to each Certificateholder, each Noteholder, the Depositor, the Owner Trustee, the Certificate Paying Agent, the Paying Agent and each Rating Agency, with a copy to the Enhancer. The Servicing Certificate shall set forth the following information as to the Notes and Certificates, to the extent applicable:

(i)   the aggregate amount of (a) Interest Collections, (b) Principal Collections (and, with respect to any Payment Date relating to the Managed Amortization Period, Net Principal Collections) and (c) Substitution Adjustment Amounts for such Collection Period;

(ii)   the amount of such distribution as principal to the Noteholders;

(iii)   the amount of such distribution as interest to the Noteholders, the amount thereof, if any, payable in respect of unpaid Interest Shortfalls, and the amount of any Interest Shortfalls for the related Payment Date;

(iv)   each Deficiency Amount, if any, for such Payment Date and the aggregate amount of prior draws on the Policy thereunder not yet reimbursed;

(v)   the amount, if any, received under the Yield Maintenance Agreement; 

(vi)   the amount of such distribution to the Certificateholders;

(vii)   the amount of any Additional Balance Increase Amount payable to the Certificateholders and the amount of Principal Collections paid in respect of such Additional Balance Increase Amount; 

(viii)   the aggregate Principal Balance of the Mortgage Loans as of the end of the preceding Collection Period;

(ix)   the number and aggregate Principal Balances of Mortgage Loans (a) as to which the Minimum Monthly Payment is delinquent for 30-59 days, 60-89 days, 90-119 days, 120-149 days, 150-179 days and 180 or more days, respectively, (b) the related Mortgaged Property of which has been foreclosed upon and (c) as to which the related Mortgaged Property has become REO Property, in each case as of the end of the preceding Collection Period; provided, however, that such information shall not be provided on the statements relating to the first Payment Date;

(x)   LIBOR for the related Interest Period; 

(xi)   the Note Rate for the Notes for such Payment Date;

 

 

	
            
 	
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(xii)   the Net WAC Rate for the related Collection Period;

(xiii)   prior to the second Determination Date following the commencement of the Rapid Amortization Period, the aggregate amount of Additional Balances created during the previous Collection Period and conveyed to the Issuer prior to the commencement of the Rapid Amortization Period;

(xiv)   the aggregate Liquidation Loss Amounts (other than amounts allocated in respect of the Excluded Amount) with respect to the related Collection Period, the amount distributed as principal to Noteholders in respect of Liquidation Loss Amounts and the aggregate of the Liquidation Loss Amounts (minus any Subsequent Recovery Amounts and other than amounts allocated in respect of the Excluded Amount) from all Collection Periods to date expressed as dollar amount and as a percentage of the aggregate Cut-Off Date Principal Balances of the Mortgage Loans;

(xv)   the Note Balance of the Notes and the Certificate Balance of the Certificates after giving effect to the distribution of principal on such Payment Date;

(xvi)   the balance of the Funding Account as of the end of the preceding Collection Period;

(xvii)   the Percentage Interest applicable to each of the Securities, after application of payments made on such Payment Date;

(xviii)   the Overcollateralization Amount as of the end of the preceding Collection Period; 

(xix)   the aggregate Principal Balance of Subsequent Mortgage Loans transferred to the Trust Estate since the Closing Date; 

(xx)   reserved; 

(xxi)   reserved; 

(xxii)   on or after the Stepdown Date, a statement (yes or no) as to whether each of the Stepdown Delinquency Test and the Stepdown Cumulative Loss Test have been met as of the related Payment Date; 

(xxiii)   the aggregate outstanding Principal Balance of the three largest Mortgage Loans as of the close of business on the last day of the related Collection Period; 

(xxiv)   the Overcollateralization Target Amount; and 

(xxv)   the number of Mortgage Loans that are the subject of a Promotional Rate and the aggregate amount of Promotional Advances with respect to such Mortgage Loan. 

 

 

	
            
 	
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In the case of information furnished pursuant to clauses (ii) and (iii) above, the amounts shall be expressed as an aggregate dollar amount per Note or Certificate, as applicable, with a 

$______ denomination and per Certificate with a denomination equal to a 100% Percentage Interest.

If a Managed Amortization Event, a Rapid Amortization Event or a Servicing Default shall occur, on the Business Day following the related Determination Date, the Servicer shall forward to the Indenture Trustee and the Paying Agent, a statement to such effect, including the nature of such Rapid Amortization Event or Servicing Default.  The Paying Agent shall deliver or cause to be delivered by mail to each Certificateholder, each Noteholder, the Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and each Rating Agency, notice of such Managed Amortization Event, Rapid Amortization Event or Servicing Default, including, in the case of a Rapid Amortization Event or a Servicing Default, the nature thereof.  Such statement may be included in, or separate from, the regular statement sent to Securityholders.

The Paying Agent shall make the Servicing Certificate (and, at its option, any additional files containing the same information in an alternative format) available each month to Securityholders and the Enhancer, and other parties to this Agreement via the Paying Agent’s internet website.  The Paying Agent’s internet website shall initially be located at “www.firstlinkabs.com”.  Assistance in using the website can be obtained by calling the Paying Agent’s customer service desk at (800) 665-9359.  Parties that are unable to use the above distribution option are entitled to have a paper copy mailed to them via first class mail by calling the customer service desk and indicating such.  The Paying Agent shall have the right to change the way the statements to Securityholders are distributed in order to make such distribution more convenient and/or more accessible to
the above parties and the Paying Agent shall provide timely and adequate notification to all above parties regarding any such changes. The Paying Agent may require registration and the acceptance of a disclaimer in connection with access to its website

(b)   The Servicer shall forward to the Paying Agent any other information reasonably requested by the Paying Agent necessary to make distributions pursuant to Section 3.05 of the Indenture.  Prior to the close of business on the Business Day next succeeding each Determination Date, the Servicer shall furnish a written statement to the Certificate Paying Agent, the Paying Agent and the Indenture Trustee setting forth the aggregate amounts required to be withdrawn from the Custodial Account and deposited into the Note Payment Account, Funding Account and/or Distribution Account on the Business Day preceding the related Payment Date pursuant to Section 3.04.  The determination by the Servicer of such amounts shall, in the absence of obvious error, be deemed to be presumptively correct for all purposes hereunder, and the Owner Trustee, the Paying Agent and the Indenture
Trustee shall be protected in relying upon the same without any independent check or verification.  In addition, upon the Issuer’s written request, the Servicer shall promptly furnish such information reasonably requested by the Issuer that is reasonably available to the Servicer to enable the Issuer to perform its federal and state income tax reporting obligations.

 

 

	
            
 	
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Section 4.02   Tax Returns and 1934 Act Reports

(a)   The Servicer agrees to perform the obligations of the Servicer set forth in Section 5.03 of the Trust Agreement.  The Servicer will prepare and file or cause to be prepared and filed all tax and information returns of the Trust Estate.

(b)   The Servicer shall prepare all reports on behalf of the Trust Estate, including, but not limited to, all Forms 8-K and Forms 10-K, and, when applicable, any Form 15, that are required under the Securities Exchange Act of 1934, as amended, and any certifications required by the Sarbanes-Oxley Act of 2002 to be filed with such Forms 10-K.  The Servicer shall continue to file all Forms 8-K and Forms 10-K with respect to the Trust Estate until directed by the Depositor in writing to discontinue such filings.

ARTICLE V

 

Note Payment Account

Section 5.01   Note Payment Account.  The Paying Agent shall establish and maintain an Eligible Account entitled “Wachovia Bank, National Association, as Paying Agent, for the benefit of the Securityholders, the Indenture Trustee, the Certificate Paying Agent and the Enhancer, pursuant to the Indenture, dated as of _____ __, 200_, among Wachovia Mortgage Loan Trust, LLC [______] Trust, Wachovia Bank, National Association and [_________________]” (the “Note Payment Account”).  On each Payment Date, amounts on deposit in the Note Payment Account shall be distributed by the Paying Agent in accordance with Section 3.05 of the Indenture.  The Paying Agent shall invest or cause the institution maintaining the Note Payment Account to invest the funds therein in Permitted Investments designated in the name of the
Paying Agent, which investments shall mature not later than the Business Day next preceding the Payment Date next following the date of such investment (except that any investment in the institution with which the Note Payment Account is maintained may mature or be payable on demand on such Payment Date). In addition, no such Permitted Investment shall be purchased at a price in excess of par.  All income and gain realized from any such investment shall be for the benefit of the Servicer and shall be subject to its withdrawal or order from time to time, except that an amount equal to one day’s interest on any such investment shall be for the benefit of the Paying Agent.  The amount of any losses incurred in respect of any such investments shall be deposited in the Note Payment Account by the Servicer and the Paying Agent out of their own funds immediately as realized and shall be allocated between the Servicer and the Paying Agent on a pro rata basis, such that the percentage of
any such loss allocated to the Paying Agent shall equal a fraction, the numerator of which equals one (1) and the denominator of which equals the number of days the funds in the Note Payment Account were invested in such investment.  Subject to Section 8.02(b) of the Indenture, and except as provided in this Section 5.01, the Paying Agent shall not be liable for investment losses on funds on deposit in the Note Payment Account.

 

 

	
            
 	
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ARTICLE VI

 

The Servicer

Section 6.01   Liability of the Servicer.  The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically imposed upon and undertaken by the Servicer herein.

Section 6.02   Merger or Consolidation of, or Assumption of the Obligations of, the Servicer.  Any corporation into which the Servicer may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any corporation succeeding to the business of the Servicer, shall be the successor of the Servicer hereunder, 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.

The Servicer may assign its rights and delegate its duties and obligations under this Agreement, provided that the Person accepting such assignment or delegation shall be a Person qualified to service mortgage loans, is reasonably satisfactory to the Enhancer (provided, however, that such consent to assignment may not be unreasonably withheld), is willing to service the Mortgage Loans and executes and delivers to the Issuer (with a copy to the Enhancer) an agreement, in form and substance reasonably satisfactory to the Enhancer, that contains an assumption by such Person of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Servicer under this Agreement; provided, further, that no Rating Event will occur as a result of such assignment and delegation (as evidenced by a letter to such effect from each Rating Agency) if determined without regard to the Policy; provided, further, that the Owner Trustee, the Paying Agent, the Enhancer and the Indenture Trustee shall receive an Opinion of Counsel to the effect that such assignment or delegation will not cause the Issuer to be treated as an association (or a publicly-traded partnership) taxable as a corporation for federal income tax purposes.

Section 6.03   Limitation on Liability of the Servicer and Others.  Neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Issuer, the Owner Trustee, the Paying Agent, the Indenture Trustee or the Securityholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement; provided, however, that this provision shall not protect the Servicer or any such Person against any liability that would otherwise be imposed by reason of its willful misfeasance, bad faith or gross negligence in the performance of its duties hereunder or by reason of its reckless disregard of its obligations and duties hereunder.  The 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 and any director, officer, employee or agent of the Servicer shall be indemnified by the Issuer and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Securities, including any amount paid to the Owner Trustee, the Paying Agent or the Indenture Trustee pursuant to Section 6.06(b), other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of the Servicer’s willful misfeasance, bad faith or gross negligence in the performance of
its duties hereunder or by reason of its reckless disregard of its obligations and duties hereunder.  The

 

 

	
            
 	
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Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its duties to service the Mortgage Loans in accordance with this Agreement, and that in its opinion may involve it in any expense or liability; provided, however, that the Servicer may in its sole discretion undertake any such action that it may deem necessary or desirable in respect of this Agreement, the rights and duties of the parties hereto and the interests of the Securityholders and the Enhancer.  In such event, the reasonable legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities of the Issuer, and the Servicer shall be entitled to be reimbursed therefor.  The Servicer’s right to indemnity or
reimbursement pursuant to this Section 6.03 shall survive any resignation or termination of the Servicer pursuant to Section 6.04 or 7.01 with respect to any losses, expenses, costs or liabilities arising prior to such resignation or termination (or arising from events that occurred prior to such resignation or termination).

Section 6.04   Servicer Not to Resign.  Subject to the provisions of Section 6.02, the Servicer shall not resign from the obligations and duties hereby imposed on it except (a) upon determination that the performance of its obligations or duties hereunder are no longer permissible under applicable law or are in material conflict by reason of applicable law with any other activities carried on by it or its subsidiaries or Affiliates, the other activities of the Servicer so causing such a conflict being of a type and nature carried on by the Servicer or its subsidiaries or Affiliates at the date of this Agreement or (b) upon satisfaction of the following conditions:  (i) the Servicer shall have proposed a successor servicer to the Issuer and the Indenture Trustee in writing and such proposed successor servicer is reasonably acceptable to the Issuer, the
 Indenture Trustee and the Enhancer; (ii) each Rating Agency shall have delivered a letter to the Issuer, the Enhancer and the Indenture Trustee prior to the appointment of the successor servicer stating that the proposed appointment of such successor
servicer as Servicer hereunder will not cause a Rating Event, if determined without regard to the Policy; and (iii) such proposed successor servicer is reasonably acceptable to the Enhancer, as evidenced by a letter to the Issuer and the Indenture Trustee; provided, however, that no such resignation by the Servicer shall become effective until such successor servicer or, in the case of (a) above, the Indenture Trustee, as pledgee of the Mortgage Loans, shall have assumed the Servicer’s responsibilities and obligations hereunder or the Indenture Trustee, as pledgee of the Mortgage Loans, shall have designated a successor servicer in accordance with Section 7.02.  Any such resignation shall not relieve the Servicer of responsibility for any of the obligations specified in Sections 7.01 and 7.02 as obligations that survive the resignation or termination of the Servicer.  Any such
determination permitting the resignation of the Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Indenture Trustee and the Enhancer.

Section 6.05   Delegation of Duties.  In the ordinary course of business, the Servicer at any time may delegate any of its duties hereunder to any Person, including any of its Affiliates, that agrees to conduct such duties in accordance with standards comparable to those with which the Servicer complies pursuant to Section 3.01.  Such delegation shall not relieve the Servicer of its liabilities and responsibilities with respect to such duties and shall not constitute a resignation within the meaning of Section 6.04.

 

 

	
            
 	
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Section 6.06   Payment of Indenture Trustee’s, the Paying Agent’s and Owner Trustee’s Fees and Expenses; Indemnification.

(a)   After the Closing Date, the Servicer covenants and agrees to pay to the Owner Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar, the Indenture Trustee and any co-trustee of the Indenture Trustee or the Owner Trustee from time to time, and the Owner Trustee, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar, the Paying Agent, the Indenture Trustee and any such co-trustee shall be entitled to, reasonable compensation for all services rendered by each of them in the execution of the trusts created under the Trust Agreement and the Indenture and in the exercise and performance of any of the powers and duties under the Trust Agreement or the Indenture, as the case may be, of the Owner Trustee, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar, the Paying Agent, the Indenture
Trustee and any co-trustee, and the Servicer will pay or reimburse the Note Registrar, the Certificate Paying Agent, the Certificate Registrar, the Paying Agent, the Indenture Trustee and any co-trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Note Registrar, the Certificate Paying Agent, the Certificate Registrar, the Paying Agent, the Indenture Trustee or any co-trustee in accordance with any of the provisions of this Agreement, the Indenture, the Trust Agreement, or any other Basic Document  (which payment shall not be limited by any law in regards to the compensation of a trustee of an express trust) except any such expense, disbursement or advance as may arise from its negligence, willful misfeasance or bad faith.  In addition, the Indenture Trustee shall be entitled to be reimbursed from the Servicer for all reasonable costs associated with the transfer of servicing from the predecessor servicer pursuant to Section 7.02 hereunder, including,
 without limitation, any reasonable costs or expenses associated with the complete transfer of all servicing data and the completion, correction or manipulation of such servicing data as may be required by the Indenture Trustee to correct any errors or insufficiencies in the servicing data or otherwise to enable the Indenture Trustee or successor Servicer to service the Mortgage Loans properly and effectively.

(b)   The Servicer agrees to indemnify the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar and the Owner Trustee for, and to hold the Indenture Trustee (and any Responsible Officer thereof), the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar and the Owner Trustee, as the case may be, harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on the part of the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Owner Trustee, as the case may be, arising out of, or in connection with, the acceptance and administration of the Issuer and the assets thereof, including the costs and expenses (including reasonable legal fees and expenses) of defending the Indenture
Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Owner Trustee, as the case may be, against any claim in connection with the exercise or performance of any of its powers or duties under any Basic Document; provided, however, that:

(i)   with respect to any such claim, the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or Owner Trustee, as the case may be, shall have given the Servicer written notice thereof promptly after the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or Owner Trustee, as the case may be, shall have actual knowledge thereof;

 

 

	
            
 	
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(ii)   while maintaining control over its own defense, the Issuer, the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or Owner Trustee, as the case may be, shall cooperate and consult fully with the Servicer in preparing such defense; and

(iii)   notwithstanding anything in this Agreement to the contrary, the Servicer shall not be liable for settlement of any claim by the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Owner Trustee, as the case may be, entered into without the prior consent of the Servicer.

No termination of this Agreement or resignation or removal of the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Indenture Trustee shall affect the obligations created by this Section 6.06 of the Servicer to indemnify the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar and the Owner Trustee under the conditions and to the extent set forth herein.

Notwithstanding the foregoing, the indemnification provided by the Servicer in this Section 6.06(b) shall not pertain to any loss, liability or expense of the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Owner Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Indenture Trustee, the Paying Agent, the Note Registrar, the Certificate Paying Agent, the Certificate Registrar or the Owner Trustee at the written direction of the Noteholders or Certificateholders, as the case may be, pursuant to the terms of this Agreement.

ARTICLE VII

 

Default

Section 7.01   Servicing Default.

(a)   If a Servicing Default shall occur and be continuing, then, and in every such case, so long as a Servicing Default shall not have been remedied by the Servicer, either the Depositor, the Enhancer (so long as no Enhancer Default exists), or the Indenture Trustee, at the written direction of the holders of at least 51% of the Outstanding Note Balance (if an Enhancer Default exists) by notice then given in writing to the Servicer, the Issuer and the Indenture Trustee, may terminate all of the rights and obligations of the Servicer as servicer under this Agreement other than its right to receive servicing compensation and reimbursement for servicing the Mortgage Loans hereunder during any period prior to the date of such termination, and the Issuer, the Enhancer or the Indenture Trustee (with the written consent of the Enhancer), may exercise any and all other remedies available at
law or equity.  The Servicer shall immediately notify the Indenture Trustee, the Issuer and each Rating Agency, the Enhancer and the Issuer in writing of any Servicing Default as to which it has actual knowledge.  On or after the receipt by the Servicer of such written notice, all authority and power of the Servicer under this Agreement, whether with respect to the Securities or the Mortgage Loans or otherwise, shall pass to and be vested, subject to Section 7.02 hereof, as pledgee of the Mortgage Loans, in the Indenture Trustee, pursuant to and under this Section 7.01; and, without limitation, the Indenture Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other 

 

 

	
            
 	
            29
 	
             
 

 

 

 

 

instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement of each Mortgage Loan
and related documents, or otherwise.  The Servicer agrees to cooperate with the Issuer, the Enhancer and Indenture Trustee, as the case may be, in effecting the termination of the responsibilities and rights of the Servicer hereunder, including, without limitation, the transfer to the Indenture Trustee for the administration by it of all cash amounts relating to the Mortgage Loans that shall at the time be held by the Servicer and to be deposited by it in the Custodial Account, or that have been deposited by the Servicer in the Custodial Account or thereafter received by the Servicer with respect to the Mortgage Loans.  All reasonable costs and expenses (including, but not limited to, attorneys’ fees) incurred in connection with amending this Agreement to reflect such succession as Servicer pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or if the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon presentation of reasonable
documentation of such costs and expenses.  

(b)   Notwithstanding any termination of the activities of the Servicer hereunder, the Servicer shall be entitled to receive, out of any late collection of a payment on a Mortgage Loan that was due prior to the notice terminating the Servicer’s rights and obligations hereunder and received after such notice, that portion to which the Servicer would have been entitled pursuant to Sections 3.03 and 3.09, as well as its Servicing Fee in respect thereof, and any other amounts payable to the Servicer hereunder the entitlement to which arose prior to the termination of its activities hereunder.

Notwithstanding the foregoing, a delay in or failure of performance under clause (i) or (ii) of the definition of Servicing Default, after the applicable grace periods specified therein, shall not constitute a Servicing Default if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods or similar causes.  The preceding sentence shall not relieve the Servicer from using reasonable efforts to perform its respective obligations in a timely manner in accordance with the terms of this Agreement.  The Servicer shall provide the Indenture Trustee, the Paying Agent, the Enhancer and the Securityholders with written notice of any
such failure or delay by it, together with a description of its efforts to so perform its obligations.  The Servicer shall immediately notify the Indenture Trustee, the Paying Agent, the Enhancer and the Issuer in writing of any Servicing Default.

(c)   If the Servicer Termination Triggers shall occur and be continuing with respect to a Payment Date, then in each and every such case, and so long as no Enhancer Default exists, the Enhancer may send written notice to the Securityholders of its intention to remove the Servicer and appoint a successor Servicer and the date on which such removal will take place; provided, however, that such date shall be at least 30 days from the date of such notice.  None of the Indenture Trustee, the Paying Agent or the Securityholders shall have the right to initiate removal of the Servicer if a Servicer Termination Trigger has occurred.

Section 7.02   Indenture Trustee to Act; Appointment of Successor.

(a)   On and after the time the Servicer receives a notice of termination pursuant to Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee as pledgee of the Mortgage Loans shall itself become, or shall appoint an affiliate of the Indenture Trustee to become, the successor in all respects to the Servicer in its capacity as servicer under this Agreement and the 

 

 

	
            
 	
            30
 	
             
 

 

 

 

transactions set forth or provided for herein and shall immediately assume all of the obligations of the Servicer to make advances on Mortgage Loans under Section 3.03(b) and will be subject to all other responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof as soon as practicable, but in no event later than 90 days after the Indenture Trustee becomes successor servicer.  During such 90 day period, the Indenture Trustee, with
the written consent of the Enhancer, may require the Servicer being terminated to continue to perform such servicing responsibilities (other than making advances on the Mortgage Loans under Section 3.03(b)) as the Indenture Trustee deems appropriate.  In such event, the Servicer being terminated shall provide such services as directed by the Indenture Trustee until the earliest of the date the Indenture Trustee notifies such Servicer to discontinue providing such services, the date on which a successor servicer or the Indenture Trustee has assumed all responsibilities, duties and liabilities of the Servicer hereunder or the expiration of the 90 day period.  The Servicer shall be entitled to the Servicing Fee hereunder for any period during which the Servicer is obligated to provide such services as if no termination of the Servicer had occurred. Nothing in this Agreement or in the Trust Agreement shall be construed to permit or require the Indenture Trustee to (i) succeed to
the responsibilities, duties and liabilities of the initial Servicer in its capacity as Seller under the Purchase Agreement, (ii) be responsible or accountable for any act or omission of the Servicer prior to the issuance of a notice of termination hereunder, (iii) require or obligate the Indenture Trustee, in its capacity as successor Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any Additional Balances with respect to any Mortgage Loan, (v) fund any losses on any Permitted Investment directed by any other Servicer, or (vi) be responsible for the representations and warranties of the predecessor Servicer.  As compensation therefor, the Indenture Trustee shall be entitled to such compensation as the Servicer would have been entitled to hereunder if no such notice of termination had been given.  Notwithstanding the foregoing, if the Indenture Trustee is (x) unwilling to act as successor Servicer itself or to appoint an affiliate to become successor Servicer, or (y) legally
 unable so to act, the Indenture Trustee as pledgee of the Mortgage Loans may (in the situation described in clause (x)) or shall (in the situation described in clause (y)) appoint or petition a court of competent jurisdiction to appoint any established housing and home finance institution, bank or other mortgage loan servicer having a net worth of not less than $10,000,000 as the successor to the Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer hereunder; provided, however, that any such successor Servicer shall be acceptable to the Enhancer, as evidenced by the Enhancer’s prior written consent, which consent shall not be unreasonably withheld.  Pending appointment of a successor to the Servicer hereunder, unless the Indenture Trustee is prohibited by law from so acting, the Indenture Trustee itself shall act or appoint an affiliate to act in such capacity as provided above.  In connection with such appointment and assumption, the successor shall be entitled to receive compensation out of payments on Mortgage Loans in an amount equal to the compensation that the Servicer would otherwise have received pursuant to Section 3.11 (or such other compensation as the Indenture Trustee and such successor shall agree).  The appointment of a successor Servicer shall not affect any liability of
the predecessor Servicer that may have arisen under this Agreement prior to its termination as Servicer (including the obligation to purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an insurance policy pursuant to Section 3.05 or to indemnify the Indenture Trustee pursuant to Section 6.06), nor shall any successor Servicer (including the Indenture Trustee) be liable for any acts or omissions of the predecessor Servicer or for any breach by such Servicer of any of its representations or warranties contained herein or in any related document or agreement.  The Indenture Trustee and such successor shall take such action, consistent with this Agreement and the requirements (including any notice requirements) of applicable law, as shall be necessary to effectuate any such succession.  Notwithstanding the 

 

 

	
            
 	
            31
 	
             
 

 

 

foregoing, the Indenture Trustee, in its capacity as successor Servicer, shall not be responsible for the lack of information and/or documents
that it cannot obtain through reasonable efforts or for failing to take any action that the Indenture Trustee is legally prohibited from taking by applicable law.

(b)   Any successor, including the Indenture Trustee, to the Servicer as servicer shall during its term as Servicer (i) continue to service and administer the Mortgage Loans for the benefit of the Securityholders, (ii) maintain in force a policy or policies of insurance covering errors and omissions in the performance of its obligations as Servicer hereunder and a fidelity bond in respect of its officers, employees and agents to the same extent as the Servicer is so required pursuant to Section 3.13 and (iii) be bound by the terms of the Insurance Agreement.

(c)   Any successor Servicer, including the Indenture Trustee, shall not be deemed in default or to have breached its duties hereunder if the predecessor Servicer shall fail to deliver any required deposit to the Custodial Account or otherwise cooperate with any required servicing transfer or succession hereunder.

(d)   All reasonable costs and expenses (including attorneys’ fees) incurred in connection with the transfer of Mortgage Files and the servicing duties to a successor servicer hereunder shall be paid by the related predecessor servicer.

 

Section 7.03   Notification to Securityholders.  Upon any termination of or appointment of a successor to the Servicer pursuant to this Article VII or Section 6.04, the Indenture Trustee shall give prompt written notice thereof to the Securityholders, the Enhancer, the Issuer and each Rating Agency.

ARTICLE VIII

 

Miscellaneous Provisions

Section 8.01   Amendment.  This Agreement may be amended from time to time by the parties hereto, but only by written instrument signed by the parties hereto; provided, however, that any such amendment shall be accompanied by a letter from each Rating Agency to the effect that such amendment will not result in a Rating Event if determined without regard to the Policy;  provided, further, that the Enhancer, the Paying Agent and the Indenture Trustee shall consent thereto.

Section 8.02   Exhibits.  The exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.

Section 8.03   GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

Section 8.04   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 certified

 

 

	
            
 	
            32
 	
             
 

 

 

 

mail, return receipt requested, to (a) in the case of the Servicer, One Wachovia Center, 18th Floor, Charlotte, North Carolina 28288-0572, Attention: David Mason, Re: Wachovia Mortgage Loan Trust, LLC [______] Trust, Facsimile: (704) 383-3878, (b) in the case of the Enhancer, [________], [address], Attention: [________], telecopier number (___) ___-____, (c) in the case of Moody’s, Home Mortgage Loan Monitoring Group, 4th Floor, 99 Church Street, New York, New York 10001, (d) in the case of Standard & Poor’s, 55 Water Street, New York, New York 10004, Attention: Residential Mortgage Surveillance Group, (e) in the case
of the Owner Trustee, [________], [address], Attention: [________], telecopier number (___) ___-____, (f) in the case of the Issuer, Wachovia Mortgage Loan Trust, LLC [______] Trust, c/o the Owner Trustee at the address set forth in clause (e) above, (g) in the case of the Indenture Trustee, at the Corporate Trust Office of the Indenture Trustee, and (h) in the case of the Paying Agent, at the Corporate Trust Office of the Paying Agent; or, with respect to each of the foregoing Persons, at such other address as shall be designated by such Person in a written notice to the other foregoing Persons.  Any notice required or permitted to be mailed to a Securityholder shall be given by first class mail, postage prepaid, at the address of such Securityholder as shown in the Note Register or Certificate Register, as the case may be.  Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the related
Securityholder receives such notice.  Any notice or other document required to be delivered or mailed by the Indenture Trustee to any Rating Agency shall be given on a reasonable efforts basis and only as a matter of courtesy and accommodation, and the Indenture Trustee shall have no liability for failure to deliver any such notice or document to any Rating Agency.

Section 8.05   Severability of Provisions.  If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held 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 the Securities or the rights of the Securityholders.

Section 8.06   Protection of Confidential Information.  The Servicer shall keep confidential and shall not divulge to any party any information pertaining to the Mortgage Loans or any Mortgagor thereunder, except as required pursuant to this Agreement and except to the extent that it is necessary and appropriate for the Servicer to do so in working with legal counsel, auditors, taxing authorities, regulatory authorities or other governmental agencies or in accordance with the Collection Policy.

Section 8.07   Third-Party Beneficiaries.  This Agreement shall inure to the benefit of and be binding upon the parties hereto, the Securityholders, the Enhancer, the Owner Trustee and their respective successors and permitted assigns.  Except as otherwise provided in this Agreement, no other Person shall have any right or obligation hereunder.  The Enhancer shall be an express third-party beneficiary of this Agreement.

Section 8.08   Counterparts.  This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

 

 

	
            
 	
            33
 	
             
 

 

 

 

Section 8.09   Effect of Headings and Table of Contents.  The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 8.10   Termination upon Purchase by the Servicer or Liquidation of All Mortgage Loans; Partial Redemption.

(a)   The respective obligations and responsibilities of the Servicer, the Issuer, the Paying Agent and the Indenture Trustee created hereby shall terminate upon the last action required to be taken by the Issuer pursuant to the Trust Agreement and by the Indenture Trustee and the Paying Agent pursuant to the Indenture following the earlier of:

(i)   the date on or before which the Indenture or the Trust Agreement is terminated, or

(ii)   the purchase by the Servicer from the Issuer of all Mortgage Loans and REO Property in accordance with Section 8.10(b).

(b)   The Servicer shall have the right to purchase from the Issuer all of the Mortgage Loans and related REO Property if the Note Balance of the Notes as of any Payment Date is less than 10% of the Note Balance of the Notes as of the Closing Date, (provided that a draw on the Policy would not occur as a result of such purchase, and provided further that the purchase price will provide sufficient funds to pay the outstanding Note Balance and accrued and unpaid interest on the Notes to the Payment Date on which such amounts are to be distributed to the Securityholders), at a price equal to 100% of the aggregate unpaid Principal Balance of all such remaining Mortgage Loans, plus accrued and unpaid interest thereon at the weighted average of the Loan Rates thereon up to the date preceding the Payment Date on which such amounts are to be distributed to the Securityholders (and in the case of REO Property, the
 fair market value of the REO Property), plus any amounts due and owing to the Enhancer under the Insurance Agreement related to the Mortgage Loans or the Notes (and any unpaid Servicing Fee relating to the Mortgage Loans shall be deemed to have been paid at such time), plus any Interest Shortfall and interest owed thereon to the Noteholders.  The purchase price paid by the
Servicer shall also include any amounts owed by the Seller pursuant to Section 3.01(d) of the Purchase Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in Section 3.01(b)(xi), that remain unpaid on the date of such purchase.  

The Servicer shall send written notice to the Indenture Trustee, the Paying Agent and the Enhancer of its intent to exercise its right to purchase any of the Mortgage Loans pursuant to this Section 8.10(b).

If such right is exercised by the Servicer, the Servicer shall deposit the amount calculated pursuant to this Section 8.08(b) with the Indenture Trustee or the Paying Agent pursuant to Section 4.10 of the Indenture and, upon the receipt of such deposit, the Indenture Trustee shall release to the Servicer, the files pertaining to the Mortgage Loans being purchased.  The Servicer, at its expense, shall prepare and deliver to the Indenture Trustee for execution, at the time the related Mortgage Loans are to be released to the Servicer, appropriate documents assigning each such Mortgage Loans from the Indenture Trustee or the Issuer to the Servicer or the appropriate party.

 

 

	
            
 	
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Section 8.11   Certain Matters Affecting the Indenture Trustee and the Paying Agent.  For all purposes of this Agreement, in the performance of any of each of their duties or in the exercise of any of either of their powers hereunder, the Indenture Trustee and the Paying Agent shall be subject to and entitled to the benefits of Article VI of the Indenture.

Section 8.12   Owner Trustee, Paying Agent and Indenture Trustee Not Liable for Related Documents.  The recitals contained herein shall be taken as the statements of the Servicer, and the Owner Trustee, the Paying Agent and the Indenture Trustee assume no responsibility for the correctness thereof.  The Owner Trustee, the Paying Agent and the Indenture Trustee make no representations as to the validity or sufficiency of this Agreement, of any Basic Document or Related Document, or of the Certificates (other than the signatures of the Owner Trustee and the Indenture Trustee on the Certificates) or the Notes.  The Owner Trustee, the Paying Agent and the Indenture Trustee shall at no time have any responsibility or liability with respect to the sufficiency of the Trust Estate or its ability to generate the payments to be distributed
to Certificateholders under the Trust Agreement or the Noteholders under the Indenture, including the compliance by the Depositor, the Seller or the Servicer with any warranty or representation made under any Basic Document or the accuracy of any such warranty or representation, or any action of any person taken in the name of the Owner Trustee, the Paying Agent or the Indenture Trustee.

	
            
 	
            35
 	
             
 

IN WITNESS WHEREOF, the Servicer, the Issuer, the Paying Agent and the Indenture Trustee have caused this Agreement to be duly executed by their respective officers or representatives all as of the day and year first above written.

	
             
 	
            WACHOVIA BANK, NATIONAL ASSOCIATION,
 
	
             
 	
            as Servicer
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            By:_________________________________________
 
	
             
 	
            Name:
 
	
             
 	
            Title:
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            WACHOVIA MORTGAGE LOAN TRUST, LLC [_____] TRUST, as Issuer
 
	
             
 	
             
 
	
             
 	
            By:    Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            By:_________________________________________
 
	
             
 	
            Name:
 
	
             
 	
            Title:
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            WACHOVIA BANK, NATIONAL ASSOCIATION, as Paying Agent
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            By:_________________________________________
 
	
             
 	
            Name:
 
	
             
 	
            Title:
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            [_________________], not in its individual capacity but solely as Indenture Trustee
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            By:_________________________________________
 
	
             
 	
            Name:
 
	
             
 	
            Title:
 
	
             
 	
             
 

 

	
            
 	
            36
 	
             
 

 

 

 

 

EXHIBIT A

MORTGAGE LOAN SCHEDULE

 

 

 

	
            A-1
 

 

 

 

EXHIBIT B

COLLECTION POLICY

[See attachment]

 

 

	
            B-1
 

 

 

 

EXHIBIT C

LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE PREMISES:

That [_________________], as indenture trustee (the “Indenture Trustee”), under the indenture dated as of _____ __, 200_ (the “Indenture”), among Wachovia Mortgage Loan Trust, LLC [______] Trust, as issuer, Wachovia Bank, National Association, as Paying Agent, and the Indenture Trustee, a national bank, and having its principal office located at [address], Attn: _______, hath made, constituted and appointed, and does by these presents make, constitute and appoint Wachovia Bank, National Association, a national banking association organized and existing under the laws of the United States of America, its true and lawful Attorney-in-Fact, with full power and authority to sign, execute, acknowledge, deliver, file for record, and record any instrument on its behalf, and to
perform such other act or acts as may be customarily and reasonably necessary and appropriate, to effectuate the following enumerated transactions in respect of any of the Mortgages securing a Mortgage Loan and the related Loan Agreements for which the undersigned is acting as Indenture Trustee for various Securityholders (whether the undersigned is named therein as mortgagee or beneficiary or has become mortgagee by virtue of endorsement of such Loan Agreement secured by any such Mortgage) and for which Wachovia Bank, National Association is acting as Servicer pursuant to the Servicing Agreement.

This appointment shall apply to the following enumerated transactions only:

	
            1.
 	
            The modification or re-recording of a Mortgage, where said modification or re-recording is for the purpose of correcting the Mortgage to conform same to the original intent of the parties thereto or to correct title errors discovered after such title insurance was issued and said modification or re-recording, in either instance, does not adversely affect the Lien of the Mortgage as insured.
 
	
             
 	
             
 
	
            2.
 	
            The subordination of the Lien of a Mortgage to an easement in favor of a public utility company or a government agency or unit with powers of eminent domain; this section shall include, without limitation, the execution of partial satisfactions/releases, partial reconveyances or the execution of requests to trustees to accomplish same.
 
	
             
 	
             
 
	
            3.
 	
            With respect to a Mortgage, the foreclosure, the taking of a deed in lieu of foreclosure, or the completion of judicial or non-judicial foreclosure or termination, cancellation or rescission of any such foreclosure, including, without limitation, any and all of the following acts:
 
	
             
 	
             
 
	
             
	
            a.
 	
            The substitution of trustee(s) serving under a Mortgage, in accordance with state law and the Mortgage;
 
	
             
	
             
 	
             
 
	
             
	
            b.
 	
            The preparation and issuance of statements of breach or non-performance;
 
	
             
	
             
 	
             
 
	
             
	
            c.
 	
            The preparation and issuance of notices of default;
 
	
             
	
             
 	
             
 
	
             
	
            d.
 	
            Cancellations/rescissions of notices of default and/or notices of sale;
 
	
             
	
             
 	
             
 

 

 

	
            C-1
 

 

 

 

 

	
             
	
            e.
 	
            The taking of a deed in lieu of foreclosure; and
 
	
             
	
             
 	
             
 
	
             
	
            f.
 	
            Such other documents and actions as may be necessary under the terms of the Mortgage or state law to expeditiously complete said transactions.
 
	
             
	
             
 	
             
 
	
            4.
 	
            The conveyance of the properties to the mortgage insurer, or the closing of the title to the property to be acquired as real estate owned, or conveyance of title to real estate owned.
 
	
             
 	
             
 
	
            5.
 	
            The completion of loan assumption agreements.
 
	
             
 	
             
 
	
            6.
 	
            The full satisfaction/release of a Mortgage  or full reconveyance upon payment and discharge of all sums secured thereby, including, without limitation, cancellation of the related Loan Agreement.
 
	
             
 	
             
 
	
            7.
 	
            The assignment of any Mortgage and the related Loan Agreement, in connection with the repurchase of the Mortgage Loan secured and evidenced thereby.
 
	
             
 	
             
 
	
            8.
 	
            The full assignment of a Mortgage upon payment and discharge of all sums secured thereby in conjunction with the refinancing thereof, including, without limitation, the endorsement of the related Loan Agreement.
 
	
             
 	
             
 
	
            9.
 	
            The modification or re-recording of a Mortgage, where said modification or re-recording is for the purpose of any modification pursuant to Section 4.01 of the Servicing Agreement.
 
	
             
 	
             
 
	
            10.
 	
            The subordination of the Lien of a Mortgage, where said subordination is in connection with any modification pursuant to Section 3.01 of the Servicing Agreement, and the execution of partial satisfactions/releases in connection with such same Section 3.01.
 
	
             
 	
             
 

The undersigned gives said Attorney-in-Fact full power and authority to execute such instruments and to do and perform all and every act and thing necessary and proper to carry into effect the power or powers granted by or under this Limited Power of Attorney as fully as the undersigned might or could do, and hereby does ratify and confirm to all that said Attorney-in-Fact shall lawfully do or cause to be done by authority hereof.

Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in Appendix A to the Indenture.

 

 

	
            C-2
 

 

 

Third parties without actual notice may rely upon the exercise of the power granted under this Limited Power of Attorney and may be satisfied that this Limited Power of Attorney shall continue in full force and effect and has not been revoked, unless an instrument of revocation has been made in writing by the undersigned.

	
             
 	
            [_________________],
 
	
             
 	
            not in its individual capacity
 
	
             
 	
            but solely as Indenture Trustee
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            By:_______________________________________
 
	
             
 	
            Name:
 
	
             
 	
            Title:
 
	
             
 	
             
 

 

 

	
            C-3
 

 

 

 

 

	
            STATE OF
 	
            )
 	
             
 	
             
 	
             
 
	
             
 	
            ) SS.
 	
             
 	
             
 	
             
 
	
            COUNTY OF
 	
            )
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 	
             
 

On this ____ day of ____, 200_, before me the undersigned, Notary Public of said State, personally appeared                                           
, personally known to me to be duly authorized officers of [_________________] that executed the within instrument and personally known to me to be the persons who executed the within instrument on behalf of [_________________] therein named, and acknowledged to me such [_________________] executed the within instrument pursuant to its by-laws.

	
             
 	
            WITNESS my hand and official seal.
 
	
             
 	
             
 
	
             
 	
             
 
	
             
 	
            
 
	
             
 	
            Notary Public in and for the
 
	
             
 	
            State of _____________
 
	
             
 	
             
 
	
             
 	
             
 
	
            After recording, please mail to:
 	
             
 
	
             
 	
             
 
	
            
 	
             
 
	
            
 	
             
 
	
            
 	
             
 
	
            
 	
             
 
	
            Attn: __________________
 	
             
 
	
             
 	
             
 

 

 

	
            C-4
 

 

 

 

EXHIBIT D

FORM OF REQUEST FOR RELEASE

DATE:

TO:

	
            RE:
 	
            REQUEST FOR RELEASE OF DOCUMENTS
 

In connection with your administration of the Mortgage Loans, we request the release of the Mortgage File described below.

Servicing Agreement Dated:

Series #:

Account #:

Pool #:

Loan #:

Borrower Name(s):

	
            Reason for Document Request: (circle one)
 	
            Mortgage Loan
 	
             

	
            Prepaid in Full
 	
            Mortgage Loan Repurchased
 

“We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Servicing Agreement.”

____________________________________

Wachovia Bank, National Association

Authorized Signature

******************************************************************************

TO CUSTODIAN:  Please acknowledge this request, and check off documents being enclosed with a copy of this form.  You should retain this form for your files in accordance with the terms of the Servicing Agreement.

	
            Enclosed Documents:     [  ]         Loan Agreement
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 
	
            Name_________________________
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 	
             
 
	
            Title__________________________
 	
             
 	
             
 	
             
 

 

 

 

	
            
 	
            D-1Exhibit 10.10

 

SECOND AMENDED AND RESTATED LOAN AGREEMENT

 

among

 

WC HOLDINGS, INC.

COMPMANAGEMENT, INC.

COMPMANAGEMENT HEALTH SYSTEMS, INC.

COMPMANAGEMENT INTEGRATED DISABILITY SERVICES,
INC.

CMI MANAGEMENT COMPANY

COMPMANAGEMENT OF VIRGINIA, INC.

COMPMANAGEMENT DISABILITY SERVICES COMPANY

CMI BARRON RISK MANAGEMENT SERVICES, INC.

KRAMMCO INC.

INTEGRATED CLAIM STRATEGIES, INC.

OCTAGON RISK SERVICES, INC.

MANAGED CARE HOLDINGS CORPORATION

CARONIA CORPORATION

 

as Borrowers

 

and

 

JPMORGAN CHASE BANK, N.A.

 

as Lender

 

March 31, 2005

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1.  AGREEMENT OF THE PARTIES

  	
   

  
	
   

  	
  1.1

  	
  Restatement of
  Obligations

  	
   

  
	
   

  	
  1.2

  	
  Balances of Loans

  	
   

  
	
   

  	
  1.3

  	
  Compliance
  with Original Loan Documents

  	
   

  
	
   

  	
  1.4

  	
  Continuation
  of Original Loan Documents

  	
   

  
	
   

  	
  1.5

  	
  Termination
  of Original Assignment of Life Insurance Policies

  	
   

  
	
   

  	
   

  
	
  ARTICLE 2.  REVOLVING CREDIT LOANS

  	
   

  
	
   

  	
  2.1

  	
  Revolving Credit
  Commitment

  	
   

  
	
   

  	
  2.2

  	
  Conversion Options

  	
   

  
	
   

  	
  2.3

  	
  Revolving Credit Note

  	
   

  
	
   

  	
  2.4

  	
  Cancellation
  and Reduction of Revolving Credit Commitment

  	
   

  
	
   

  	
  2.5

  	
  Use of Funds

  	
   

  
	
   

  	
  2.6

  	
  Additional
  Provisions and Limitations Relating to Eurodollar Rate Loans

  	
   

  
	
   

  	
  2.7

  	
  Letters of Credit

  	
   

  
	
   

  	
   

  
	
  ARTICLE 3.  TERM LOAN

  	
   

  
	
   

  	
  3.1

  	
  Term Loan Amount

  	
   

  
	
   

  	
  3.2

  	
  Term Note

  	
   

  
	
   

  	
  3.3

  	
  Optional Prepayments

  	
   

  
	
   

  	
  3.4

  	
  Additional
  Provisions and Limitations Relating to Eurodollar Rate Portions

  	
   

  
	
   

  	
  3.5

  	
  Mandatory Prepayments

  	
   

  
	
   

  	
   

  
	
  ARTICLE 4.  FEES, PAYMENTS, SETOFFS, SECURITY, DEFAULT
  RATE

  	
   

  
	
   

  	
  4.1

  	
  Fees

  	
   

  
	
   

  	
  4.2

  	
  Payments

  	
   

  
	
   

  	
  4.3

  	
  Setoffs

  	
   

  
	
   

  	
  4.4

  	
  Security

  	
   

  
	
   

  	
  4.5

  	
  Default Rate

  	
   

  
	
   

  	
   

  
	
  ARTICLE 5.  CONDITIONS OF BORROWING

  	
   

  
	
   

  	
  5.1

  	
  Conditions
  Precedent to the Term Loan and the Initial Revolving Credit Loan

  	
   

  
	
   

  	
  5.2

  	
  Conditions
  Precedent to Each of the Loans

  	
   

  
	
   

  	
   

  
	
  ARTICLE 6.  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
  6.1

  	
  Organization and
  Authority

  	
   

  
	
   

  	
  6.2

  	
  Qualification

  	
   

  
	
   

  	
  6.3

  	
  Investments;
  Guarantees; Liabilities

  	
   

  
	
   

  	
  6.4

  	
  Tax Returns and Payments

  	
   

  
	
   

  	
  6.5

  	
  Title to Properties;
  Liens

  	
   

  
	
   

  	
  6.6

  	
  Litigation

  	
   

  
	
   

  	
  6.7

  	
  Compliance
  with Law and Other Instruments

  	
   

  
						

 

i

 

	
   

  	
  6.8

  	
  Financial Statements

  	
   

  
	
   

  	
  6.9

  	
  Patents,
  Trademarks and Copyrights

  	
   

  
	
   

  	
  6.10

  	
  No Margin Activity

  	
   

  
	
   

  	
  6.11

  	
  ERISA

  	
   

  
	
   

  	
  6.12

  	
  Adverse Contracts;
  Defaults

  	
   

  
	
   

  	
  6.13

  	
  Environmental Laws

  	
   

  
	
   

  	
  6.14

  	
  Disclosure

  	
   

  
	
   

  	
  6.15

  	
  Insurance

  	
   

  
	
   

  	
  6.16

  	
  Events of Default

  	
   

  
	
   

  	
  6.17

  	
  Solvency, Etc.

  	
   

  
	
   

  	
  6.18

  	
  Projections
  and Pro Forma Financial Statements

  	
   

  
	
   

  	
  6.19

  	
  Caronia Purchase
  Agreement

  	
   

  
	
   

  	
  6.20

  	
  Certain Assurances

  	
   

  
	
   

  	
   

  
	
  ARTICLE 7.  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
  7.1

  	
  Bank Deposits

  	
   

  
	
   

  	
  7.2

  	
  Unaudited
  Financial Statements and Reports of
  the Company

  	
   

  
	
   

  	
  7.3

  	
  Audited
  Financial Statements of the Company

  	
   

  
	
   

  	
  7.4

  	
  Inspection

  	
   

  
	
   

  	
  7.5

  	
  Insurance

  	
   

  
	
   

  	
  7.6

  	
  Payment of Taxes and
  Claims

  	
   

  
	
   

  	
  7.7

  	
  Compliance with Laws

  	
   

  
	
   

  	
  7.8

  	
  ERISA

  	
   

  
	
   

  	
  7.9

  	
  Preservation of
  Corporate Existence

  	
   

  
	
   

  	
  7.10

  	
  Maintenance of
  Tangible Assets

  	
   

  
	
   

  	
  7.11

  	
  Notices of Certain
  Events

  	
   

  
	
   

  	
  7.12

  	
  Records and Books of
  Account

  	
   

  
	
   

  	
  7.13

  	
  Performance of Contracts

  	
   

  
	
   

  	
  7.14

  	
  Notice of Material
  Litigation

  	
   

  
	
   

  	
  7.15

  	
  Use of Proceeds

  	
   

  
	
   

  	
  7.16

  	
  Ownership and
  Control of Borrowers

  	
   

  
	
   

  	
  7.17

  	
  Compliance
  with the Caronia Purchase Agreement

  	
   

  
	
   

  	
  7.18

  	
  Compliance with the OBWC

  	
   

  
	
   

  	
  7.19

  	
  Seller Information

  	
   

  
	
   

  	
  7.20

  	
  Government Regulation

  	
   

  
	
   

  	
   

  
	
  ARTICLE 8.  NEGATIVE COVENANTS

  	
   

  
	
   

  	
  8.1

  	
  Indebtedness

  	
   

  
	
   

  	
  8.2

  	
  Liens and Other
  Encumbrances

  	
   

  
	
   

  	
  8.3

  	
  Guaranties
  and Other Contingent Liabilities

  	
   

  
	
   

  	
  8.4

  	
  Fundamental Changes

  	
   

  
	
   

  	
  8.5

  	
  Creation of Subsidiaries

  	
   

  
	
   

  	
  8.6

  	
  Loans or Advances

  	
   

  
	
   

  	
  8.7

  	
  Investments

  	
   

  
	
   

  	
  8.8

  	
  Sale and Leaseback

  	
   

  
	
   

  	
  8.9

  	
  Disposition of Assets

  	
   

  
	
   

  	
  8.10

  	
  Transactions with
  Affiliates

  	
   

  

 

ii

 

	
   

  	
  8.11

  	
  Sale of Accounts

  	
   

  
	
   

  	
  8.12

  	
  Capital Expenditures

  	
   

  
	
   

  	
  8.13

  	
  Minimum Fixed
  Charge Coverage Ratio

  	
   

  
	
   

  	
  8.14

  	
  Ratio of
  Funded Indebtedness to EBITDA

  	
   

  
	
   

  	
  8.15

  	
  Management Fees

  	
   

  
	
   

  	
  8.16

  	
  Dividends and Payments

  	
   

  
	
   

  	
  8.17

  	
  Issuance of Capital
  Stock

  	
   

  
	
   

  	
  8.18

  	
  Prohibition
  of Change in Fiscal Year

  	
   

  
	
   

  	
  8.19

  	
  Amendment to Other
  Documents

  	
   

  
	
   

  	
  8.20

  	
  Management

  	
   

  
	
   

  	
  8.21

  	
  Pledge Rights Not a “Change”

  	
   

  
	
   

  	
  8.22

  	
  Government Regulations

  	
   

  
	
   

  	
   

  
	
  ARTICLE 9.  EVENTS OF DEFAULT

  	
   

  
	
   

  	
  9.1

  	
  Event of Default

  	
   

  
	
   

  	
  9.2

  	
  Consequences of
  Event of Default

  	
   

  
	
   

  	
   

  
	
  ARTICLE 10.  MISCELLANEOUS

  	
   

  
	
   

  	
  10.1

  	
  Notices

  	
   

  
	
   

  	
  10.2

  	
  Term
  of Agreement; Termination; Successors and Assigns

  	
   

  
	
   

  	
  10.3

  	
  No Implied Rights or
  Waivers

  	
   

  
	
   

  	
  10.4

  	
  Applicable Law

  	
   

  
	
   

  	
  10.5

  	
  Modifications,
  Amendments or Waivers

  	
   

  
	
   

  	
  10.6

  	
  Counterparts

  	
   

  
	
   

  	
  10.7

  	
  Headings

  	
   

  
	
   

  	
  10.8

  	
  Expenses

  	
   

  
	
   

  	
  10.9

  	
  Accounting Terms

  	
   

  
	
   

  	
  10.10

  	
  Severability

  	
   

  
	
   

  	
  10.11

  	
  Waiver of
  Jury Trial; Consent to Venue

  	
   

  
	
   

  	
  10.12

  	
  Entire Agreement

  	
   

  
	
   

  	
  10.13

  	
  Certificates, Etc.

  	
   

  
	
   

  	
  10.14

  	
  Waiver of Certain
  Defenses

  	
   

  
	
   

  	
  10.15

  	
  USA Patriot Act
  Notification

  	
   

  
	
   

  	
  10.16

  	
  Indemnification

  	
   

  
	
   

  	
   

  
	
  ARTICLE 11.  DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Signatures

  	
   

  

 

iii

 

	
  EXHIBITS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit A

  	
  Second Amended and Restated Revolving Credit Note

  	
   

  
	
   

  	
  Exhibit B

  	
  Second Amended
  and Restated Term Note

  	
   

  
	
   

  	
  Exhibit C

  	
  Second Amended
  and Restated Borrower Security Agreement

  	
   

  
	
   

  	
  Exhibit D

  	
  Second Amended
  and Restated Intellectual Property Security Agreement

  	
   

  
	
   

  	
  Exhibit E

  	
  Second Amended
  and Restated Stock Pledge Agreement

  	
   

  
	
   

  	
  Exhibit F

  	
  Second Amended
  and Restated Collateral Assignment of Leasehold Interests

  	
   

  
	
   

  	
  Exhibit G

  	
  Opinion of
  Counsel to Borrowers

  	
   

  
	
   

  	
  Exhibit H

  	
  Definitions

  	
   

  
	
   

  	
  Exhibit I

  	
  Pro Forma
  Balance Sheets

  	
   

  
	
   

  	
  Exhibit J

  	
  Projections

  	
   

  
	
   

  	
  Exhibit K

  	
  Officer’s Solvency
  Certificate

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULES:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Schedule 6.1

  	
  Affiliates,
  Directors and Officers

  	
   

  
	
   

  	
  Schedule 6.5

  	
  Leases

  	
   

  
	
   

  	
  Schedule 6.6

  	
  Litigation and
  Other Proceedings

  	
   

  
	
   

  	
  Schedule 6.9

  	
  Patents,
  Trademarks and Copyrights

  	
   

  
	
   

  	
  Schedule 8.10

  	
  Transactions
  with Affiliates

  	
   

  

 

iv

 

SECOND
AMENDED AND RESTATED LOAN AGREEMENT

 

THIS
SECOND AMENDED AND RESTATED LOAN AGREEMENT (this “Agreement”) is made and
entered into in Columbus, Ohio effective as of March 31, 2005, by and among
WC HOLDINGS, INC., a
Delaware corporation (formerly named Health Power, Inc.) (the “Company”),
COMPMANAGEMENT, INC., an Ohio corporation (“CMI”), COMPMANAGEMENT HEALTH
SYSTEMS, INC., an Ohio corporation (“CHSI”), COMPMANAGEMENT INTEGRATED
DISABILITY SERVICES, INC., an Ohio corporation (formerly named M&N Risk
Management, Inc.) (“CIDSI”), CMI MANAGEMENT COMPANY, an Ohio corporation
(formerly named M&N Enterprises, Inc.) (“CMIMC”), COMPMANAGEMENT OF
VIRGINIA, INC., a Virginia corporation (formerly named Trigon Administrators,
Inc.) (“CVI”), COMPMANAGEMENT DISABILITY SERVICES COMPANY, a Virginia
corporation and a wholly owned subsidiary of CVI (formerly named Trigon
Disability Services Company) (“CDSC”), CMI BARRON RISK MANAGEMENT SERVICES,
INC., a Texas corporation (formerly named Barron Risk Management Services,
Inc.) (“Barron Risk”), OCTAGON RISK SERVICES, INC., a Minnesota corporation (“Octagon”),
KRAMMCO INC., an Ohio corporation (“KRAMMCO”), INTEGRATED CLAIM STRATEGIES,
INC., a Florida corporation (“ICSI”), CARONIA CORPORATION, a Delaware
corporation (“Caronia”), and MANAGED
CARE HOLDINGS CORPORATION, a Delaware Corporation (“MCHC”), as borrowers
(individually, a “Borrower” and collectively, the “Borrowers”), and JPMORGAN
CHASE BANK, N.A., a national banking association (successor by merger to Bank
One, NA (Main Office Columbus)), as lender (the “Lender”).

 

Recitals

 

The following recitals are representations with respect to
certain factual matters that form the basis of this Agreement and are an integral
part of this Agreement.

 

A.                                   Pursuant
to the terms and conditions of a certain Amended and Restated Loan Agreement
dated as of October 3, 2003 by and among the Company, CMI, CHSI, CIDSI,
CMIMC, CVI, CDSC, Barron Risk and Octagon (collectively, the “Original
Borrowers”), WC Holdings, Inc., a Delaware corporation that merged with and
into the Company on or about December 2, 2003 (the “Guarantor”), and the
Lender (the “Original Loan Agreement”), the Lender agreed to make to the
Original Borrowers (i) loans (collectively, the “Prior Revolving Credit Loans”)
up to the maximum aggregate sum of
$8,000,000 under a revolving line of credit, (ii) a term loan in the maximum
sum of $31,479,166.64 (the “Prior Term Loan”) and (iii) an interim term loan in
the principal amount of $12,000,000 in order to finance a portion of the
purchase price paid by CMI for all of the outstanding shares of capital stock
of Octagon (the “Octagon Interim Term Loan”);

 

B.                                     To
evidence the Prior Revolving Credit Loans, the Original Borrowers executed a
certain Amended and Restated Revolving Credit Note dated October 3, 2003
(the “Original Revolving Credit Note”), whereby the Original Borrowers promised
to pay to the order of the Lender, on or before September 30, 2005, the
Prior Revolving Credit Loans, together with interest as set forth in the
Original Loan Agreement;

 

K-1

 

C.                                     To
evidence the Prior Term Loan, the Borrowers executed a certain Amended and
Restated Term Note dated October 3, 2003 (the “Original Term Note”),
whereby the Original Borrowers promised to pay to the order of the Lender, on
or before September 3, 2008, the Prior Term Loan, together with interest
as set forth in the Original Loan Agreement;

 

D.                                    To
evidence the Octagon Interim Term Loan, the Borrowers executed a certain
Interim Term Note dated October 3, 2003 (the “Octagon Interim Term Note”
and, collectively with the Original Revolving Credit Note and the Original Term
Note, the “Original Notes”), whereby the Original Borrowers promised to pay to
the order of the Lender, on or before October 17, 2003, the Octagon
Interim Term Loan, together with interest as set forth in the Original Loan
Agreement.  The Original Borrowers have
heretofore paid in full the Octagon Interim Term Note;

 

E.                                      To
secure the Original Loan Agreement and the Original Notes, the Lender and each Original
Borrower entered into (i) a separate Borrower Security Agreement or Amended and
Restated Borrower Security Agreement, as applicable, dated as of October 3,
2003 (individually, an “Original Borrower Security Agreement” and collectively,
the “Original Borrower Security Agreements”) and (ii) a separate Security
Agreement Re: Patents, Trademarks and Copyrights or Amended and Restated
Security Agreement Re: Patents, Trademarks and Copyrights, as applicable, dated
as of October 3, 2003 (individually, an “Original Intellectual Property
Security Agreement” and collectively, the “Original Intellectual Property
Security Agreements”);

 

F.                                      To
further secure the Original Loan Agreement and the Original Notes, the Lender,
on the one hand, and the Company, the Guarantor or CMI, on the other hand,
entered into nine certain Stock Pledge Agreements or Amended and Restated Stock
Pledge Agreements, as applicable, dated as of October 3, 2003
(individually, an “Original Stock Pledge Agreement” and collectively, the “Original
Stock Pledge Agreements”), pursuant to which the Guarantor, the Company and
CMI, as applicable, pledged and assigned to the Lender all of the shares of
capital stock of the Company, CMI, CVI, CMIMC, CHSI, CIDSI, CDSC, Barron Risk
and Octagon;

 

G.                                     To
further secure the Original Loan Agreement and the Original Notes, the Lender
and CMI entered into two certain Amended and Restated Assignments of Life
Insurance Policies dated as of October 3, 2003 (collectively, the “Original
Assignment of Life Insurance Policies”), pursuant to which CMI assigned to the
Lender certain life insurance policies;

 

H.                                    To
further secure the Original Loan Agreement and the Original Notes, the Lender
and CMI entered into a certain Amended and Restated Collateral Assignment of
Leasehold Interest dated as of October 3, 2003, pursuant to which CMI
assigned to the Lender all of its right, title and interest in, to and under
the lease of CMI’s corporate headquarters facility located in Dublin, Ohio (the
“Original Assignment of Leasehold Interest”);

 

I.                                         In
consideration of the Lender entering into the Original Loan Agreement, the
Guarantor agreed, by a certain Amended and Restated Unconditional Guaranty
Agreement dated as of October 3, 2003 (the “Original Guaranty”), to
unconditionally guaranty the repayment of the Prior Revolving Credit Loans, the
Prior Term Loan and the Octagon Interim Term Loan;

 

K-2

 

J.                                        To
secure the Original Loan Agreement and the Original Notes and the Guarantor’s
obligations under the Original Guaranty, the Lender and the Guarantor entered
into a certain Amended and Restated Guarantor Security Agreement dated as of October 3,
2003 (the “Original Guarantor Security Agreement”);

 

K.                                    Pursuant
to a certain Certificate of Merger of WC Holdings, Inc. into Health Power, Inc.
dated as of November 21, 2003 filed with the Delaware Secretary of State
on December 2, 2003, the Guarantor merged with and into the Company and
the Company’s name was changed to “WC Holdings, Inc.”;

 

L.                                      Pursuant
to a certain First Amendment to Amended and Restated Loan Agreement dated as of
July 22, 2004 among the Original Borrowers and the Lender (the “First
Amendment to Original Loan Agreement”), the Original Borrowers and the Lender
amended the Original Loan Agreement to, among other things, (i) decrease the
Applicable Margin for Eurodollar Rate portions of the Prior Term Loan; (ii)
amend Section 8.4 of the Original Loan Agreement to require the Company to
provide audited annual consolidated financial statements, (iii) amend Section 9.13
of the Original Loan Agreement to increase the dollar amount of the capital
expenditures permitted to made during Fiscal Year 2004 and (iv) make certain
other modifications to the provisions of the Original Loan Agreement;

 

M.                                 Pursuant
to a certain Second Amendment to Amended and Restated Loan Agreement dated as
of March 1, 2005 among the Original Borrowers and Lender (the “Second Amendment
to Original Loan Agreement”), the Original Borrower and the Lender amended the
Original Loan Agreement to, among other things, (i) provide for a one-time
waiver by the Lender of certain covenant violations by the Original Borrowers,
(ii) require that certain subsidiaries of the Company become co-borrowers under
the Original Loan Agreement and (iii) make certain other modifications to the
provisions of the Original Loan Agreement;

 

N.                                    The
Lender is still the holder and beneficiary of the Original Loan Agreement, Original
Revolving Credit Note, Original Term Note, Original Borrower Security
Agreements, Original Intellectual Property Security Agreements, Original Stock
Pledge Agreements, Original Assignments of Life Insurance Policies and Original
Assignment of Leasehold Interest (such documents, as amended by the First
Amendment to Original Loan Agreement and the Second Amendment to the Original
Loan Agreement, together with all other documents related thereto, are
hereinafter collectively referred to as the “Original Loan Documents”);

 

O.                                    Octagon
and Continental Casualty Company, an Illinois corporation (“Seller”), entered
into a certain Stock Purchase Agreement dated as of March 17, 2005 (the “Caronia
Purchase Agreement”), pursuant to which Octagon agreed to purchase from Seller
all of the outstanding shares of capital stock of Caronia (the “Caronia Shares”)
and MCHC (the “MCHC Shares” and, together with the Caronia Shares, the “Acquired
Shares”) for an aggregate cash purchase price of $16,000,000, subject to the
post-closing adjustments set forth in Section 2.4 of the Caronia Purchase
Agreement (the “Caronia Purchase Price”);

 

P.                                      The
parties hereto desire to amend and restate the Original Loan Documents in order
to, among other things:  (i) evidence the
Lender’s consent to Octagon’s acquisition of the Acquired

 

K-3

 

Shares and the
consummation of the other transactions contemplated by the Caronia Purchase
Agreement (the “Caronia Acquisition”); (ii) cause Caronia, MCHC, KRAMMCO and
ICSI to become additional co-borrowers under the Original Loan Documents, as
amended and restated hereby (collectively, the “Additional Borrowers”); (iii) increase
the principal amount of the Prior Term Loan to $40,500,000; (iv) extend the
respective maturity dates of the Original Revolving Credit Note and the
Original Term Note; (v) provide for certain additional security for the Loans
(defined below); (vi) modify various provisions of the Original Loan Documents;
and (vii) make certain other changes thereto in order to reflect the agreement
of the parties set forth in this Agreement; and

 

Q.                                    In
order to evidence the agreement of the parties and to reflect the terms and
conditions of this Agreement, the parties shall execute and deliver this
Agreement and the agreements, documents and instruments contemplated hereby.

 

Agreement

 

NOW
THEREFORE, the Borrowers and the Lender hereby agree as hereinafter set forth.

 

ARTICLE 1.  AGREEMENT OF THE PARTIES

 

1.1                               Restatement
of Obligations.  The parties hereto acknowledge and agree that
this Agreement (i) amends and restates the existing obligations of the Original
Borrowers under the Original Loan Agreement, as amended, (ii) is a
continuation of the borrowings evidenced by the Original Loan Agreement, as
amended, (iii) is not intended to be a novation of the Original Revolving
Credit Note or the Original Term Note or the obligations evidenced thereby, and
(iv) is in substitution of and supersedes the Original Loan Agreement, as
amended.  The Borrowers, jointly and
severally, covenant that they will perform and observe all covenants,
agreements, stipulations and conditions on their part to be performed under the
Original Loan Documents, as amended, restated and modified hereby, and the
Exhibits hereto.

 

1.2                               Balances
of Loans.

 

(a)                                  The
parties hereby acknowledge and agree that the outstanding principal balance of
the Original Revolving Credit Note as of March 31, 2005 (prior to the
making of any additional Loans to finance the Caronia Acquisition) was $0 and
that all accrued interest on the outstanding principal balance thereof has been
paid through March 1, 2005.

 

(b)                                 The
parties hereby acknowledge and agree that the outstanding principal balance of
the Original Term Note as of March 31, 2005 (prior to the making of any
additional Loans to finance the Caronia Acquisition) was $23,451,512.22 and
that all accrued interest on the outstanding principal balance thereof has been
paid through March 1, 2005.

 

1.3                               Compliance
with Original Loan Documents.  The Borrowers that are parties to the
Original Loan Documents hereby, jointly and severally, represent and warrant
that they are in

 

K-4

 

full
compliance with all terms, conditions, covenants, agreements, stipulations,
representations and warranties under the Original Loan Documents, and they
hereby, jointly and severally, reaffirm the same as of the date hereof.

 

1.4                               Continuation
of Original Loan Documents.  Except as specifically modified herein and in
the Exhibits hereto, the Original Loan Documents, as amended, restated and
modified hereby, shall remain in full force and effect in all respects
according to their terms, covenants and conditions as security for the unpaid
balance of the indebtedness and interest thereon evidenced by this Agreement
and the Notes, as if the unpaid balance of the principal, with the interest
accrued thereon, had originally been payable as provided for herein.  Except as specifically set forth herein and
in the Exhibits hereto, nothing in this Agreement shall affect or impair any
rights and powers that the Lender may have thereunder.

 

1.5                               Termination
of Original Assignment of Life Insurance Policies.  Effective as of the date hereof, the Original
Assignment of Life Insurance Policies shall be and hereby is terminated and
rendered of no further force and effect.

 

ARTICLE 2. 
REVOLVING CREDIT LOANS

 

2.1                               Revolving
Credit Commitment.  The Lender hereby agrees, on the terms and
conditions of this Agreement, to lend to the Borrowers the maximum sum of Eight
Million Dollars ($8,000,000) (the “Revolving Credit Commitment”).  The Revolving Credit Commitment shall be
available to the Borrowers, subject to the limitations herein, in whole or part
and from time to time until March 31, 2007, and any amounts borrowed may
be repaid in whole or in part and reborrowed until such date.  Each borrowing under the Revolving Credit
Commitment shall be made in accordance with the provisions of this Section 2.1,
and shall be subject to the conditions of Article 5 hereof, and shall be
in the initial principal amount of $100,000 or any integral multiple of
$100,000 (a “Revolving Credit Loan”).

 

Each
Revolving Credit Loan to be made in accordance with the provisions of this Section 2.1
shall, at the election of the Borrowers, be made either in the form of (i) a
Variable Rate Loan (individually, a “Variable Rate Loan” and collectively, the “Variable
Rate Loans”) or (ii) a Eurodollar Rate Loan (individually, a “Eurodollar
Rate Loan” and collectively, the “Eurodollar Rate Loans”); provided, however,
that the Borrowers shall not be permitted to have outstanding at any time more
than a total of eight (8) Eurodollar Rate Loans and Eurodollar Rate Portions of
the Term Loan, except as otherwise permitted by the Lender in its sole
discretion.  Notwithstanding the
foregoing, each Eurodollar Rate Loan shall be in the initial principal amount
of $1,000,000 or any integral multiple of $100,000.  The aggregate unpaid principal amount of the
Variable Rate Loans and the Eurodollar Rate Loans at any one time outstanding
shall not exceed the Revolving Credit Commitment.

 

Each
Revolving Credit Loan shall be made pursuant to the request of the Borrowers to
the Lender which request for a Revolving Credit Loan shall specify (i) the
total amount of the Revolving Credit Loan; (ii) the borrowing date (the “Borrowing
Date”), which shall be a Business Day in the case of a Variable Rate Loan and a
Eurodollar Banking Day in the case of a Eurodollar Rate Loan; and (iii) whether
the Revolving Credit Loan is to be a Variable Rate Loan or a

 

K-5

 

Eurodollar Rate Loan (and
in the case of a Eurodollar Rate Loan, the length of the Interest Period).  Requests for Variable Rate Loans may be made
on the applicable Borrowing Date. 
Requests for Eurodollar Rate Loans shall be made at least three (3)
Eurodollar Banking Days prior to the applicable Borrowing Date.

 

In the
case of a request for a Eurodollar Rate Loan, the Lender shall not later than
11:00 a.m., Columbus, Ohio time two (2) Eurodollar Banking Days prior to
the Borrowing Date, give notice to the Borrowers of the Adjusted Eurodollar
Rate (including information as to the calculation thereof) applicable for the
period requested by the Borrowers.  The
Borrowers shall not later than 11:00 a.m., Columbus, Ohio time one (1)
Eurodollar Banking Day prior to the Borrowing Date, give notice by telephone
confirmed in writing to the Lender whether they wish (i) to complete such
borrowing in the form of a Eurodollar Rate Loan; (ii) to complete such
borrowing as a Variable Rate Loan; or (iii) to cancel their request for a
Revolving Credit Loan.  Failure by the
Borrowers to timely deliver such notice shall constitute cancellation of such
request.

 

Notwithstanding
any other provision of this Agreement to the contrary, the parties understand
and agree that if and to the extent the Borrowers participate in Lender’s cash
management program, Revolving Credit Loans shall be automatically disbursed and
repaid on a daily basis based on the cash deposits and disbursements in the Borrowers’
accounts with the Lender.

 

2.2                               Conversion
Options.  The Borrowers may elect from time to time to
convert $1,000,000 or any amount in excess thereof in any integral multiple of
$100,000 of the Variable Rate Loans then outstanding to Eurodollar Rate Loans
by giving the Lender irrevocable telephone notice of such election as provided
in this Section 2.2.  Each
Eurodollar Rate Loan shall automatically convert to a Variable Rate Loan upon
its maturity unless the Borrowers elect to continue such Loan as a Eurodollar
Rate Loan by giving the Lender irrevocable telephone notice of such election as
provided in this Section 2.2.  Any
such notice pursuant to this Section 2.2 shall be received by the Lender
at least three (3) Eurodollar Banking Days prior to the proposed conversion
date, which shall be a Eurodollar Banking Day, and shall specify (i) the
conversion date and (ii) the length of the Interest Period.  If no Event of Default then exists, such
conversion shall be made on the requested conversion date.

 

2.3                               Revolving
Credit Note.  The Revolving Credit Commitment shall be
evidenced by a master amended and restated promissory note (the “Revolving
Credit Note”) of the Borrowers executed by duly authorized officers thereof,
which shall be in the form of Exhibit A attached hereto.  Each Revolving Credit Loan made by the Lender
and each payment made on account of principal on the Revolving Credit Note
shall be recorded by the Lender; provided, however, that the failure of the
Lender to make such notation shall not limit or otherwise affect the
obligations of the Borrowers under the Revolving Credit Note or this
Agreement.  The Revolving Credit Note
shall amend and restate, and be in substitution for, the Original Revolving
Credit Note and shall include the following terms:

 

(a)                                  Term.  The Revolving Credit Note shall be dated as
of the date of this Agreement and shall be due and payable in full on or before
March 31, 2007.

 

K-6

 

(b)                                  Interest
Rate on Variable Rate Loans. 
From its date, each Variable Rate Loan shall bear interest (computed on
the basis of the actual number of days elapsed over a Business Year) on the
unpaid principal balance at a fluctuating rate per annum equal to the Prime
Rate plus the Applicable Margin (as determined in accordance with Section 2.3(d)(iv),
below).  Any change in the interest rate
due to a change in the Prime Rate shall be effective immediately upon and after
the date of each such change in the Prime Rate.

 

Interest on the Variable Rate Loans shall be payable
monthly on the first day of each calendar month (each an “Interest Payment Date”),
commencing on the first day of the month following the initial disbursement of
the initial Revolving Credit Loan.

 

(c)                                  Interest
Rate on Eurodollar Rate Loans. 
From its date, each Eurodollar Rate Loan shall bear interest during the
period from the date thereof until and including the maturity date thereof at a
rate per annum equal to the Adjusted Eurodollar Rate plus the Applicable Margin
(as determined in accordance with Section 2.3(d)(i), below).  The Borrowers shall be obligated to pay with
respect to each Eurodollar Rate Loan such additional amounts as shall be
determined pursuant to Section 2.6 hereof.

 

Interest on each Eurodollar Rate Loan shall be payable
(i) with respect to Eurodollar Rate Loans having an Interest Period of 30, 60
or 90 days, on the expiration of such Interest Period, and (ii) with
respect to Eurodollar Rate Loans having a maturity of 180 or 360 days, on the
first day of each March, June, September and December that such
Eurodollar Rate Loan is outstanding and upon expiration of such Interest
Period.  Interest on all Eurodollar Rate
Loans shall be calculated on the basis of the actual number of days elapsed
over a Business Year.

 

(d)                                  Applicable
Margin.  For purposes of Sections
2.3 and 3.2 hereof, the “Applicable Margin” shall be determined as follows:

 

(i)                                     The
Applicable Margin for Eurodollar Rate Loans shall be two percent (2.00%);

 

(ii)                                  The
Applicable Margin for Eurodollar Rate Portions of the Term Loan shall be two
and one-half percent (2.50%);

 

(iii)                               The Applicable Margin
for purposes of the Variable Term Rate applicable to the Variable Rate Portion
of the Term Loan shall be zero percent (0.0%); and

 

(iv)                              The
Applicable Margin for Variable Rate Loans shall be negative one-half percent (-.50%).

 

(e)                                  Optional
Repayments.  Outstanding
Revolving Credit Loans may be repaid in whole or in part at any time, without
premium or penalty, in principal amounts not less than the minimum Revolving
Credit Loan for any borrowing under Section 2.1, or any larger amount
permitted thereunder, by tender of payment and delivery of written, telegraphic
or oral notice of payment to the Lender not later than 1:30 p.m., Columbus,
Ohio

 

K-7

 

time,
on the Business Day on which such repayment is to be made.  Payments received after 1:30 p.m. shall be
deemed tendered on the following Business Day. 
Interest accrued to the date of payment shall be due and payable on the
next following Interest Payment Date unless the Revolving Credit Note is paid
in full, in which event, accrued interest shall become due and payable on the
payment date.

 

2.4                               Cancellation
and Reduction of Revolving Credit Commitment. 
The Borrowers shall be entitled to permanently reduce or cancel the
Revolving Credit Commitment from time to time upon ten (10) days’ prior written
notice to the Lender.  In the event of
cancellation of the Revolving Credit Commitment, the principal amount of the
Revolving Credit Note shall be paid in full, together with all accrued interest
thereon, any unpaid Commitment Fee accrued to the date of cancellation, and all
other amounts owing to the Lender by the Borrowers hereunder with respect to
any Revolving Credit Loans.  In the event
of the permanent reduction of the Revolving Credit Commitment to a level which
is less than the then outstanding principal amount of the Revolving Credit
Note, the Revolving Credit Note shall be prepaid at the time of such reduction
in an amount equal to the then excess of the Revolving Credit Note over the
Revolving Credit Commitment as so reduced. 
Accrued interest on the principal amount of the Revolving Credit Note
repaid shall be included in the interest due and payable on the next Interest
Payment Date.

 

2.5                               Use
of Funds.  Revolving Credit Loans shall be used for the
working capital requirements of the Borrowers and may be used to pay a portion
of the Caronia Purchase Price (including, without limitation, any post-closing
adjustment payments that may be required under Section 2.4 of the Caronia
Purchase Agreement) and the Related Transaction Expenses.

 

2.6                               Additional
Provisions and Limitations Relating to Eurodollar Rate Loans. 
The additional provisions and limitations set forth below shall apply
with respect to Eurodollar Rate Loans:

 

(a)                                  In
the event the Lender shall incur any loss, cost or reasonable expense
(including, without limitation, any loss, cost or reasonable expense incurred
by reason of the liquidation or reemployment of deposits or other funds
acquired or contracted to be acquired by the Lender to fund or maintain or the
relending or reinvesting of such deposits or other funds or amounts paid or
prepaid to the Lender) as a result (i) of any payment or prepayment of a
Eurodollar Rate Loan on a date other than the last day of the then applicable
Interest Period for such Eurodollar Rate Loan for any reason or (ii) any
failure by the Borrowers to borrow funds as a Eurodollar Rate Loan after they
have given a notice of election with respect thereto for any reason, whether
before or after default, and whether or not such payment is required by any
provisions of this Agreement; then, within three (3) days after receipt of the
written demand of the Lender, the Borrowers shall pay to the Lender such amount
as will reimburse the Lender for such loss, cost or expense.  If the Lender requests such a reimbursement,
it shall provide to the Borrowers at the time of demand a certificate setting
forth the computation of the loss, cost or expense giving rise to the request
for reimbursement in reasonable detail and such certificate shall be conclusive
if reasonably determined, absent manifest error.

 

K-8

 

(b)                                 If
the Lender shall, in good faith, determine that it is unable to reasonably
ascertain the Eurodollar Rate or to acquire Eurodollar deposits on reasonable
terms in an amount sufficient to meet a request for a Eurodollar Rate Loan, the
Lender shall promptly notify the Borrowers. 
In such event, the Borrowers may request a Variable Rate Loan of like
amount without regard to the notice requirement of Section 2.1 or may
cancel such request.

 

(c)                                  The
obligation of the Lender to make Eurodollar Rate Loans hereunder shall be
suspended in the event that any change in any law or regulation or in any
interpretation thereof by any governmental authority charged with its
administration shall, in the sole opinion of the Lender, make it unlawful for
the Lender to comply with its obligation to make or maintain any Eurodollar
Rate Loan hereunder for the duration of such illegality.  The Lender shall promptly notify the
Borrowers of such suspension, and, if and when, in the sole opinion of the
Lender, such illegality ceases to exist, such suspension shall cease and the
Lender shall promptly notify the Borrowers of the termination of such
suspension.

 

(d)                                 If
the Lender has Eurodollar Rate Loans outstanding and there shall occur any
change in applicable law, regulation or interpretation (including any request,
guideline or policy not having the force of law by any authority charged with
the administration or interpretation thereof) (i) which change directly affects
transactions in Eurodollars, (ii) which involves new or additional taxes,
reserves or deposit requirements in regard to the Eurodollar Rate Loans or
changes in the basis of taxation of payments on such Loans, or (iii) which, if
the Eurodollar Rate Loans made hereunder by the Lender were to have been matched
with Eurodollar deposits corresponding in amounts to such Eurodollar Rate Loans
and having maturity dates which are the same as such Eurodollar Rate Loans
regardless of whether or not such Eurodollar Rate Loans are in fact so matched,
increases the cost to the Lender of making or maintaining the Eurodollar Rate
Loans hereunder or reduces the amount of any payments (whether of principal,
interest or otherwise) receivable by the Lender as to any Eurodollar Rate Loans
or requires the Lender to make any payment on or calculated by reference to the
gross amount of any sum received by it as to such Eurodollar Rate Loans, then
where the amount of any such additional cost, reduction or payment is deemed
material by the Lender:

 

(i)                                     the
Lender shall promptly notify the Borrowers of the occurrence of such event;

 

(ii)                                  the
Lender shall promptly deliver to the Borrowers a certificate stating the change
which has occurred, together with the date thereof and the amount of and the
manner of calculating the increased cost on any outstanding Eurodollar Rate
Loan; and

 

(iii)                               upon receipt of such
certificate from the Lender, the Borrowers shall pay to the Lender on demand
the amount or amounts of such additional cost with respect to such outstanding
Eurodollar Rate Loan as additional compensation hereunder.

 

K-9

 

(e)                                  The
certificate of the Lender delivered to the Borrowers as to the additional
amount payable pursuant to Section 2.6(d) shall (in the absence of
manifest error in the transmission or calculation) be conclusive evidence of
the amount thereof.  The protection of
this Section 2.6(e) shall be available to the Lender regardless of any
possible contention of invalidity or inapplicability of the law, regulation or
condition which has been imposed. 
However, if the Borrowers have made a payment of any additional amounts
pursuant to Section 2.6(d) and any subsequent event occurs which reduces
the amount of the increased cost incurred by the Lender, then the Lender shall
promptly refund to the Borrowers an amount equal to such reduction in the
amount of increased cost.

 

(f)                                    In
addition to the other amounts payable hereunder, the Borrowers shall pay to the
Lender such additional amounts as shall compensate the Lender for increased
costs which the Lender, in its sole discretion, reasonably determines in good
faith to be allocable to Eurodollar Rate Loans. 
Additional amounts payable under this Section 2.6(f) shall be paid
by the Borrowers to the Lender on the maturity of the respective Eurodollar
Rate Loans, subject to receipt by the Borrowers from the Lender of a
certificate showing the amount and certifying as to the correctness thereof.

 

2.7                               Letters
of Credit.  The Lender has issued, and in the Lender’s
sole discretion may hereafter issue from time to time, certain letters of
credit (the “Letters of Credit”) for the account of one or more of the
Borrowers.  It is the intention of the
Borrowers and the Lender that the Letters of Credit become and shall be a part
of the Revolving Credit Commitment. 
Therefore, upon any draws under the Letters of Credit, the amount of any
such draw shall be treated as a Revolving Credit Loan hereunder and shall be
subject to all of the terms of this Agreement, the Revolving Credit Note and
the other Loan Documents.

 

ARTICLE 3.  TERM LOAN

 

3.1                               Term
Loan Amount.  The Lender hereby agrees on the terms and
conditions of this Agreement to lend to the Borrowers the maximum sum of Forty
Million Five Hundred Thousand Dollars and 00/100 Cents ($40,500,000) (the “Term
Loan”).

 

3.2                               Term
Note.  The Term Loan shall be evidenced by an
amended and restated promissory note of the Borrowers executed by duly
authorized officers thereof (the “Term Note”), which Term Note shall be in the
form of Exhibit B attached hereto with blanks appropriately
completed.  The Term Note shall amend and
restate, and be in substitution for, the Original Term Note and shall include
the following terms:

 

(a)                                  Term.  The Term Note shall be dated as of the date
of its execution and delivery by the Borrowers and shall be due and payable in
full on or before March 31, 2010.

 

(b)                                  Variable
Rate Portions.  The unpaid
principal balance of the Term Note, other than the Eurodollar Rate Portions
thereof, shall bear interest (computed on the basis of the actual number of
days elapsed over a Business Year) at a fluctuating rate per annum equal to the
Prime Rate plus the Applicable Margin (as determined in accordance with

 

K-10

 

Section 2.3(d)(iii),
above) (the “Variable Term Rate”).  The
portion of the indebtedness evidenced by the Term Note that bears interest at
the Variable Term Rate is referred to herein as the “Variable Rate Portion.”  Any change in the interest rate due to a
change in the Prime Rate shall be effective immediately from and after the date
of each such change in the Prime Rate.

 

(c)                                  Eurodollar
Rate Portions.  The Borrowers may
elect from time to time to have portions of the principal indebtedness
evidenced by the Term Note (each a “Eurodollar Rate Portion”) bear interest at
a rate per annum equal to the Adjusted Eurodollar Rate plus the Applicable
Margin (as determined in accordance with Section 2.3(d)(ii), above) (the “Adjusted
Eurodollar Term Rate”) by providing a request therefor to the Lender not less
than three (3) Eurodollar Banking Days prior to the applicable Effective Date
for each such Eurodollar Rate Portion, which request shall specify:
(i) the total amount of the Eurodollar Rate Portion; (ii) the effective
date of the applicable Adjusted Eurodollar Term Rate (the “Effective Date”),
which shall be a Eurodollar Banking Day, and (iii) the length of the applicable
Interest Period.  The Lender shall not
later than 11:00 a.m., Columbus, Ohio time, two (2) Eurodollar Banking Days
prior to the Effective Date for such Eurodollar Rate Portion, give notice to
the Borrowers of the applicable Adjusted Eurodollar Term Rate (including
information as to the calculation thereof) applicable for the period requested
by the Borrowers.  The Borrowers shall
not later than 11:00 a.m., Columbus, Ohio time, one (1) Eurodollar Banking Day
prior to the Effective Date of each Eurodollar Rate Portion give notice by
telephone to the Lender as to whether or not they wish to elect to have such
Eurodollar Rate Portion bear interest at the applicable Adjusted Eurodollar
Term Rate commencing as of the applicable Effective Date.  In the event the Borrowers elect not to have
such Eurodollar Rate Portion bear interest at the applicable Adjusted
Eurodollar Term Rate or fail to timely deliver such notice of election, such
Eurodollar Rate Portion shall continue to bear interest at the Variable Term
Rate until the Borrowers elect otherwise in accordance with provisions of this
paragraph.  Upon the expiration of the
Interest Period applicable to each Eurodollar Rate Portion, such Eurodollar
Rate Portion shall, unless the Borrowers have otherwise elected in accordance
with the provisions of this paragraph, bear interest at the Variable Term
Rate.  Each Eurodollar Rate Portion shall
be in the initial amount of $1,000,000 or any integral multiple of
$100,000.  Each election to have a
Eurodollar Rate Portion bear interest at the Adjusted Eurodollar Term Rate
shall be recorded by the Lender; provided, however, that the failure of the Lender
to make such recordation shall not limit or otherwise affect the obligations of
the Borrowers under the Term Note.  Each
Eurodollar Rate Portion shall bear interest during the Interest Period selected
therefor at a rate per annum equal to the Adjusted Eurodollar Rate plus the
Applicable Margin.  The Borrowers shall
be obligated to pay with respect to each Eurodollar Rate Portion such
additional amounts as shall be determined pursuant to Section 3.4 hereof.

 

(d)                                  Interest
Payment Dates.

 

(i)                                    Variable
Rate Portion.  Interest on the
Variable Rate Portion shall be payable monthly on each Interest Payment Date,
commencing on the first Interest Payment Date following the date of issuance of
the Term Note.

 

K-11

 

(ii)                                Eurodollar
Rate Portions.  Interest on each
Eurodollar Rate Portion shall be payable (i) with respect to Eurodollar Rate
Portions having an Interest Period of 30, 60 or 90 days, on the expiration of
such Interest Period, and (ii) with respect to Eurodollar Rate Portions having
an Interest Period of 180 or 360 days, on the first day of each March, June, September and
December during such Interest Period and upon expiration of such Interest
Period.  Interest on all Eurodollar Rate
Portions shall be calculated on the basis of the actual number of days elapsed
over a Business Year.

 

(e)                                  Principal
Payments.  Principal payments on
the Term Note shall be due and payable as follows:  (i) fifty-nine (59) equal consecutive monthly
installments in the amount of $675,000 each shall be due and payable commencing
on May 1, 2005 and continuing on each Interest Payment Date thereafter to
and including March 1, 2010; and (ii) one final payment in the amount
of the unpaid principal balance of the Term Note and accrued, unpaid interest
thereon shall be due and payable on March 31, 2010.

 

3.3                               Optional
Prepayments.  The outstanding principal balance of the Term
Note may be prepaid in whole or in part at any time, without premium or
penalty, in principal amounts not less than the minimum Eurodollar Rate Portion
for any borrowing under Section 3.2(c) (provided that prepayments of the
Variable Term Rate Portion may be made in the amount of $100,000 or more), or
any larger amount permitted thereunder, by tender of payment and delivery of
written, telegraphic or oral notice of payment to the Lender not later than
1:30 p.m., Columbus, Ohio time, on the Business Day on which such prepayment is
to be made.  Payments received after 1:30
p.m. shall be deemed tendered on the following Business Day.  Any prepayments shall be applied against
scheduled principal payments in the inverse order of their due date.  Interest accrued to the date of payment shall
be due and payable on the next following Interest Payment Date unless the Term
Note is paid in full, in which event, accrued interest shall become due and
payable on the payment date.

 

3.4                               Additional
Provisions and Limitations Relating to Eurodollar Rate Portions. 
The additional provisions and limitations set forth below shall apply to
Eurodollar Rate Portions:

 

(a)                                  If
the Lender shall, in good faith, determine that it is unable to reasonably
ascertain the Adjusted Eurodollar Term Rate for a particular Eurodollar Rate
Portion or to acquire Eurodollar deposits on reasonable terms in an amount
sufficient to meet a request for a portion of the total indebtedness evidenced
by the Term Note to bear interest at the Adjusted Eurodollar Term Rate, the
Lender shall promptly notify the Borrowers. 
In such event, such Eurodollar Rate Portion shall bear interest at the
Variable Term Rate.

 

(b)                                 The
provisions of Sections 2.6(a) and 2.6(c) through (f), inclusive, shall be
applicable to each Eurodollar Rate Portion to the same extent as if such
provisions were restated in full in this Section 3.4(b) with the terms “Eurodollar
Rate Loan(s)” and “Variable Rate Loan” replaced each time they appear therein
with the terms “Eurodollar Rate Portion(s)” and “Variable Rate Portion”,
respectively.

 

K-12

 

3.5                               Mandatory
Prepayments.

 

(a)                                  If
Seller pays Octagon any amount in excess of $500,000 pursuant to its
indemnification obligations under Article X of the Caronia Purchase
Agreement and such payment relates to an indemnification claim based upon Seller’s
failure to deliver good title to the Acquired Shares or any other assets
purchased from Seller by Octagon pursuant to the provisions of the Caronia
Purchase Agreement, free and clear of all claims and encumbrances, or Caronia’s
failure to own and have good title to any asset, free and clear of all claims
and encumbrances, then Octagon shall pay such amount to the Lender as a
prepayment of the Term Loan within one (1) Business Day after Octagon’s receipt
of the same.

 

(b)                                 In
addition to the regularly scheduled monthly payments of interest and principal
required to be made by the Borrowers to the Lender under Section 3.2
hereof, the Borrowers shall make mandatory annual prepayments of the principal
amount of the Term Note in an aggregate amount not less than one hundred
percent (100%) of Excess Cash Flow for each Fiscal Year of the Company
occurring during the term of the Term Note, commencing with the Fiscal Year
ending December 31, 2005, until the earlier of the following: (i) the
scheduled maturity date of the Term Note; (ii) the repayment in full of the
Term Loan; or (iii) the last day of the first full Fiscal Year of the Company
occurring after the date hereof for which the ratio of the Company’s Funded
Indebtedness (including, without limitation, borrowings pursuant to this
Agreement) to EBITDA for such Fiscal Year is less than 1.00 to 1.00.  Such mandatory prepayments of principal to
the Lender shall be calculated based on the audited consolidated financial
statements of the Company for each applicable Fiscal Year of the Company.  The Borrowers shall pay the Lender the
mandatory prepayment of principal payable hereunder with respect to each Fiscal
Year of the Company on or before April 30 of the following Fiscal Year;
provided, however, that any principal prepayments made between May 1 of the
applicable Fiscal Year and April 30 of the following Fiscal Year shall be
credited toward the mandatory principal prepayment amount with respect to such
applicable Fiscal Year that is payable on or before April 30 of such
following Fiscal Year.

 

(c)                                  Any
payments under this Section 3.5 received after 1:30 p.m. shall be deemed
tendered on the following Business Day. 
Any prepayments shall be applied against scheduled principal payments in
the inverse order of their due date. 
Interest accrued to the date of payment shall be due and payable on the
next following Interest Payment Date unless the Term Note is paid in full, in
which event accrued interest shall become due and payable on the payment date.

 

ARTICLE 4. 
FEES, PAYMENTS, SETOFFS, SECURITY, DEFAULT RATE

 

4.1                               Fees.  On
the date hereof, the Borrowers shall pay to the Lender an additional facility fee
in the amount of $141,250 (the “Facility Fee”). 
The Borrowers shall also pay to the Lender an unused commitment fee (the
“Commitment Fee”) based on the daily average amount of the Revolving Credit
Commitment not drawn down in Revolving Credit Loans (the “Unused Commitment”)
for the period beginning with the date hereof and ending December 31, 2005
or on

 

K-13

 

the
sooner cancellation in full of the Revolving Credit Commitment.  The Commitment Fee shall be payable quarterly
in arrears (i) within ten (10) days after the last day of March, June, September and
December of each year commencing with the quarter ending on June 30,
2005, and (ii) within ten (10) days after the date on which the Revolving
Credit Commitment is fully terminated. 
The amount of the Commitment Fee shall be equal to one-half of one
percent (0.50%) per annum of the Unused Commitment (computed on the basis of
the actual number of days elapsed over a Business Year).

 

4.2                               Payments. 
All payments and prepayments by the Borrowers to be made in respect of
the Commitment Fee or of principal or interest on the Revolving Credit Note and
the Term Note (collectively, the “Notes”) shall become due at 1:30 p.m.,
Columbus, Ohio time on the day when due, and shall be made to the Lender in
federal funds or other immediately available lawful money of the United States
of America.  Whenever any payment to be
made hereunder shall be due other than on a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation of interest or fees hereunder.

 

4.3                               Setoffs.  Upon
the occurrence and continuance of any Event of Default, the Lender shall have
the right to set off against all obligations of each Borrower to the Lender
under this Agreement and the Notes, whether matured or unmatured, all amounts
owing to such Borrower by the Lender, whether or not then due and payable, and
all funds or property of such Borrower on deposit with or otherwise held or in
the custody of the Lender for the beneficial account of such Borrower.  Such funds shall be charged against accrued interest
on and/or principal of the Notes as the Lender may determine in its discretion.

 

4.4                               Security.

 

(a)                                  Borrower
Security Agreements and Intellectual Property Security Agreements. 
As security for the payment of the Notes and for the performance of, and
compliance with all of the terms, covenants, conditions, stipulations and
agreements contained in this Agreement, the Notes and the other Loan Documents,
the Borrowers, by separate Second Amended and Restated Borrower Security
Agreements each in the form attached hereto as Exhibit C and
incorporated herein by this reference (individually, a “Borrower Security
Agreement” and collectively, the “Borrower Security Agreements”), by separate Second
Amended and Restated Security Agreements Re: 
Patents, Trademarks and Copyrights, each in the form attached hereto as Exhibit
D and incorporated herein by this reference (individually, an “Intellectual
Property Security Agreement” and collectively, the “Intellectual Property
Security Agreements”), and by other instruments contemplated thereby, shall, as
provided in the Borrower Security Agreements and the Intellectual Property
Security Agreements, assign and grant to the Lender a first perfected security
interest in all the collateral described in the Borrower Security Agreements
and the Intellectual Property Security Agreements.  Notwithstanding the foregoing, the Borrower
Security Agreement and Intellectual Property Security Agreement executed by the
Additional Borrowers shall be modified as appropriate to reflect that such
agreements do not amend or restate any prior agreements.

 

K-14

 

(b)                                  Stock
Pledge Agreements.  As security
for the payment of the Notes and for the performance of, and compliance with
all of the terms, covenants, conditions, stipulations and agreements contained
in this Agreement, the Notes and the other Loan Documents, the relevant
Borrowers, by separate Second Amended and Restated Stock Pledge Agreements each
in the form attached hereto as Exhibit E and incorporated herein by this
reference (individually, a “Stock Pledge Agreement” and collectively, the “Stock
Pledge Agreements”) and by other instruments contemplated thereby, shall, as
provided in the Stock Pledge Agreements, grant to the Lender a security
interest in all of the shares of capital stock of each of the Company’s
Subsidiaries owned by the respective Borrower (including, without limitation,
CMI, CHSI, CIDSI, CMIMC, CVI, CDSC, Barron Risk, Octagon, Caronia, MCHC,
KRAMMCO and ICSI) and pledge and assign to the Lender all of the stock
certificates evidencing such shares. 
Notwithstanding the foregoing, the Stock Pledge Agreement relating to
the shares of capital stock of the Additional Borrowers shall be modified as
appropriate to reflect that it does not amend or restate any prior agreement.

 

(c)                                  Collateral
Assignment of Leasehold Interest. 
As security for the payment of the Notes and for the performance of, and
compliance with all of the terms, covenants, conditions, stipulations and
agreements contained in this Agreement, the Notes and the other Loan Documents,
CMI, by a second Amended and Restated Collateral Assignment of Leasehold
Interest in the form attached hereto as Exhibit F and incorporated
herein by this reference (the “Assignment of Leasehold Interest”) and by other
instruments contemplated thereby, shall, as provided in the Assignment of
Leasehold Interest assign and grant to the Lender all of CMI’s right, title and
interest in, to and under the Dublin Lease.

 

4.5                               Default
Rate.  Overdue principal and, to the extent
permitted by law, overdue interest in respect of any Loan shall bear interest
at a rate equal to the sum of the rate otherwise applicable to such Loan
pursuant to Section 2.3 or Section 3.2 hereof plus 3% per annum (the “Default
Rate”).  The application of this
paragraph shall not constitute a waiver of any Event of Default or an agreement
by the Lender to permit any later payments whatsoever.

 

ARTICLE 5. 
CONDITIONS OF BORROWING

 

The
obligation of the Lender to make the Loans to the Borrowers provided for
hereunder shall be subject to the following conditions:

 

5.1                               Conditions
Precedent to the Term Loan and the Initial Revolving Credit Loan.

 

(a)                                  Prior
to the disbursement of the undisbursed portion of the Term Loan, and the initial
Revolving Credit Loan hereunder, the Borrowers shall furnish to the Lender the
following, each dated the date required under Section 2.3(a) or 3.2(a), as
applicable, or such earlier or later date as may be acceptable to the Lender,
and in form and substance satisfactory to the Lender and counsel for the
Lender:

 

(i)                                     The
duly executed Revolving Credit Note in the form of the attached Exhibit A;

 

K-15

 

(ii)                                  The
duly executed Term Note in the form of the attached Exhibit B;

 

(iii)                               The duly executed
Borrower Security Agreements each in the form of the attached Exhibit C,
the duly executed Intellectual Property Security Agreements each in the form of
attached Exhibit D;

 

(iv)                              The
duly executed Stock Pledge Agreements each in the form of the attached Exhibit E,
together with the original stock certificates pledged thereby and stock powers
with respect thereto executed in blank;

 

(v)                                 The
duly executed Assignment of Leasehold Interest in the form of the attached Exhibit F,
together with a duly executed estoppel certificate from the landlord under the
Dublin Lease in form and substance acceptable to the Lender and its counsel
(the “Landlord Estoppel Certificate”); provided, however, that the Borrowers
shall be permitted to deliver the Landlord Estoppel Certificate at any time
prior to June 30, 2005;

 

(vi)                              [Not
used];

 

(vii)                           Evidence that the Caronia
Acquisition has been consummated in accordance with the provisions of the Caronia
Purchase Agreement, subject to payment of the initial purchase price for the Acquired
Shares upon disbursement of the undisbursed portion of the Term Loan and the
initial Revolving Credit Loan hereunder (if any);

 

(viii)                        Copies of the following
documents certified by the president or a vice president of the Company as
being true, correct and complete:

 

(A)                              The
Caronia Purchase Agreement (including all schedules and exhibits thereto and
all related agreements); and

 

(B)                                Such
other agreements, documents and instruments executed and delivered pursuant to
or in connection with the Caronia Acquisition, the Caronia Purchase Agreement
or the transactions contemplated thereby as the Lender may reasonably request;

 

(ix)                                Certified
copies of the resolutions of the board of directors of each Borrower authorizing
the execution, delivery and performance of its respective obligations under
this Agreement, the other Loan Documents and certified copies of the
resolutions of the board of directors of Octagon authorizing the execution,
delivery and performance of its obligations under the Caronia Purchase
Agreement;

 

(x)                                   Certificates
of the Secretary or an Assistant Secretary of each Borrower, which shall
certify the names of the officers of each such corporation authorized to sign
this Agreement and the Notes, the other Loan Documents or any other documents
or certificates to be delivered pursuant to this Agreement by such Borrower, as
applicable, or any of its respective officers, together with the true
signatures of such officers.  The Lender
may conclusively rely upon each such certificate until it shall receive a
further certificate of the

 

K-16

 

Secretary
or an Assistant Secretary of the applicable corporation canceling or amending
the prior certificate and submitting the signatures of the officers named in
such further certificate;

 

(xi)                                Evidence
that the Borrowers have in effect insurance and endorsements of the character and
amount described in Section 7.7 hereof;

 

(xii)                             One or more opinions of
counsel to the Borrowers addressed to the Lender opining as to the matters set
forth in Exhibit G hereto and as to such other matters as the
Lender may request and containing only such qualifications as are acceptable to
the Lender and its counsel;

 

(xiii)                          Evidence that no material
adverse change shall have occurred with respect to the credit or financial
condition of the Borrowers taken as a whole;

 

(xiv)                         (A) Pro forma projected
balance sheets of each Borrower after giving effect to the Caronia Acquisition
and each of the transactions contemplated by this Agreement, the Caronia
Purchase Agreement, and each of the other Loan Documents, copies of which pro
forma balance sheets are attached hereto as Exhibit I
(collectively, the “Pro Forma Balance Sheet”); and (B) projections of the
income and cash flows of the Borrowers for the succeeding five (5) Fiscal Years
ending on December 31, 2009, copies of which projections are attached
hereto as Exhibit J;

 

(xv)                            A
solvency certificate from the chief financial officer of the Company, on behalf
of the Borrowers, in form and substance as set forth in Exhibit K
attached hereto, which shall be addressed to the Lender, dated as of the date
hereof;

 

(xvi)                         Copies of each legal opinion
delivered in connection with the Caronia Acquisition, accompanied by a reliance
letter of counsel rendering such opinion to the effect that the Lender may rely
on such opinion (or containing such reliance language within the terms
thereof); and

 

(xvii)                      Such other opinions,
certificates, affidavits, documents and filings as the Lender may deem
reasonably necessary or appropriate.

 

(b)                                 The
Lender’s obligation hereunder to make the Term Loan and the initial Revolving
Credit Loan shall be subject to the fulfillment, to the Lender’s satisfaction
prior to the disbursement of such Loans, of the following additional
conditions:

 

(i)                                     The
Caronia Acquisition shall have been consummated in accordance with the
provisions of the Caronia Purchase Agreement, subject to payment of the initial
purchase price for the Acquired Shares upon disbursement of the undisbursed
portion of the Term Loan and the initial Revolving Credit Loan hereunder (if
any); and

 

(ii)                                  All
of the conditions to the Caronia Acquisition set forth in the Caronia Purchase
Agreement (other than payment of the Caronia Purchase Price) shall have been

 

K-17

 

satisfied
and fulfilled (and not waived by any party thereto) and the Caronia Acquisition
shall have been consummated in accordance with the provisions of the Caronia
Purchase Agreement, subject to payment of the Caronia Purchase Price upon
disbursement of the undisbursed portion of the Term Loan and the initial
Revolving Credit Loan hereunder.

 

5.2                               Conditions
Precedent to Each of the Loans.  At the time of each Revolving Credit Loan
after the initial Revolving Credit Loan hereunder and at the time of making the
Term Loan hereunder, each of the Borrowers shall be in compliance with all of
the provisions and covenants contained in this Agreement and the other Loan Documents
with which it is to comply; there shall exist no Event of Default; no event
shall exist or shall have occurred which with the lapse of time or notice or
both would constitute an Event of Default; and all of the representations and
warranties of the Borrowers under the Loan Documents shall be true and correct
in all material respects (except for those representations and warranties that
are expressly made as of an earlier date in which case such representations and
warranties shall have been true and correct, in all material respects, as of
such earlier date).

 

ARTICLE 6. 
REPRESENTATIONS AND WARRANTIES

 

The
Borrowers, jointly and severally, hereby represent and warrant to the Lender,
which representations and warranties shall survive the execution and delivery
of this Agreement and the Notes, as follows.

 

6.1                               Organization
and Authority.  Each of the Borrowers is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority to execute,
deliver and perform this Agreement and all of the documents executed in
connection with the Loans and to own and operate its properties and to carry on
its business as now conducted.  Octagon
has all requisite power and authority to execute, deliver and perform the Caronia
Purchase Agreement.  The execution,
delivery and performance of this Agreement, the Notes and the other Loan
Documents have been duly authorized by the Borrowers by all necessary corporate
actions; the execution, delivery and performance of the Caronia Purchase
Agreement have been duly authorized by Octagon by all necessary corporate
actions; there is no prohibition, either in law, in its certificate of
incorporation, articles of incorporation, bylaws, regulations or other
organizational documents, or in any order, writ, injunction or decree of any
court or arbitrator presently in effect having applicability to any Borrower or
SCC that in any way prohibits or would be violated by the execution and
performance of this Agreement, the Notes, the other Loan Documents or the Caronia
Purchase Agreement in any respect; and this Agreement, the Notes, the other
Loan Documents and the Caronia Purchase Agreement are and will be valid,
binding and enforceable obligations of the Borrowers, as applicable, except as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors’ rights generally and except to the
extent enforcement thereof may be limited by the application of general
principles of equity.  SCC owns
beneficially and of record at least eighty percent (80%) of the issued and
outstanding shares of capital stock of the Company.  The Company owns beneficially and of record
all of the issued and outstanding shares of capital stock of CMI.  CMI owns beneficially and of record all of
the issued and outstanding shares of capital stock of CHSI, CIDSI, CMIMC, CVI,
Barron Risk, Octagon KRAMMCO and ICSI. 
CVI owns beneficially and of record all of the issued and outstanding shares
of capital stock of CDSC.  As of the date
hereof, as a result

 

K-18

 

of the
completion of the Caronia Acquisition, Octagon owns or will own beneficially
and of record all of the issued and outstanding shares of capital stock of Caronia
and MCHC.  Schedule 6.1
attached hereto contains a complete and correct list of all of the Company’s
Subsidiaries and of the Company’s and its Subsidiaries’ directors and officers,
in each case after giving effect to the consummation of the Caronia
Acquisition.

 

6.2                               Qualification. 
Each of the Borrowers is duly qualified or licensed and in good standing
as a foreign corporation duly authorized to do business in each jurisdiction in
which the character of the properties owned or leased or the nature of the
activities conducted makes such qualification or licensing necessary and in
which the failure to be so qualified would have a Material Adverse Effect.

 

6.3                               Investments;
Guarantees; Liabilities.  Except as permitted in Sections 8.1, 8.3, 8.7
and 8.10 hereof, the Borrowers have made no material investments (other than
investment in themselves) in, material advances to or guarantees of the
obligations of any Person other than guarantees for the benefit of the
Lender.  As of the date hereof, except
for Indebtedness hereunder and the Tax Allocation Agreement and Indebtedness
disclosed in Schedule 8.10 attached hereto, the Borrowers do not
have any material Liabilities, direct or contingent, except for
(i) Liabilities reflected in the Balance Sheet and/or the Caronia Balance
Sheet, (ii) Liabilities incurred in the ordinary course of business since January 31,
2005, (iii) Liabilities incurred pursuant to the Caronia Purchase Agreement or
in connection therewith, and (iv) Liabilities which under GAAP are not
required to be reflected or reserved against in the Borrowers’ financial
statements (including the notes thereto), but none of which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

6.4                               Tax
Returns and Payments.  Each of the Borrowers has filed all tax
returns required by law to be filed and has paid all taxes, assessments and
other governmental charges of any material nature, either in amount or effect,
levied upon any of its properties, assets, income or franchises, other than
those not yet delinquent or those being contested in accordance with Section 7.6
hereof.  The charges, accruals and
reserves on the books of the Borrowers in respect to income taxes for all
respective fiscal periods are adequate in the opinion of the Borrowers, and the
Borrowers know of no unpaid assessment for additional income taxes for any
fiscal period or of any reasonable basis therefor.

 

6.5                               Title
to Properties; Liens.  Each of the Borrowers has good and marketable
title to all of its property and assets, in each case including, but not
limited to, the property and assets reflected as being owned by it on the
Balance Sheet and/or the Caronia Balance Sheet except such as have been
disposed of in the ordinary course of business since January 31, 2005 and
all such property and assets are free and clear of mortgages, pledges, liens,
charges or other encumbrances except such as are not prohibited by Section 8.2
hereof.  Each of the Borrowers enjoys
peaceful and undisturbed possession under the Leases and all other leases under
which it is lessee that are material to the conduct of its business and all of
the Leases and such other leases are valid, subsisting and in full force and
effect in accordance with their terms. 
None of the Leases and such other leases contains any provision
restricting incurrence of Indebtedness by any Borrower or any provision which
has a Material Adverse Effect or in the future could reasonably be expected to
have a Material Adverse Effect.

 

K-19

 

6.6                               Litigation. 
There is no court action, other proceeding or investigation pending or
threatened which questions the validity of this Agreement, the Notes, any of
the other Loan Documents or any action taken or to be taken pursuant thereto
or, except as set forth in Schedule 6.6 attached hereto which could
reasonably be expected to result, either separately or in the aggregate, in any
materially adverse change in the business, operations, affairs or condition of
the Borrowers, taken as a whole.

 

6.7                               Compliance
with Law and Other Instruments.  None of the Borrowers is in violation of, and
the execution, delivery and performance of this Agreement, the Notes, the Other
Loan Documents and the Caronia Purchase Agreement does not and will not result
in a violation of nor a conflict with or default under, any agreement,
instrument, judgment, decree, order, statute or governmental rule or regulation
applicable to any Borrower or by which any of them is bound, which now or in
the future could reasonably be expected to have a Material Adverse Effect.

 

6.8                               Financial
Statements.

 

(a)                                  The
Company has furnished to the Lender financial statements of the Company
including (i) audited consolidated balance sheets, audited consolidated
statements of income, audited consolidated statements of changes in
stockholders’ equity and audited consolidated statements of cash flows as at
and for the Fiscal Year ended December 31, 2003, (ii) unaudited
interim financial statements for the Fiscal Year ending December 31, 2004,
including, without limitation, an unaudited balance sheet of the Company as of December 31,
2005, and (iii) unaudited interim financial statements for the period
ending January 31, 2005, including, without limitation, an unaudited
consolidated interim balance sheet of the Company as of January 31, 2005
(the “Balance Sheet”).  Such financial
statements are complete and correct in all material respects, have been
prepared in accordance with GAAP and fairly present the consolidated financial
condition of the Company as at such dates and the results of operations of the
Company for the period ended on such dates. 
Since the date of such statements, no materially adverse change has
occurred in the business, operations, affairs or condition (financial or
otherwise) of the Original Borrowers, taken as a whole.

 

The
Pro Forma Balance Sheet delivered to the Lender sets forth the assets and
liabilities of the Borrowers on a pro forma consolidated and consolidating
basis after taking into account the consummation of the transactions
contemplated in this Agreement, the other Loan Documents and the Transaction
Documents as of the Closing Date.  The
Pro Forma Balance Sheet has been prepared in accordance with GAAP and fairly
presents in all material respects the assets and liabilities of the Borrowers
and their respective Subsidiaries, reflecting the consummation of the
transactions contemplated in this Agreement, the other Loan Documents and the
Transaction Documents and based on the assumptions set forth therein as of the
Closing Date.

 

(b)                                 The
Company has furnished, or caused to be furnished, to the Lender financial
statements of Caronia and MCHC including (i) unaudited balance sheets,
unaudited statements of income, unaudited statements of changes in stockholders’
equity and unaudited statements of cash flows as at and for the Fiscal Years
ended December 31, 2003 and 2004, and (ii) unaudited interim
financial statements for the period ending January 31, 2005, including,
without limitation, an

 

K-20

 

unaudited interim balance
sheet of Caronia and MCHC as of January 31, 2005 (the “Caronia Balance
Sheet”).  Such financial statements are
complete and correct in all material respects, have been prepared in accordance
with GAAP and fairly present the financial condition of Caronia and MCHC as at
such dates and the results of operations of Caronia and MCHC for the period
ended on such dates (subject to the effects of certain intercompany expense
allocations and other intercompany transactions).  Since the date of such statements, no
materially adverse change has occurred in the business, operations, affairs or
condition (financial or otherwise) of Caronia and MCHC, taken as a whole.

 

6.9                               Patents,
Trademarks and Copyrights.  Schedule 6.9 hereto lists, as of
the date of this Agreement, all patents, patent applications, trademark and
service mark registrations and applications therefor and copyright
registrations and applications therefor owned or licensed by any Borrower, and
all license agreements for the same entered into by any Borrower.  Each of the Borrowers possesses and has made
all filings with the United States Patent and Trademark Office and appropriate
state agencies to evidence in such Borrower full and complete title to all the
patents, trademarks, service marks, trade names, copyrights and licenses and
rights in respect of the foregoing which are essential to the conduct of its
business, without any known conflict with the rights of others.

 

6.10                        No
Margin Activity.  None of the Borrowers is engaged in the
business of extending or obtaining credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as is now and may from time to time
hereafter be in effect) and no part of the proceeds of any Loan shall be used
to purchase or carry any such margin stock or to extend credit to others for
the purpose of purchasing or carrying any such margin stock or to reduce or
retire any indebtedness incurred for any such purpose.  No part of the proceeds of the Loans
hereunder will be used for any purpose which violates, or which is inconsistent
with, the provisions of Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System.

 

6.11                        ERISA. 
Each Plan maintained by a Borrower and by each ERISA Affiliate complies
with all material applicable requirements of ERISA and of the Code and with all
material applicable rulings and regulations issued under the provisions of
ERISA and the Code setting forth those requirements.  Neither any Borrower nor any ERISA Affiliate
has engaged in any prohibited transaction (as defined in Section 406 of
ERISA or Section 4975 of the Code) (i) which has not been corrected within
the correction period applicable to it under Section 502(i) of ERISA or Section 4963(e)
of the Code or (ii) for which an exemption has not been obtained under Section 408
of ERISA or Section 4975 of the Code. 
As of the date hereof, neither any Borrower nor any ERISA Affiliate is a
participant in (i) any Multiemployer Plan, (ii) any other Plan which is subject
to Title IV of ERISA, or (iii) any money purchase pension plan.

 

6.12                        Adverse
Contracts; Defaults.  None of the Borrower is a party to any
agreement or instrument or subject to any charter or other corporate
restriction which could reasonably be expected to have a Material Adverse
Effect.  No Borrower is in default in any
material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument
to which it is a party which default could reasonably be expected to have a
Material Adverse Effect.

 

K-21

 

6.13                        Environmental
Laws.  No release, emission, or discharge into the
environment of hazardous substances, as defined under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, or
hazardous waste as defined under the Solid Waste Disposal Act, as amended, or
air pollutants as defined under the Clean Air Act, or toxic pollutants as
defined under the Clear Air Act, or the Toxic Substances Control Act, has
occurred or is presently occurring in excess of federally permitted releases or
reportable quantities, or other concentrations, standards or limitations under,
and which would constitute a material violation of, the foregoing laws or under
any other federal, state or local laws or regulations, in connection with any
aspect of the business of the Borrowers. 
No Borrower has any knowledge of any past or existing violations, in any
material respect, by any of them of any environmental laws, ordinances or
regulations issued by any federal, state or local governmental authority.

 

6.14                        Disclosure. 
None of the information (financial or otherwise) furnished by or on
behalf of the Borrowers to the Lender in connection with the negotiation of
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in the light of the circumstances under which such
statements were made.  All financial
projections (if any) delivered to the Lender in connection herewith have been
prepared on the basis of the assumptions stated therein.  Such projections represent the Borrowers’
good faith estimate of the Borrowers’ future financial performance and, while
there can be no assurance that the performance set forth in such projections
will approximate actual performance, such projections are believed by the
Borrowers to be fair in light of current business conditions.

 

6.15                        Insurance. 
All of the properties and operations of the Borrowers of a character
usually insured by Persons of established reputation engaged in the same or
similar businesses similarly situated are adequately insured, by financially
sound and reputable insurance companies, against loss or damage of the kinds
and in amounts customarily insured against by such Persons and each of the
Borrowers carries, with such insurers in customary amounts, such other
insurance, including public and product liability, as is usually carried by
Persons of established reputation engaged in the same or similar businesses
similarly situated.  The insurance
required by the provisions of Section 7.7 hereof and by the other Loan
Documents is in force and all premiums due and payable in respect thereof have
been paid.

 

6.16                        Events
of Default.  There does not exist any Event of Default or
Default hereunder.

 

6.17                        Solvency,
Etc.  Each
of the Borrowers and their respective Subsidiaries is solvent on a going
concern basis as of the date of this Agreement and shall not become insolvent
as a result of the consummation of the transactions contemplated by the Caronia
Purchase Agreement, this Agreement or the other Transaction Documents.  Each of the Borrowers and their respective
Subsidiaries is, and after giving effect to the transactions contemplated by
the Caronia Purchase Agreement, this Agreement and the other Transaction
Documents shall be, able to pay their debts as they become due, and the
property of each Borrower and their respective Subsidiaries now has, and after
giving effect to the transactions contemplated by the Caronia Purchase
Agreement, this Agreement and the other Transaction Documents shall have, a
fair salable value (on a going concern basis) greater than the amounts required
to pay its debts (including a reasonable estimate of the

 

K-22

 

amount of all contingent
liabilities).  Each of the Borrowers and
their respective Subsidiaries has adequate capital to carry on its business,
and after giving effect to the transactions contemplated by the Caronia
Purchase Agreement, this Agreement and the other Transaction Documents, each of
the Borrowers and their respective Subsidiaries shall have adequate capital to
conduct their business.  No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement with the intent to hinder,
delay or defraud either present or future creditors of the Borrowers or any of
their respective Subsidiaries.

 

6.18                        Projections
and Pro Forma Financial Statements.

 

(a)                                  Attached
hereto as Exhibit J are true and complete copies of the latest
projections of the consolidated income and cash flows the Borrowers for the
five (5) Fiscal Years ending through December 31, 2009.  Such projections are based on underlying
assumptions of the Borrowers which, to the knowledge of the Borrowers, provide
a reasonable basis for the projections contained therein.  Such projections have been prepared on the
basis of the assumptions set forth therein, which assumptions are, to the
knowledge of the Borrowers, fair and reasonable in light of the historical
financial performance of the Borrowers and of current and reasonably
foreseeable business conditions, as of the date hereof, and reflect the
reasonable estimate of the Borrowers, as of the date hereof, of the results of
operations and other information projected therein.

 

(b)                                 The
pro forma projected consolidated balance sheets of the Borrowers as of January 31,
2005, attached hereto as Exhibit I, are complete and correct in all
material respects and present fairly in all material respects the respective
consolidated financial conditions of the Borrowers as of such date as if the
transactions contemplated by the Caronia Purchase Agreement, this Agreement,
the other Loan Documents and the Transaction Documents had occurred immediately
prior to such date, and such balance sheets contain all pro forma adjustments
necessary in order to fairly reflect such assumption.

 

6.19                        Caronia
Purchase Agreement.

 

(a)                                  The
transactions contemplated by the Caronia Purchase Agreement have been
consummated substantially in accordance with the respective terms and
conditions thereof, except for waivers of conditions consented to by Octagon in
writing (copies of which have heretofore been delivered to the Lender).  The Caronia Purchase Agreement has not been altered
or amended or any condition thereof waived in a manner adverse to any Borrower
without its prior written consent (copies of which have heretofore been
delivered to the Lender).

 

(b)                                 To
the knowledge of the Borrowers, each of the representations and warranties made
by Seller in the Caronia Purchase Agreement on the dates referenced therein is
true and correct in all material respects.

 

6.20                        Certain
Assurances.  CHSI
is certified by the State of Ohio Bureau of Workers’ Compensation (the “OBWC”)
and similar agencies in other states where the Borrowers conduct business, and
such certifications are in full force and effect.  The OBWC Contracts are in full force

 

K-23

 

and effect and neither
the Company nor any of the other Borrowers have received any indications,
whether written or oral, of alleged breaches of, or OBWC’s intent to terminate,
or not to renew, either such contract. 
CHSI has not been notified that it is “at capacity” under either OBWC
Contract by the OBWC, nor has CHSI received indications that the OBWC is
intending, in any way, to limit, in any material manner, CHSI’s ability to
accept new enrollments under either OBWC Contract.  The Borrowers are not aware of any changes or
potential changes to the system of workers’ compensation or unemployment
insurance or the Ohio Health Partnership Plan or the Qualified Health Plan
(each as defined in the HPI Merger Agreement) that would have a Material
Adverse Effect.  The foregoing representations
and warranties under this Section 6.21 are given as of the date
hereof.  The consummation of the
transactions contemplated by the HPI Merger Agreement did not constitute a “change
in the MCO organizational structure or business operations”, as set forth in
the OBWC Contracts.

 

ARTICLE 7. 
AFFIRMATIVE COVENANTS

 

Until
payment in full of the Notes and performance of all other obligations of the
Borrowers hereunder:

 

7.1                               Bank
Deposits.  Each of the Borrowers covenants that the
Lender shall be the principal bank of account and primary depository for each
of the Borrowers.

 

7.2                               Unaudited
Financial Statements and Reports of the Company.

 

(a)                                  Not
later than thirty (30) days following the end of each calendar month after the
date hereof, the Company shall furnish to the Lender the following items in
form and substance satisfactory to the Lender:

 

(i)                                     An
unaudited consolidated and unaudited consolidating income statement (including
unaudited consolidating income statements for CMI and CHSI) for the month and
Fiscal Year to date and (subject to normal year-end adjustments) copies of the
statements for the same periods of the previous year;

 

(ii)                                  An
unaudited consolidated and unaudited consolidating balance sheet as of the end
of such month and a copy of such statement as of the end of such month in the
previous year; and

 

(iii)                               A certificate from the
chief financial officer or treasurer of the Company (A) stating, on behalf
of the Company, that:  (I) the financial
statements are complete and correct in all material respects and fairly
represent the financial position of the Company as of their respective dates
and the consolidated results of the Company’s operations for the periods then
ended (subject to normal year-end adjustments); (II) each Borrower has complied
with and is then in compliance, in all material respects, with all terms and
covenants of this Agreement (or, if there is any non-compliance, giving the
details thereof); and (III) there exists no Default or Event of Default
(or, if a Default or Event of Default exists, giving the details thereof); and
(B) setting forth in a detailed computation in a form reasonably satisfactory
to the Lender the financial status of the Company (as the end of, or,

 

K-24

 

in the
case of incurrence tests, during such accounting period) in respect of the
restrictions contained in Sections 8.12 through 8.14, inclusive; provided,
however, that the financial covenants set forth in Sections 8.13 and 8.14
hereof only need to be calculated in such certificate quarterly and the
financial covenant in Section 8.12 hereof only needs to be calculated in
such certificate annually.

 

(b)                                 Each
of the Borrowers shall promptly upon their becoming available, furnish to the
Lender one copy of (i) each financial statement, report, notice or proxy
statement sent by any Borrower to its stockholders (in their capacity as
stockholders) generally, and (ii) each report, each registration statement
and each prospectus and all amendments thereto filed by any Borrower with the
Securities and Exchange Commission and of all press releases and other
statements made available generally by any Borrower to the public concerning
developments that are material.

 

(c)                                  Not later than one hundred twenty (120) days
following the end of each Fiscal Year of the Company, commencing with the
Fiscal Year ended December 31, 2004, the Company shall furnish to the
Lender a detailed schedule, in form and substance satisfactory to the Lender,
calculating the Tax Agreement Payments for such Fiscal Year.  Such schedule shall be prepared by the
Company; provided, however, that upon the Lender’s request from time to time,
the Company, at its sole cost and expense, shall cause the independent
accounting firm auditing the Company’s consolidated financial statements, or
another national accounting firm reasonably acceptable to Lender, to review
such schedule and to determine the final Tax Agreement Payments for each
Fiscal Year.  Upon the Lender’s request
from time to time, the Borrowers shall promptly provide the Lender with such
further information and documents as the Lender shall reasonably request for
purposes of reviewing the schedule(s) prepared by the Company’s accounting firm
and determining the Tax Agreement Payments for any Fiscal Year.

 

(d)                                 In
addition, within thirty (30) days following the end of each calendar month and
forty-five (45) days following the end of each quarter of each Fiscal Year, the
Company shall furnish to the Lender a certificate from the chief financial
officer or treasurer of the Company setting forth, on behalf of the Company, a
detailed computation, in a form satisfactory to the Lender, of the Company’s
EBITA for the previous month or quarter, as applicable.

 

7.3                               Audited
Financial Statements of the Company.

 

(a)                                  Not
later than one hundred twenty (120) days following the end of each Fiscal Year
of the Company, commencing with the Fiscal Year ended December 31, 2004,
the Company shall furnish to the Lender, in form and substance satisfactory to
the Lender, complete unaudited consolidating and audited consolidated financial
statements for the Company for such Fiscal Year, accompanied by unaudited
supporting schedules with respect to each of CMI and CHSI, certified, in the
case of the audited consolidated financial statements, by Ernst & Young LLP
or another independent certified public accountant acceptable to the Lender,
accompanied by a certificate from such accountant, stating that in examining
the Company’s books and records for such period, such accountant has obtained
no knowledge of breaches of Sections 8.12, 8.13 or 8.14.

 

(b)                                 Each
of the financial statements delivered under this Section 7.3 shall be
accompanied by a certificate of the chief financial officer or treasurer of the
Company stating, on behalf of the Borrowers, that except as disclosed in the
certificate such officer has no knowledge of

 

K-25

 

a Default or an Event of
Default hereunder and setting forth in a detailed computation in form
satisfactory to the Lender of (i) the financial status of the Company (at the
end of, or, in the case of incurrence tests, during such accounting period) in
respect of the restrictions contained in Sections 8.12, 8.13 and 8.14 and (ii)
the amount of the mandatory principal prepayment (if any) payable by the
Borrowers under Section 3.5(b) hereof with respect to the prior Fiscal
Year of the Company.

 

7.4                               Inspection.  Upon request of the Lender and upon
reasonable prior notice (provided, however, that no such notice shall be
required if an Event of Default shall have occurred and be continuing), each of
the Borrowers shall make available for inspection by representatives of the
Lender any of its books and records and shall furnish to the Lender information
regarding its business affairs and financial condition within a reasonable time
after receipt of written request therefor.

 

7.5                               Insurance.

 

(a)                                  Each
of the Borrowers shall insure and maintain hazard and other insurance upon all
of its assets and business properties and liability insurance with responsible
and reputable insurers of such character and in such amounts as are usually
maintained by companies engaged in like business.  All insurance policies shall be written for
the benefit of the Borrowers and the Lender as their interests may appear and
shall contain a provision requiring the insurance company to provide the Lender
not less than thirty (30) days’ written notice prior to cancellation of any
such policy.  All insurance policies or
certificates evidencing the same shall be furnished to the Lender.

 

(b)                                 Without
limiting the foregoing provisions of this Section 7.5, the Borrowers shall
maintain the following insurance coverages:

 

(i)                                     the
Borrowers shall maintain all risk property insurance against direct physical
loss or damage on an all risks basis, including windstorm and hurricane and
comprehensive boiler and machinery coverage, subject to a maximum deductible of
$50,000.  The property shall be insured
for the full replacement cost and such policy shall contain an agreed amount
endorsement waiving any coinsurance penalty;

 

(ii)                                  at
all times on and after the date hereof, as an extension of the coverage
required under Section 8.7(b)(i), the Borrowers shall maintain business
interruption insurance with a minimum period of indemnity of six (6) months,
subject to a maximum five-day waiting period or $50,000 deductible and shall
contain an agreed amount endorsement waiving any coinsurance penalty;

 

(iii)                               the Borrowers shall
maintain commercial general liability insurance written on an occurrence basis
with a limit of not less than $1,000,000 for each occurrence and $3,000,000 in
the aggregate.  Such coverage shall
include, but not be limited to, premises/operations, blanket contractual
liability, independent contracts, broad form products and completed operations,
personal injury, fire, legal liability and employee benefits liability;

 

K-26

 

(iv)                              the
Borrowers shall maintain errors and omissions insurance with a limit of not
less than $5,000,000 in the aggregate;

 

(v)                                 the
Borrowers shall maintain workers’ compensation insurance in accordance with
statutory provisions covering accidental injury, illness or death of an
employee of any Borrower while at work or in the scope of his or her employment
with the Borrowers and employer’s liability insurance in an amount not less
than $500,000; and

 

(vi)                              the
Borrowers shall maintain automobile liability insurance covering owned,
non-owned, leased, hired or borrowed vehicles against bodily injury or property
damage.  Such coverage shall have a limit
of not less than $1,000,000.

 

7.6                               Payment
of Taxes and Claims.  Each of the Borrowers shall pay all taxes,
assessments and other governmental charges imposed upon its properties or
assets or in respect of its franchises, business, income or profits before any
penalty or interest accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or might become a lien or
charge upon any of its properties or assets, provided that (unless any material
item of property would be lost, forfeited or materially damaged as a result
thereof) no such charge or claim need be paid if the amount, applicability or
validity thereof is currently being contested in good faith and if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall have
been made therefor.

 

7.7                               Compliance
with Laws.  Each of the Borrowers shall comply in all
substantial respects with all applicable statutes, laws, ordinances and
governmental rules, regulations and orders (including, without limitation,
those promulgated by or relating to the OBWC system or the workers’
compensation system in other states in which any Borrower does business) to
which it is subject or which are applicable to its business, properties and
assets if noncompliance therewith would materially adversely affect such
business, including, but not limited to, all applicable federal, state,
regional, county or local laws, statutes, rules, regulations or ordinances
concerning public health, safety or the environment; provided that (unless such
contest or noncompliance would materially adversely affect such business) such
Borrower need not so comply if any such statute, law, ordinance, or
governmental rule, regulation or order is currently being contested in good
faith.

 

7.8                               ERISA. 
Each of the Borrowers shall furnish to Lender:  (a) promptly and in any event within
thirty (30) days after such Borrower knows or has reason to know of the
occurrence of a Reportable Event with respect to a Plan with regard to which
notice must be provided to the PBGC, a copy of such materials required to be
filed with the PBGC with respect to such Reportable Event and in each such case
a statement of the chief financial officer of such Borrower, setting forth
details as to such Reportable Event and the action which such Borrower proposes
to take with respect thereto; (b) promptly and in any event within thirty
(30) days after such Borrower knows or has reason to know of any condition
existing with respect to a Plan which presents a material risk of termination
of the Plan, imposition of an excise tax, requirement to provide security to
the Plan or incurrence of other liability by such Borrower or any ERISA
Affiliate a statement of the chief

 

K-27

 

financial officer of such
Borrower or such ERISA Affiliate describing such condition; (c) at least
thirty (30) days prior to the filing by any plan administrator of a Plan of a
notice of intent to terminate such Plan, a copy of such notice;
(d) promptly and in no event more than 10 days after the filing thereof
with the Secretary of the Treasury, a copy of any application by such Borrower or
an ERISA Affiliate for a waiver of the minimum funding standard under section 412
of the Code; (e) upon request, and in no event more than thirty (30) days
after the request therefore, copies of each annual report which is filed on
Form 5500 together with certified financial statements for the Plan (if any) as
of the end of such year and actuarial statements on Schedule B to such
form 5500; (f) promptly and in any event within thirty (30) days after it
knows or has reason to know of any event or condition which might reasonably be
expected to constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, a
statement of the chief financial officer of such Borrower describing such event
or condition; (g) promptly and in no event more than thirty (30) days
after receipt thereof by such Borrower or any ERISA Affiliate, a copy of each
notice received by such Borrower or an ERISA Affiliate concerning the
imposition of any withdrawal liability under section 4202 of ERISA; and
(h) promptly after receipt thereof a copy of any notice such Borrower or
any ERISA Affiliate may receive from the PBGC or the Internal Revenue Service
with respect to any Plan or Multiemployer Plan; provided, however, that this subsection (h)
shall not apply to notices of general application promulgated by the PBGC or
the Internal Revenue Service.

 

7.9                               Preservation
of Corporate Existence.  Each of the Borrowers shall preserve and
maintain and cause each of its subsidiaries to preserve and maintain its
corporate existence (except pursuant to a merger permitted by Section 8.4
below), rights, franchises and privileges in the jurisdiction of its
incorporation or in any other jurisdiction it shall select, and qualify and
remain qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties.

 

7.10                        Maintenance
of Tangible Assets.  Each of the Borrowers shall maintain its
tangible assets in good condition and repair and shall not permit any action or
omission which might materially impair the value thereof, normal wear and tear
excepted.

 

7.11                        Notices
of Certain Events.  Each of the Borrowers shall promptly after it
becomes aware thereof give notice to the Lender of:

 

(a)                                  Any
Default or Event of Default;

 

(b)                                 Any
default or event of default under any contractual obligation of such Borrower
that would have a Material Adverse Effect; and

 

(c)                                  Any
materially adverse change in the business, operations, affairs or condition
(financial or otherwise) of such Borrower.

 

Each notice pursuant to
this Section 7.11 shall be accompanied by a statement of the chief
executive officer or chief financial officer of the respective Borrower setting
forth details of the occurrence referred to therein and stating what action the
respective Borrower proposes to take with respect thereto.

 

K-28

 

7.12                        Records
and Books of Account.  Each of the Borrowers shall keep adequate
records and books of account in which complete entries will be made in
accordance with GAAP, reflecting all financial transactions required by GAAP to
be so reflected.

 

7.13                        Performance
of Contracts.  Each of the Borrowers shall perform and comply,
in all material respects, with, in accordance with their terms, all provisions
of each and every contract, agreement or instrument now or hereafter binding
upon it, except to the extent that it shall contest the provisions thereof in
good faith and by proper proceedings or the failure to perform could not
reasonably be expected to have a Material Adverse Effect.

 

7.14                        Notice
of Material Litigation.  Each of the Borrowers shall promptly notify
the Lender in writing of any litigation, arbitration proceeding or
administrative investigation, inquiry or other proceeding to which it may
hereafter become a party which could reasonably be expected to have a Material
Adverse Effect and which may involve any risk of any judgment or liability not
fully covered by insurance or which may otherwise result in any materially
adverse change in the business, operations, affairs or condition (financial or
otherwise) of such Borrower or which may impair, in any material respect, the
ability of such Borrower to perform its obligations under this Agreement, the
Notes or the other Loan Documents.

 

7.15                        Use of
Proceeds.  The Borrowers shall use the proceeds of the
Revolving Credit Loans as provided in Section 2.5 hereof, and the Company
shall use the proceeds of the Term Loan solely for purposes of repaying
Revolving Credit Loans and/or the Prior Term Loan and/or paying the Caronia
Purchase Price in accordance with the terms of the Caronia Purchase
Agreement.  Such uses shall be consistent
with all applicable laws.

 

7.16                        Ownership
and Control of Borrowers.

 

(a)                                  The
Company shall, at all times after the date hereof, have, direct or indirect,
beneficial and legal ownership of, and the right and power to control the
voting and transfer of, and the exercise of all other rights attributable to,
all of the voting equity securities (and securities convertible into, or
granting rights to acquire, voting equity securities) of each of the other
Borrowers.

 

(b)                                 Without
the prior written consent of the Lender, no Borrower shall cause or permit any
shares of capital stock of the Company to be transferred, sold or assigned to
any Person other than the Lender; provided, however, that any member of the
senior management or key employee of the Company that is an existing
stockholder of the Company may transfer, without the Lender’s consent, his or
her shares of the Company’s stock to members of his or her immediate family or
to trusts for their benefit or by will or operation of law and the Lender shall
not unreasonably withhold its consent to any other transfer of such shares by
any such senior management or other key employee.

 

7.17                        Compliance
with the Caronia Purchase Agreement.  The Company shall
enforce its material rights and remedies as set forth in the Caronia Purchase
Agreement, the agreements contemplated thereby and the other Transaction
Documents.  If requested by the Lender,
each of the

 

K-29

 

Borrowers and their
respective Subsidiaries shall obtain and promptly furnish to the Lender
evidence of all governmental approvals as may be required to enable the Company
and its Subsidiaries to comply with the Company’s obligations under the Caronia
Purchase Agreement and the agreements, documents and instruments related
thereto and to continue in business as conducted on the date hereof without
materials interruption or interference.

 

7.18                        Compliance
with the OBWC.  Each of the Borrowers shall comply with all
material obligations, standards and requirements of all contracts with the OBWC
or any applicable governmental agency performing a similar function in any
other jurisdiction in which any Borrower operates.

 

7.19                        Seller
Information.  At the request of the Lender, the Borrowers
shall promptly deliver to the Lender copies of any statements, reports, certificates
and any other information delivered by any Borrower or their respective
Affiliates to Seller or the equityholders of any Borrower.  In addition, the Borrowers shall keep the
Lender informed on a timely basis as to all developments and communications
with Seller regarding the determination of the adjustments to the Caronia
Purchase Price in accordance with Section 2.4 of the Caronia Purchase
Agreement.  The Borrowers shall promptly
provide the Lender with copies of all written correspondence between Seller and
any Borrower or Affiliate thereof relating to the same, together with copies of
the Preliminary Financial Statements, Final Pro Forma Balance Sheet, Final
Income Statement and Accounting Firm’s Dispute Working Papers (if any) (as such
terms are defined in the Caronia Purchase Agreement).

 

7.20                        Government
Regulation.  No Borrower shall (a) be or become
subject at any time to any law, regulation or list of any government agency
(including, without limitation, the U.S. Office of Foreign Asset Control list)
that prohibits or limits the Lender from making any advance or extension of
credit to any Borrower or from otherwise conducting business with any Borrower,
or (b) fail to provide documentary and other evidence of such Borrower’s
identity as may be requested by the Lender at any time to enable the Lender to
verify such Borrower’s identity or to comply with any applicable law or
regulation, including, without limitation, Section 326 of the USA Patriot
Act of 2001, 31 U.S.C. Section 5318.

 

ARTICLE 8.  NEGATIVE COVENANTS

 

Until
payment in full of the Notes and the performance of all other obligations of
the Borrowers hereunder, without the prior written consent of the Lender:

 

8.1                               Indebtedness. 
Each of the Borrowers shall not, nor shall any of them permit any of
their respective Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness, except for: 
(i) Indebtedness to the Lender; (ii) the Indebtedness incurred
and owed under that certain Asset Purchase Agreement dated May 12, 1999
between CHSI and Community Health Insurance Company (the “Anthem Indebtedness”);
(iii) Capitalized Lease Obligations and purchase money Indebtedness reflected
on the Balance Sheet and/or the Caronia Balance Sheet or in historical
financial statements heretofore provided to the Lender; (iv) other Capitalized
Lease Obligations and purchase money Indebtedness incurred in any Fiscal Year
commencing after the date hereof up to an aggregate amount of $350,000 per
Fiscal Year; (v) inter-company Indebtedness between or

 

K-30

 

among one or more of the
Borrowers; (vi) Indebtedness under the Tax Allocation Agreement;
(vii) Indebtedness under the Deferred Compensation Plan and accrued
incentive compensation expenses; and (viii) trade liabilities and accrued
expenses incurred in the ordinary course of business.  Except as otherwise provided, all
Indebtedness permitted to be created, incurred, assumed or suffered by the
Borrowers pursuant to this Section shall be considered (but without
duplication) Indebtedness of the Borrowers.

 

8.2                               Liens
and Other Encumbrances.  No Borrower shall create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien or other
encumbrance of any nature whatsoever on any of its property or assets whether
now owned or hereafter acquired, except: (i) liens securing the payment of
taxes and other governmental charges, either not yet due or the validity of
which is being contested in good faith by appropriate proceedings (so long as
no material item of property would be lost, forfeited or materially damaged as
a result thereof), and as to which it shall, as appropriate under GAAP, have
set aside on its books and records adequate reserves; (ii) deposits under
workers’ compensation, unemployment insurance, social security and other
similar laws or to secure the performance of bonds, tenders or contracts (other
than for the repayment of purchase price indebtedness or borrowed money) or to
secure statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds, all in the ordinary course of business;
(iii) liens and security interests in favor of the Lender;
(iv) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property, so long as its use of, or the
value of, its property subject thereto is not impaired, in any material
respect, thereby; and (v) liens securing purchase money Indebtedness and Capitalized
Leases referred to in clauses (iii) or (iv) under Section 8.1, above
provided that such liens are limited to the specific property purchased or
leased and the proceeds thereof.  All of
the foregoing liens are hereinafter referred to as “Permitted Liens.”

 

8.3                               Guaranties
and Other Contingent Liabilities.  No Borrower shall
become an indemnitor, guarantor or surety or otherwise become liable for any of
the obligations or liabilities of any Person, other than the guaranty by a
Borrower of the liabilities and obligations of other Borrowers.

 

8.4                               Fundamental
Changes.  No Borrower shall (i) enter into any
transaction of merger or consolidation or amalgamation, (ii) liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution),
(iii) convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any substantial part of its
business or assets, whether now owned or hereafter acquired, (iv) acquire
by purchase or otherwise all or substantially all of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person (other than
as part of the Caronia Acquisition), or (v) make any material change in
the nature of its business or in the methods by which it conducts business;
provided, however, that any Borrower may, without the consent of the Lender,
enter into solely with one or more other Borrowers any transaction of the types
described in clauses (i), (iii) or (iv), above, provided that all of the
Borrowers that are a party to any such transaction have a positive net worth as
determined in accordance with GAAP.

 

8.5                               Creation
of Subsidiaries.  No Borrower shall create or acquire any
Subsidiaries without the prior written consent of the Lender, which consent
shall not be unreasonably withheld, delayed or conditioned, provided that any
such Subsidiaries become co-borrowers under the Loan

 

K-31

 

Documents
and the Lender is granted first priority, perfected security interests in all
of the ownership interests in, and assets of, such Subsidiaries.

 

8.6                               Loans
or Advances.  No Borrower shall make loans or advances to
any Person (including any Subsidiary of a Borrower) other than another
Borrower, except in the ordinary course of their respective businesses.

 

8.7                               Investments.  No
Borrower shall acquire or purchase the securities of any Person other than
another Borrower; provided, however, that the Borrowers may purchase:  (i) U.S. government securities directly
or pursuant to repurchase agreements with (A) Affiliates of the Lender or
(B) other domestic banks having capital and surplus of at least
$100,000,000; (ii) certificates of deposit of (A) Affiliates of the
Lender or (B) other domestic banks having a capital and surplus of at
least $100,000,000; and (iii) commercial paper rated A-1 or P-1 or an
equivalent by Moody’s Investors Services, Inc. or Standard & Poor’s
Corporation, both of New York, New York, or their successors if all of such
investments have a maturity of one year or less.

 

8.8                               Sale
and Leaseback.  No Borrower shall enter into any agreement
with any lender or investor providing for the leasing of (i) real or
personal property which has been or is to be sold or transferred by any
Borrower to such lender or investor or (ii) other real or personal
property intended to be used for substantially the same purpose as the property
sold or transferred by any Borrower.

 

8.9                               Disposition
of Assets.  No Borrower shall dispose of any of its
assets in any transaction or series or transactions other than those disposed
of in the ordinary course of business and except in connection with the
replacement of assets sold by like assets.

 

8.10                        Transactions
with Affiliates.  Except for the execution, delivery and
performance by the applicable parties of the Tax Allocation Agreement and each
of the agreements listed on Schedule 8.10 attached hereto, no
Borrower shall:  (i) enter into any
transaction, including without limitation, the purchase, sale or exchange of
property or the rendering of any services, with any Affiliate or any officer or
director thereof, enter into, assume or suffer to exist any employment or
consulting contract with any such Affiliate, except any transaction or contract
which is in the ordinary course of its business and which is upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arms-length transaction; (ii) make any advance or loan to any Affiliate or
any director or officer thereof or to any trust of which any of the foregoing
is a beneficiary, or to any Person on the guaranty of any of the foregoing; or
(iii) pay any fees or expenses to, or reimburse or assume any obligation
for the reimbursement of any expenses incurred by, any Affiliate or any officer
or director thereof except as may be permitted in accordance with the preceding
clauses of this Section or the other Sections of this Agreement and except
for the reimbursement of reasonable expenses incurred in connection with the
provision of services by an officer, director or employee of any Borrower to
such entity, including expenses for travel, entertainment and similar items, in
accordance with the reimbursement policies of such Borrower.

 

8.11                        Sale of
Accounts.  No Borrower shall sell, assign or exchange
any of its Accounts or notes receivable with or without recourse.

 

K-32

 

8.12                        Capital
Expenditures.  The
Company shall not make Capital Expenditures, on a consolidated basis, in an
amount in excess of the amount listed in column (b) of this Section during
the period listed opposite such amount in column (a) of this Section:

 

 

	
  (a)

  Period

  	
   

  	
  (b)

  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  From January 1, 2004 through December 31,
  2004

  	
   

  	
  $

  	
  3,500,000

  	
   

  
	
  From January 1, 2005 through December 31,
  2005

  	
   

  	
  $

  	
  4,500,000

  	
   

  
	
  In Each Fiscal Year Thereafter

  	
   

  	
  $

  	
  2,500,000

  	
   

  

 

8.13                        Minimum
Fixed Charge Coverage Ratio.  The
Company shall not permit its Fixed Charge Coverage Ratio based upon the most
recent four fiscal quarters on a rolling basis to be less than 1.20 to 1.00 at December 31,
2004 or at the end of any fiscal quarter ending thereafter; provided, however,
that for purposes of calculating the Company’s Fixed Charge Coverage Ratio,
Capital Expenditures shall be limited to $2,500,000 during any four fiscal quarter
period.  In addition, the Company shall
not permit its Fixed Charge Coverage Ratio based on the quarter ending March 31,
2005, the two quarters ending June 30, 2005 and the three quarters ending September 30,
2005 to be less than 1.20 to 1.00 at March 31, 2005, June 30, 2005
and September 30, 2005, respectively; provided, however, that for purposes
of calculating the Company’s Fixed Charge Coverage Ratio, Capital Expenditures
shall be fixed at $625,000 per quarter for each of the four fiscal quarters
ending in calendar year 2005.

 

8.14                        Ratio
of Funded Indebtedness to EBITDA.  The
Company shall not permit the ratio of its Funded Indebtedness (including,
without limitation, borrowings pursuant to this Agreement) to EBITDA based upon
the most recent four fiscal quarters on a rolling basis to be greater than 2.00
to 1.00 at December 31, 2005 or at the end of any subsequent fiscal
quarter thereafter.

 

8.15                        Management
Fees.  Except
as otherwise permitted in this Section 8.15, no Borrower shall pay any
management fees to SCC or their respective Affiliates (other than another
Borrower); provided, however, that so long as no Event of Default has occurred
and is continuing (or would occur as a result of such payment), the Borrowers
may pay management fees to SCC or their respective Affiliates, solely and
strictly in accordance with the provisions of the Management Advisory Services
Agreement, in an aggregate amount not to exceed with respect to any Fiscal Year
five percent (5.0%) of the Company’s total consolidated EBITA for such Fiscal
Year.  The Borrowers may accrue (but
shall not be permitted to pay, until all Indebtedness hereunder is paid in full
and any commitment to lend or issue letters of credit hereunder is terminated)
the Deferred Compensation Payments.  The
Borrowers may make the Tax Agreement Payments at the times provided for in the
Tax Allocation Agreement; provided, however, that no Tax Agreement Payments
shall be made after the occurrence and during the continuance of an Event of
Default, except for Tax Agreement Payments representing income taxes which SCC
is actually required to pay and which are directly attributable solely to the
consolidated operations of the Company.

 

K-33

 

8.16                        Dividends
and Payments.  Neither the Company nor CMI shall declare or
pay on, or make any distribution to the holders of any shares of capital stock
of the Company or CMI of any class, or purchase, redeem or otherwise acquire
for consideration any shares of capital stock of the Company or CMI of any
class; provided, however, that nothing contained in this Section 8.18
shall be construed to prevent any payments expressly permitted under Section 8.17
hereof.

 

8.17                        Issuance
of Capital Stock.  None of the Borrowers shall issue
any additional shares of capital stock of any class (or any options, warrants,
convertible securities or rights with respect thereto) after the date hereof,
except for the issuance of shares of capital stock or other securities of the
Company pursuant to the Option Plan (as identified on Schedule 8.10
and related agreements entered into in accordance therewith).

 

8.18                        Prohibition
of Change in Fiscal Year.  Neither any Borrower nor any Subsidiary
thereof shall change its Fiscal Year-end for accounting purposes from December 31
of any year.

 

8.19                        Amendment
to Other Documents.  The Borrowers shall not cause or permit,
directly or indirectly, any amendment, waiver, consent or modification of the
Tax Allocation Agreement, Management Advisory Services Agreement, Caronia
Purchase Agreement or any other agreement, document or instrument contemplated
by, or executed in connection with, the Caronia Purchase Agreement
(collectively, the “Transaction Documents”).

 

8.20                        Management. 
The Company shall not terminate the employment of Jonathan R.
Wagner, Richard T. Kurth or Stephen Brown, without the prior written
consent of the Lender, such consent not to be unreasonably withheld.  In the event of the termination by the
Company of the employment of any such individuals or their respective
successors, the Company shall retain, within 150 days after such termination,
replacement officers reasonably acceptable to the Lender.

 

8.21                        Pledge
Rights Not a “Change”.  None of the Borrowers or shall take or permit
any of their Subsidiaries to take any action, or participate in or consent to
any transaction(s) (i) which would require the advance approval of the
OBWC under the OBWC Contracts, other than actions of CHSI taken, or not taken,
in the ordinary course of performance of the OBWC Contracts which, from time to
time, may require the approval of OBWC, or (ii) which would cause the
Lender’s realization of any of their respected rights under the Stock Pledge
Agreements to constitute a “Change” under the OBWC Contracts (except for any
possible “Change” resulting from the exercise of remedies with respect to the
capital stock of CHSI).

 

8.22                        Government
Regulations.  No Borrower shall (a) be or become subject at
any time to any law, regulation or list of any government agency (including,
without limitation, the U.S. Office of Foreign Asset Control list) that
prohibits or limits the Lender from making any advance or extension of credit
to any Borrower or from otherwise conducting business with any Borrower, or
(b) fail to provide documentary and other evidence of such Borrower’s
identity as may be requested by the Lender at any time to enable the Lender to
verify such Borrower’s identity or to comply with any applicable law or
regulation, including, without limitation, Section 326 of the USA Patriot
Act of 2001, 31 U.S.C. Section 5318.

 

K-34

 

ARTICLE 9.  EVENTS OF DEFAULT

 

9.1                               Event
of Default.  “Event of Default” shall mean the occurrence
of one or more of the following described events:

 

(a)                                  The
Borrowers shall default in the payment of any principal of the Notes when the
same shall become due, either by the terms thereof or otherwise as herein
provided;

 

(b)                                 The
Borrowers shall default in payment of the Facility Fee or any Commitment Fee or
any interest on the Notes or of any other payment due the Lender under this
Agreement when the same shall become due, either by the terms thereof or
otherwise as herein provided and such default continues for a period of five
(5) days;

 

(c)                                  Any
Borrower shall default (after the expiration of any applicable grace period) in
the payment of any amount due to Lender pursuant to the terms of any promissory
note or other instrument other than the Notes;

 

(d)                                 Any
Borrower shall default (after the expiration of any applicable grace period) in
the performance or observance of any covenant, condition or agreement contained
in the Borrower Security Agreements, the Intellectual Property Security
Agreements, the Copyright Collateral Agreements, the Stock Pledge Agreements,
the Assignment of Leasehold Interests or any other security agreement entered into
by any Borrower for the benefit of the Lender;

 

(e)                                  Any
Borrower shall default in the payment of any Indebtedness in excess of $250,000
beyond any period of grace provided with respect thereto, or any Borrower shall
default in the performance of any agreement under which such Indebtedness
payment obligation is created if the effect of such default is to cause or
permit the holder or holders of such obligation (or a representative of such
holder or holders) to cause, such payment obligation to become due prior to its
date of maturity;

 

(f)                                    Any
representation or warranty made by any Borrower herein, in any other Loan
Document or in any report, certificate or writing furnished in connection with
or pursuant to this Agreement shall be false or incorrect in any material
respect on the date as of which made;

 

(g)                                 Any
Borrower shall default in the performance or observation of any covenant,
condition or agreement in Sections 7.1, 7.11, 7.14, 7.15 or 7.16 or in Article 8
hereof;

 

(h)                                 Any
Borrower shall default in the performance or observation of any covenant,
condition or agreement made or required to be observed or performed by it under
this Agreement (other than those referred to in Sections 9.1(a), 9.1(b) or 9.1(g)
of this Agreement) and such default shall continue without cure for thirty (30)
days after written notice thereof shall have been given to the Borrowers by the
Lender, or, in the case of Sections 7.2 and 7.3, such default shall continue
without cure for ten (10) days (without any required notice thereof);

 

(i)                                     Any
Borrower shall make an assignment for the benefit of creditors;

 

K-35

 

(j)                                     Any
Borrower shall petition or apply to any tribunal for the appointment of a
trustee or receiver of it, or of any substantial part of its assets, or
commence any proceeding relating to it under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction whether now or hereafter in effect;

 

(k)                                  Any
bankruptcy, insolvency, receivership or similar petition or application is
filed, or any proceedings are commenced against any Borrower and any Borrower
by any act indicates its approval thereof, consent thereto, or acquiescence
therein, or any order is entered appointing a trustee or receiver, or
adjudicating any Borrower bankrupt or insolvent, or approving the petition in
any such proceedings and such order remains unstayed or undischarged for more
than sixty (60) days; provided, however, that the Lender shall be under no
obligation to make Loans hereunder during the period that such order is
unstayed or undischarged;

 

(l)                                     Any
order is entered in any proceedings against any Borrower decreeing the
dissolution of any Borrower and such order remains unstayed or undischarged for
more than sixty (60) days; provided, however, that the Lender shall be under no
obligation to make Loans hereunder during the period that such order is
unstayed or undischarged;

 

(m)                               A
final judgment or judgments for the payment of money in excess of an aggregate
of $250,000 shall be rendered against any Borrower and such judgment or
judgments shall remain undischarged for a period of sixty (60) consecutive days
during which the execution shall not be effectively stayed;

 

(n)                                 (i)
Any Reportable Event or a Prohibited Transaction shall occur with respect to
any Plan; (ii) a notice of intent to terminate a Plan under section 4041
of ERISA shall be filed; (iii) a notice shall be received by the plan
administrator of a Plan that the PBGC has instituted proceedings to terminate a
Plan or appoint a trustee to administer a Plan; (iv) any other event or
condition shall exist which might, in the opinion of the Lender, constitute
grounds under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; or (v) any Borrower or any
ERISA Affiliate shall withdraw from a Multiemployer Plan; provided, however,
that none of the foregoing shall constitute an Event of Default except under
circumstances that the Lender determines could reasonably be expected to have a
Material Adverse Effect;

 

(o)                                 (i)
CHSI is notified by the OBWC that it is “at capacity,” declared ineligible to
solicit or accept selection by or assignment of an employer by the OBWC, or the
OBWC in any material manner limits the Company’s ability to accept new
enrollments, and any of the same is reasonably likely to result in any Event of
Default under Sections 9.1(a) or (b) or any breach of Sections 8.12, 8.13 or 8.14;
(ii) the State of Ohio announces its intention to dissolve or disband the
state-sponsored system of workers’ compensation insurance or the Ohio Health
Partnership Program (and the Lender determines in the exercise of its
commercially reasonable discretion that the same is reasonably likely to impair
the Borrowers’ ability to perform their material obligations under this
Agreement, the Notes or the other Loan Documents); (iii) (A) the OBWC
terminates or does not renew the OBWC Contracts, or (B) the OBWC informs CHSI
of its intent to terminate or not renew the OBWC Contracts, except if the
Borrowers provide the Lender written notice that (I) CHSI is actively and
diligently pursuing renewals of the OBWC Contracts, (II) CHSI is reasonably
confident that its efforts will be successful, and (III) such active pursuit of
renewal does

 

K-36

 

not exceed (without
renewal) ninety (90) days time from the date of such written notice to the
Lender; or (iv) the OBWC terminates, does not renew or informs CHSI of its intent
to terminate or not renew CHSI’s OBWC certification as a vendor; or

 

(p)                                 The
occurrence or existence of any default, event of default or other similar
condition or event (however described) with respect to any Rate Management
Transaction.

 

9.2                               Consequences
of Event of Default.

 

(a)                                  If
any Event of Default specified under Section 9.1, other than subsections
(i) through (l) thereof, shall occur and be continuing the Lender shall be
under no further obligation to make Loans hereunder and the Lender may, by
written notice to the Borrowers, declare the unpaid balance of all Commitment
Fees and the principal and interest accrued on the Notes and all other
obligations of the Borrowers hereunder and under the other Loan Documents to be
forthwith due and payable, and the same shall thereupon become immediately due
and payable, without any other or further presentment, demand, protest, notice
of default, notice of intent to accelerate or other notice of any kind, all of
which are hereby expressly waived.

 

(b)                                 If
an Event of Default specified under subsections (i) through (l), inclusive, of Section 9.1
shall occur, the Lender shall be under no further obligation to make Loans
hereunder and the unpaid balance of all Commitment Fees and the principal and
interest accrued on the Notes and all other obligations of the Borrowers
hereunder shall be immediately due and payable automatically without
presentment, demand, protest, notice of default, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which
are hereby expressly waived.

 

ARTICLE 10.  MISCELLANEOUS

 

10.1                        Notices. 
All notices, requests and demands to or upon the parties hereto to be
effective shall be in writing or by telecopy or telex and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or when sent by certified or registered mail, postage
prepaid, or, in the case of telecopy notice, when received, or in the case of
telegraphic notice, when delivered to the telegraph company, or in the case of
telex notice, when sent, answerback received, addressed as follows in the case
of the Borrowers and the Lender or to such address or other address as may be
hereafter notified by the parties hereto:

 

 

	
  Any Borrower:

  	
  c/o Security
  Capital Corporation

  One Pickwick Plaza

  Suite 310

  Greenwich, Connecticut 06830

  Attention: Brian D. Fitzgerald, Chairman

  Facsimile: (203) 625-0423

  
	
   

  	
   

  
	
   

  	
  with copies to:

  
	
   

  	
   

  
	
   

  	
  WC Holdings,
  Inc.

  c/o CompManagement, Inc.

  

 

K-37

 

	
   

  	
  6377 Emerald
  Parkway

  Dublin, Ohio 43016

  Attention: William R. Schlueter

  Facsimile: (203) 625-0770

  
	
   

  	
   

  
	
   

  	
  and 

  
	
   

  	
   

  
	
   

  	
  Diserio Martin O’Connor
  &

    Castiglioni LLP

  One Atlantic Street

  Stamford, CT 06901

  Attention: Brian O’Connor, Esq.

  Facsimile: (203) 358-0800

  
	
   

  	
   

  
	
  The Lender:

  	
  JPMorgan Chase
  Bank, N.A.

  100 East Broad Street

  Columbus, Ohio 43271-0171

  
	
   

  	
  Attention:

  	
  Mark S. Slayman,

  First Vice President

  
	
   

  	
  Facsimile: (614)
  248-5518

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Bailey Cavalieri
  LLC

  One Columbus

  10 West Broad Street

  Columbus, Ohio 43215-3422

  Attention: Anthony J. Sugar, Esq.

  Facsimile: (614) 221-0479

  

 

Notwithstanding
any other provision hereof to the contrary, each Borrower has appointed the
Company as its representative to receive and give all notices to or from such
Borrower and the Lender shall have acted in accordance with this Agreement in
accepting notices from and giving notice to the Company as being notices from
or to such Borrower.

 

10.2                        Term of
Agreement; Termination; Successors and Assigns. 
This Agreement and all covenants, agreements, representations and
warranties made herein and in the reports, certificates and other writings
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, the making by the Lender of each Loan and the execution and delivery
to the Lender of the Notes and shall continue in full force and effect until
terminated.  The representations of
Borrowers herein are made as of the date of this Agreement.  This Agreement shall terminate at such time
as the Revolving Credit Commitment is terminated in full and the Lender has
received payment in full of all amounts owing to the Lender hereunder and under
the Notes.  Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such parties; and all terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns,
whether so expressed or not; provided, however, that (i) no Borrower may
assign or transfer

 

K-38

 

its
rights or duties under this Agreement to any Person without the prior written
consent of the Lender and (ii) the Lender may not assign, or participate,
this Agreement or the Notes to a direct competitor of the Borrowers.

 

10.3                        No
Implied Rights or Waivers.  No notice to or demand on any Borrower in any
case shall entitle such Borrower to any other or further notice or demand in
the same, similar and other circumstances. 
Neither any failure nor any delay on the part of the Lender in
exercising any right, power or privilege hereunder or under the Notes shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of the same or the exercise of any other
right, power or privilege.

 

10.4                        Applicable
Law.  This Agreement, the Notes and the other Loan
Documents shall be deemed to be contracts made under and shall be construed in
accordance with and governed by the laws of the State.

 

10.5                        Modifications,
Amendments or Waivers.

 

(a)                                  The
Lender and the Borrowers may from time to time enter into written agreements
amending or changing any provision of this Agreement or the rights of the
Lender or the Borrowers hereunder or give waivers or consents to a departure
from the due performance of the obligations of the Borrowers hereunder or under
the Notes.

 

(b)                                 In
the case of any such waiver or consent relating to any provision hereof, the
parties shall be restored to their former positions and rights thereunder, and
any Default or Event of Default so waived or consented to shall be deemed to be
cured and not continuing; but no such waiver or consent shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.

 

10.6                        Counterparts. 
This Agreement may be signed in any number of counterparts with the same
effect as if the signatures thereto were upon the same instrument.

 

10.7                        Headings. 
The headings of the articles and sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part hereof.

 

10.8                        Expenses. 
The Borrowers shall pay or cause to be paid and save the Lender harmless
against liability for the payment of all reasonable out-of-pocket expenses,
including counsel fees and disbursements incurred or paid by the Lender in
connection with the negotiation, development, preparation and execution of this
Agreement, the Notes, the other Loan Documents and the related
transactions.  The Borrowers shall pay or
cause to be paid and save the Lender harmless against liability for the payment
of all reasonable out-of-pocket expenses, including counsel fees and
disbursements incurred or paid by the Lender in connection with (i) any
requested amendments, waivers or consents pursuant to the provisions hereof and
thereof; and (ii) the enforcement of this Agreement, the Notes and the
other Loan Documents including such expenses as may be incurred by the Lender
in collection of the Notes and all obligations of the Borrowers hereunder.

 

K-39

 

10.9                        Accounting
Terms.  All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.

 

10.10                 Severability. 
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or effecting the validity or enforceability of such
provisions in any other jurisdiction.

 

10.11                 Waiver of Jury
Trial; Consent to Venue.  The Lender and the Borrowers, after having
had the opportunity to consult with counsel, knowingly, voluntarily, irrevocably,
unconditionally and intentionally waive any right to a trial by jury in any
litigation based upon or arising out of this Agreement or any related
instrument or agreement, or any of the transactions contemplated by this
Agreement, or any course of conduct, dealing, statements (whether oral or
written) or actions of any Borrower or the Lender.  The Borrowers shall not seek to consolidate,
by counterclaim or otherwise, any action in which a jury trial has been waived with
any other action in which a jury trial cannot be or has not been waived.  In the event of a dispute under this
Agreement, the Borrowers hereby, jointly and severally, agree that jurisdiction
and venue lies in a court of competent jurisdiction in Franklin County,
Ohio.  These provisions shall not be
deemed to have been modified in any respect or relinquished by the Lender
except by a written instrument executed by it. 
This provision is a material inducement to the Lender to enter into the
transactions described in this Agreement.

 

10.12                 Entire
Agreement.  This Agreement and the Exhibits hereto
reflect the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements or understandings with respect
thereto in their entirety.

 

10.13                 Certificates,
Etc.  All certificates, reports and other writings
submitted by any Borrower to the Lender hereunder shall constitute the
representations and warranties of each Borrower to the Lender as to the truth
and accuracy of all facts, calculations and other information set forth
therein, as though fully set forth and repeated in this Agreement.

 

10.14                 Waiver of
Certain Defenses.  Each of the Borrowers hereby waives all
defenses based on suretyship and impairment of collateral.

 

10.15                 USA Patriot
Act Notification.  The following notification is provided to the
Borrowers pursuant to Section 326 of the USA Patriot Act of 2001, 31
U.S.C. Section 5318:

 

IMPORTANT
INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.  To help the government fight the funding of
terrorism and money laundering activities, Federal law requires all financial
institutions to obtain, verify and record information that identifies each
person or entity that opens an account, including any deposit account, treasury
management account, loan, other extension of credit or other financial services
product.  What this means for each
Borrower:  When such Borrower opens an
account, if such Borrower is an individual, the Lender will ask for a Borrower’s
name, taxpayer identification number, residential address, date of birth and
other information that will allow the

 

K-40

 

Lender
to identify such Borrower, and if such Borrower is not an individual, the
Lender will ask for such Borrower’s name, taxpayer identification number,
business address and other information that will allow the Lender to identify
such Borrower.  The Lender may also ask,
if a Borrower is an individual, to see such Borrower’s driver’s license or
other identifying documents, and if a Borrower is not an individual, to see
such Borrower’s legal organizational documents or other identifying documents.

 

10.16                 Indemnification. 
The Borrowers, jointly and severally, agree to defend, protect,
indemnify and hold harmless the Lender, each of its affiliates, and each of
their respective officers, directors, employees, agents and co-agents
(collectively, the “Indemnitees”) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever  (including, without limitation, the
reasonable fees and disbursements of counsel for such Indemnitees in connection
with any investigative, administrative or judicial proceeding, whether or not
such Indemnitees shall be designated a party thereto), imposed on, incurred by,
or asserted against such Indemnitees in any manner relating to or arising out
of this Agreement, the Notes or the other Loan Documents, the use or intended
use of the proceeds of the Loans, the Caronia Acquisition or the termination of
the employment of any Management Investors or other employees or officers of
any Borrower (collectively, the “Indemnified Matters”); provided, that the
Borrowers shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Matters caused by or resulting from the gross negligence or willful
misconduct of that Indemnitee.  To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, each of the Borrowers shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the payment
and satisfaction of all Indemnified Matters incurred by the Indemnitees.

 

ARTICLE 11. 
DEFINITIONS

 

The
terms set forth and defined in Exhibit H hereto shall, for the purposes
of this Agreement, have the meanings assigned to such terms as set forth in Exhibit
H.

 

[SIGNATURE PAGES TO FOLLOW]

 

K-41

 

IN WITNESS
WHEREOF, the Borrowers and the Lender have caused this Second Amended and
Restated Loan Agreement to be duly executed by their duly authorized officers,
all as of the day and year first above written.

 

 

	
  LENDER:

  
	
   

  
	
  JPMORGAN CHASE BANK, N.A.,

  a national banking association (successor

  by merger to Bank One, NA) (Main Office

  Columbus)

  
	
   

  
	
   

  
	
  By:

  	
   

  	
  /s/ Mark S.
  Slyaman

  	
   

  
	
   

  	
    Mark
  S. Slayman, First Vice President

  
	
   

  
	
   

  
	
  BORROWERS:

  
	
   

  
	
  WC HOLDINGS, INC., a Delaware corporation

  
	
  COMPMANAGEMENT, INC., an Ohio corporation

  
	
  COMPMANAGEMENT INTEGRATED DISABILITY SERVICES, INC., an Ohio
  corporation

  
	
  CMI MANAGEMENT COMPANY, an Ohio corporation

  
	
  COMPMANAGEMENT OF VIRGINIA, INC., a Virginia corporation

  
	
  COMPMANAGEMENT DISABILITY SERVICES COMPANY, a Virginia corporation

  
	
  CMI BARRON RISK MANAGEMENT SERVICES, INC., a Texas corporation

  
	
  COMPMANAGEMENT HEALTH SYSTEMS, INC., an Ohio corporation

  
	
  OCTAGON RISK
  SERVICES, INC., a Minnesota corporation

  
	
  INTEGRATED CLAIM STRATEGIES, INC., a Florida Corporation

  
	
  KRAMMCO INC., an
  Ohio Corporation

  
	
  CARONIA
  CORPORATION, a Delaware corporation

  
	
  MANAGED CARE
  HOLDINGS CORPORATION, a Delaware corporation

  
	
   

  
	
   

  
	
  By:

  	
   

  	
  /s/ Kevin Lowry

  	
   

  
	
   

  	
  Kevin Lowry,
  Vice President

  

 

K-42

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