Document:

exv10w1

 

Exhibit 10.1

 

 

NORTEL NETWORKS LIMITED

 

RESTRICTED STOCK UNIT PLAN

 

 

 

 

Dated as of January 30, 1997, as amended effective

April 29, 1999, September 1, 1999, February 15, 2000,

May 1, 2000, November 15, 2000, and January 23, 2003

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NORTEL NETWORKS LIMITED

RESTRICTED STOCK UNIT PLAN

	1.	 	BACKGROUND; PURPOSE OF THE PLAN

The Nortel Networks Limited Restricted Stock Unit Plan has been amended
and restated to reflect the transactions contemplated by the plan of
arrangement (the “Plan of Arrangement”) described in the Amended and Restated
Arrangement Agreement, made as of January 26, 2000, as amended and restated
March 13, 2000, among BCE Inc., Nortel Networks Corporation, New Nortel Inc.
and the other parties thereto. In connection with the Plan of Arrangement, New
Nortel Inc. acquired from the holders of the common shares (other than BCE Inc.
and its affiliates) of Nortel Networks Corporation all of the Nortel Networks
Corporation common shares then held by such shareholders in exchange for an
equal number of common shares of New Nortel Inc. and each shareholder of BCE
Inc. received approximately 0.78 common shares of New Nortel Inc. for each
common share of BCE Inc. then held by such BCE shareholder. On the effective
date of the Plan of Arrangement, the common shares of New Nortel Inc. were
listed on the New York Stock Exchange and The Toronto Stock Exchange in
substitution for the common shares of Nortel Networks Corporation. As part of
the Plan of Arrangement, Nortel Networks Corporation changed its name to Nortel
Networks Limited (“Nortel Limited” or the “Corporation”) and New Nortel Inc.
changed its name to Nortel Networks Corporation (“Nortel Networks”).

In connection with and effective as of May 1, 2000, the effective date of
the Plan of Arrangement (the “Restatement Effective Date”), awards granted or
to be granted under the Plan and the shares subject to the Plan were adjusted
and relate to the common shares of Nortel Networks. In all other respects, the
terms and provisions of the Plan were reaffirmed, as stated at that time.

The purpose of the Plan is to promote the long term success of Nortel
Networks by providing for the payment of performance bonuses to Designated
Employees in the form of Shares or calculated by reference to the Share Price.
The Plan is designed to encourage Designated Employees to acquire a proprietary
interest in Nortel Networks through ownership of Shares or interests in Shares,
to provide them with additional incentive to further the growth and development
of Nortel Networks, to encourage them to remain in the employment of Nortel
Networks and to assist Nortel Networks in attracting individuals with
experience and ability.

	2.	 	DEFINITIONS

For purposes of the Plan, the terms contained in this Section shall have
the following meanings.

“Administrator” shall mean such administrator as may be appointed by the
Corporation from time to time to administer the Plan.

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“affiliated companies” shall have the meaning ascribed to the term
“affiliated bodies corporate” in Section 2(2) of the CBCA or such other
meaning, and shall include such other entities, as may be determined by the
Committee.

“Board of Directors” shall mean the Board of Directors of the Corporation.

“Business Day” shall mean a day, other than a Saturday or Sunday, on which
banking institutions in Canada and the United States are not authorized or
obligated by law to close.

“CBCA” shall mean the Canada Business Corporations Act, R.S.C. 1985,
c.C-44, as amended.

“Change in Control” shall have the meaning assigned to such term under the
Retention Plan.

“CIC Date” shall have the meaning assigned to such term under the
Retention Plan.

“Committee” shall mean the joint leadership resources committee of the
Board of Directors or such other committee of the Board of Directors comprised
of members of the Board of Directors as the Board of Directors shall from time
to time appoint to administer the Plan.

“Corporation” shall mean Nortel Networks Limited (known prior to the Plan
of Arrangement as Nortel Networks Corporation) or its successors.

“Designated Employee” shall mean any employee of Nortel Networks Companies
who is designated by the Committee for participation in the Plan, but shall not
include a member of the Board of Directors who is not also such a designated
employee.

“Effective Date” shall mean, unless otherwise determined by the Board of
Directors when confirming a Grant, the date determined by the Committee, in
accordance with Section 5 hereof, as being the date on which such Grant shall
take effect, provided that the Effective Date shall not be a date prior to the
date on which the Board of Directors confirms the Grant and, unless otherwise
determined, the Effective Date will be the date on which the Board of Directors
confirms the Grant.

“Fiscal Year” shall mean any fiscal year of the Corporation, commencing
with the fiscal year ending December 31, 1997.

“Grant” shall mean an award of RSUs allocated to a Designated Employee at
any time in accordance with Section 5 hereof.

“Nortel Networks” shall mean Nortel Networks Corporation (known prior to
the Plan of Arrangement as New Nortel Inc.) or its successors.

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“Nortel Networks Companies” shall mean, collectively, the Corporation,
Nortel Networks and their respective subsidiaries and affiliated companies or,
individually, any corporate entity included within such group, as the context
indicates.

“Participant” shall mean a Designated Employee to whom a Grant has been
made in accordance with Section 5 hereof.

“Performance Criteria” shall mean the criteria, if any, established by the
Committee in respect of a Grant (or any specified portion thereof) either on or
prior to the Effective Date of such Grant or prior to the commencement of the
applicable Performance Period or Performance Segment, if any, for such Grant,
which may include, without limitation, criteria based on the financial
performance of Nortel Networks Companies and/or any company or business unit
thereof.

“Performance Period” shall mean the period established by the Committee in
respect of a Grant which period shall commence and end on the dates designated
by the Committee; provided, however, that (i) each Performance Period shall,
unless otherwise determined by the Committee, commence no earlier than the
first day of the Fiscal Year in which the Grant was made and end no later than
the end of the second Fiscal Year following the Fiscal Year in which the Grant
was made and (ii) the Committee may establish one or more Performance Segments
within a Performance Period.

“Performance Segments” shall mean the period or periods, if any, within
the Performance Period established by the Committee in respect of a Grant (or
any specified portion thereof).

“Plan” shall mean the Nortel Networks Limited Restricted Stock Unit Plan,
as set forth herein and as the same may be further amended and in effect from
time to time.

“Plan of Arrangement” shall have the meaning assigned to such term in
Section 1 hereof.

“Release Date” shall mean in respect of each Grant or any specified
portion or portions of such Grant, unless otherwise determined by the Committee
with respect to such Grant or any specified portion or portions of such Grant,
(i) for the purpose of paragraphs (c) of Section 6, the day which is 45
Business Days following the end of the applicable Performance Period and/or
Performance Segment, if any, provided that the Release Date shall not be after
the end of the second Fiscal Year subsequent to the Fiscal Year in which such
Grant was made, and (ii) for all other purposes, the tenth Business Day
following notification to the Corporation and the Administrator of the
occurrence of the event giving rise to the issuance of the RSUs in accordance
with the provisions of the Plan.

“Restatement Effective Date” shall have the meaning assigned to such term
in Section 1 hereof.

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“Retention Plan” shall mean the Nortel Networks Corporation Executive
Retention and Termination Plan, as the same may be amended and in effect from
time to time prior to a CIC Date.

“Retirement” shall mean retirement in accordance with the provisions of
any pension or retirement plan of Nortel Networks Companies covering the
Participant, retirement pursuant to a special pension arrangement entered into
by Nortel Networks Companies and a Participant and applicable in lieu of, or in
addition to, any pension or retirement plan of Nortel Networks Companies or, if
the Participant is not covered by such a plan and/or special pension
arrangement, as determined by the Committee.

“RSU” shall mean a restricted stock unit allocated to a Designated
Employee in accordance with Section 5 hereof which shall, upon issuance in
accordance with and subject to the provisions of the Plan, entitle the holder
thereof to receive one RSU Share.

“RSU Shares” shall mean the Shares delivered to Participants in accordance
with the provisions of the Plan in settlement of RSUs issued under the Plan.

“Shares” shall mean the common shares of Nortel Networks and “Share” shall
mean a common share of Nortel Networks.

“Share Price” shall mean the arithmetic average of the closing prices for
the Shares for the 20 trading days immediately preceding the Release Date on
(i) the Toronto Stock Exchange for Canadian-resident Participants, or (ii) the
New York Stock Exchange for all other Participants.

“subsidiary” shall have the meaning ascribed to the term “subsidiary body
corporate” in Section 2(5) of the CBCA.

	3.	 	ADMINISTRATION

The Committee shall administer the Plan in accordance with its terms. The
Committee may, subject to the terms of the Plan, delegate to third parties,
including the Administrator if one is appointed, the whole or any part of the
administration of the Plan and shall determine the scope of such delegation.
Any decision made by the Committee or the Administrator in carrying out its
responsibilities with respect to the administration of the Plan shall be final
and binding on the Participants.

In addition to the other powers granted to the Committee under the Plan
and subject to the terms of the Plan, the Committee shall have full and
complete authority to interpret the Plan. The Committee and/or the
Administrator may from time to time prescribe such rules and regulations and
make all determinations necessary or desirable for the administration of the
Plan. In particular, the Committee shall select the Designated Employees to
whom it recommends Grants shall be made and shall determine the amounts and
terms of the Grants (including the related Performance Criteria, if any, and
the formula, if any, to be used to determine the number of RSUs to be issued
based on the level of achievement of such Performance Criteria), and the extent
to which the Performance Criteria to be achieved during

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the Performance Period and/or any Performance Segment, if any, have been
achieved. At or after the Effective Date for a Grant, the Committee may
determine whether a Grant (and/or any portion or portions thereof) will be
settled in RSU Shares or cash and any conditions applicable to a Participant’s
right to elect to receive settlement in cash of any RSUs issuable to such
Participant. Any such interpretation, rule, determination or other act of the
Committee and/or the Administrator shall be conclusively binding upon all
persons, including the Participants and their legal representatives and
beneficiaries.

No member of the Committee, the Board of Directors or the Board of
Directors of Nortel Networks shall be liable for any action or determination
made in good faith pursuant to the Plan. To the full extent permitted by law,
the Corporation shall indemnify and save harmless each person made, or
threatened to be made, a party to any action or proceeding by reason of the
fact that such person is or was a member of the Committee or is or was a member
of either such Boards of Directors and, as such, is or was required or entitled
to take action pursuant to the terms of the Plan.

Except as Participants may otherwise be advised by prior written notice of
at least thirty (30) days, all costs of the Plan, including any administration
fees, shall be paid by the Corporation. Notwithstanding the foregoing, in the
event that a Participant is employed by one or more Nortel Networks Companies
other than the Corporation, the Corporation may request reimbursement from each
such Nortel Networks Company of an amount equal to that portion of the costs of
the Plan which the Corporation determines may reasonably be attributed to such
Participant’s employment with any such Nortel Networks Company.

	4.	 	RSU SHARES SUBJECT TO THE PLAN

Neither Nortel Networks nor the Corporation shall be required to issue
and/or cause to be delivered Shares or issue and/or cause to be delivered
certificates evidencing Shares to be delivered pursuant to the Plan unless and
until such issuance and delivery is in compliance with all applicable laws,
regulations, rules, orders of governmental or regulatory authorities and the
requirements of any stock exchange upon which Shares of Nortel Networks are
listed. Neither Nortel Networks nor the Corporation shall in any event be
obligated to take any action to comply with any such laws, regulations, rules,
orders or requirements. Subject to the foregoing, the Board of Directors of
Nortel Networks may authorize from time to time the issuance by Nortel Networks
of Shares and the Board of Directors may authorize from time to time the
purchase of Shares for the benefit of Participants on the open market or by
private transaction as required in order to administer the Plan.

	5.	 	GRANTS

Subject to the provisions of the Plan, the Committee shall, in its sole
discretion and from time to time, determine the Designated Employees to whom it
recommends that Grants be made based on their current and potential
contribution to the success of Nortel Networks. At such time, the Committee
shall also:

	 	(a)	 	determine, in connection with each Grant, the
Effective Date thereof and the number of RSUs to be allocated;

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	 	(b)	 	determine, in connection with each Grant, the
Performance Period and the Performance Segments, if any,
applicable thereto;
	 
	 	(c)	 	determine, in connection with each Grant, the
Performance Criteria, if any, to be achieved during any
applicable Performance Period and/or Performance Segment, if
any; and
	 
	 	(d)	 	determine the other terms and conditions (which
need not be identical and which, without limitation, may
include conditions on the allocation, issuance and/or
settlement of RSUs, and non-competition provisions) of all
RSUs covered by any Grant.

Any Grant and any determination made by the Committee in connection with
any such Grant as provided shall be subject to confirmation by the Board of
Directors.

	6.	 	TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

Certificates need not be issued with respect to RSUs covered by a Grant or
RSUs when issued. The Corporation or the Administrator shall maintain records
showing the number of RSUs allocated to each Participant under the Plan. Each
Participant shall be notified in writing of the number of RSUs covered by a
Grant and of the terms and conditions of such Grant, including those described
below:

	 	(a)	 	Number of RSUs

Each notification of Grant shall state the number of RSUs allocated to the
Participant and state that each such RSU shall, upon issuance subject to and in
accordance with the terms of the Plan, entitle the Participant to receive one
RSU Share.

	 	(b)	 	Performance Criteria

Each notification of Grant shall describe the Performance Criteria, if
any, for the Performance Period (and/or any Performance Segment, if any,
within the Performance Period,)established by the Committee that must be
achieved for all or any specified portion of the RSUs covered by such Grant to
be issued to the Participant.

	 	(c)	 	Issue and Settlement of RSUs

Unless otherwise determined by the Committee and except as otherwise
provided in paragraphs (d), (e) or (f) of this Section or in any other employee
benefit plan approved by the Board of Directors, subject to the level of
achievement of Performance Criteria, if any, determined by the Committee, the
Corporation shall issue to a Participant all or any portion of the RSUs covered
by a Grant (or any specified portion thereof) on the Release Date for such
Grant (or applicable portion thereof), in full satisfaction and cancellation of
such Grant (or such applicable portion thereof); provided that such Participant
is continuously employed with Nortel Networks Companies from the Effective Date
of such Grant to the Release Date. In such event, the Participant shall be
entitled to receive on the Release Date, in full settlement of the RSUs

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issued, a number of RSU Shares equal to the number of RSUs issued, or, in
the sole discretion of the Committee, a cash payment equal to the product of
the number of RSUs issued (or the number determined by the Committee to be paid
in cash) multiplied by the Share Price, in each case, subject to reduction for
any applicable withholding taxes, social charges and any other applicable wage
deduction amounts in accordance with Section 9. Any RSUs covered by a Grant
(or any specified portion thereof) that are not issued on the Release Date for
such Grant (or such specified portion thereof) in accordance with the Plan or
are not otherwise settled (i) in accordance with this paragraph (c) or
paragraphs (d), (e) or (f) of this Section, or (ii) prior to the Release Date
for such Grant (or specified portion thereof), in accordance with the terms of
any other employee benefit plan approved by the Board of Directors, shall be
forfeited on the Release Date and the related Grant (or specified portion
thereof) shall thereupon expire in its entirety. In addition, the Committee
may provide that RSUs covered by a Grant (or any specified portion thereof)
will be forfeited in the event the Participant does not satisfy the Share
ownership requirements (or any element thereof) applicable to such Participant
and, in such event, the related Grant (or applicable portion thereof) shall
thereupon expire in its entirety.

	 	(d)	 	Right to RSUs in the Event of Death, Retirement or
Termination of Employment
	 
	 	 	 	Unless otherwise determined by the Committee:

	 	(i)	 	In the event of the death of a Participant while
in the employment of Nortel Networks Companies, the deceased
Participant’s estate shall elect in writing to the
Corporation, within the earlier of (i) 120 days of the
Participant’s death; and (ii) the first Business Day of the
last calendar month of the second Fiscal Year subsequent to
the Fiscal Year in which such Grant was made, with respect to
each Grant then outstanding (or any portion thereof then
outstanding) to such Participant for which the Release Date
has not yet occurred and the RSUs covered by such Grant (or
applicable portion thereof) have not otherwise been issued
prior to the date of death, to receive, subject to and in
accordance with the provisions of the Plan, RSUs settled in
the form of RSU Shares to the deceased Participant’s estate:

	 	(x)	 	as if the Performance Period (or any
specified Performance Segments), if any, had ended and
the corresponding Performance Criteria, if any, had been
met (but not exceeded) for any such Grant (or applicable
portion thereof), on the day preceding the date of the
Participant’s death (in which case, receipt of the
election from the Participant’s estate shall constitute
the event giving rise to the issuance of the RSUs for
the purpose of determining the applicable Release Date);
or
	 
	 	(y)	 	on the Release Date or, if
applicable, the Release Dates on which all or a portion
of the RSUs covered by such Grant (or any specified
portion thereof) would otherwise have been issued, if at
all, in accordance with the Plan had the Participant not
died and

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	 	 	 	continued in the employment of Nortel Networks
Companies until such Release Date or Release Dates, as
applicable.

	 	 	 	In the event of death of a Participant in the last calendar
month of the second Fiscal Year subsequent to the Fiscal Year
in which the Grant was made or in the event a deceased
Participant’s estate fails to make an election as herein
provided, such Participant’s estate shall be deemed to have
elected to receive RSUs settled in the form of RSU Shares in
accordance with subparagraph (x) above.
	 
	 	 	 	In the event of the death of a Participant following the end
of the Performance Period (or any specified Performance
Segments, if any) and prior to the Release Date for such
Grant (or any specified portion thereof then outstanding),
the number of such RSUs that would otherwise be issued to
such Participant shall be issued in the form of RSU Shares
and delivered to the Participant’s estate in accordance with
and subject to paragraph (c) of this Section, as if such
Participant had continued in the employment of Nortel
Networks Companies until the Release Date or Release Dates,
as applicable.
	 
	 	(ii)	 	In the event of Retirement of a Participant, with
respect to each Grant then outstanding (or any portion thereof
then outstanding) to such Participant for which RSUs have not
been issued prior to the date of Retirement, the RSUs covered
by any such Grant (or applicable portion thereof) to the
Participant shall be issued in accordance with and subject to
paragraph (c) of this Section, as if the Participant continued
in the employment of Nortel Networks Companies until the
Release Date for such Grant (or applicable portion thereof).
	 
	 	(iii)	 	In the event a Participant’s employment
terminates for any cause other than death or Retirement (with
or without notice, and whether or not in breach of contract by
the employer or employee), the RSUs covered by each Grant then
outstanding (or any portion thereof then outstanding) to such
Participant for which RSUs have not been issued prior to such
termination shall be forfeited with effect from the date of
such termination of employment with Nortel Networks Companies,
all such Grants shall expire in their entirety on such
termination and any such termination of employment for
whatever reason (with or without notice, and whether or not in
breach of contract by the employer or employee) shall not
entitle a Participant to any compensation or damages for loss
of any benefit under the Plan and, by his or her participation
in the Plan, a Participant irrevocably and unconditionally
waives his or her entitlement to any such compensation or
damages.

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	 	(e)	 	Cash Settlement Election by Participant

Except in the event of the occurrence of a Change in Control, and unless
otherwise determined by the Committee, a Participant may elect, by notice to
the Corporation prior to the Release Date for a Grant (or any specified portion
thereof), to settle the RSUs to be issued under paragraph (c) or (d) in the
form of a cash payment, and not in the form of RSU Shares. In this case, the
Participant shall receive a cash payment from the Corporation equal to the
number of RSUs being settled multiplied by the Share Price. Absent such an
election and except in the event of the occurrence of a Change in Control, the
RSUs shall be settled in the form of RSU Shares or cash, as determined by the
Committee and contemplated in paragraph (c) or (d) of this Section. The
election provided for in this paragraph (e) shall be subject to Section 9 such
that any cash payment in settlement of RSUs shall be reduced by all applicable
withholding taxes, social charges and any other applicable wage deduction
amounts and, except to the extent provided otherwise by the Committee, shall
not be available for any Participant who does not, immediately prior to the
Release Date, satisfy the Share ownership requirements applicable for such
Participant as prescribed from time to time.

	 	(f)	 	Right to RSUs in the Event of a Change in Control

In the event of the occurrence of a Change in Control, and unless
otherwise determined by the Committee, with respect to each Grant (or portion
thereof) then outstanding on the CIC Date,

	 	(i)	 	notwithstanding any other provision of this Plan,
any and all requirements that any Performance Criteria, if any,
be achieved for any purpose applicable to such Grant (or any
specified portion thereof) shall be waived as of the CIC Date;
and
	 
	 	(ii)	 	except as may be otherwise provided under the terms
of any other employee benefit plan approved by the Board of
Directors, each Participant who has received any such Grant (or
any applicable portion thereof) shall, on the applicable
Release Date which would have applied had the Change in Control
not occurred, be entitled to receive from the Corporation, in
full settlement of the RSUs covered by such Grant (or
applicable portion thereof), one of the following, at the sole
discretion of the Committee:

	 	(x)	 	a cash payment equal to the Special
Value (as defined below) for each Covered RSU (as
defined below); or
	 
	 	(y)	 	one CIC Share (as defined below) for
each Covered RSU (as defined below);

	 	 	 	provided that such Participant is continuously employed by
Nortel Networks Companies from the Effective Date of such
Grant to the Release Date or Release Dates.

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The term “Special Value” shall mean an amount with respect to each Covered
RSU determined as follows:

	 	(i)	 	if any Shares are sold as part of the transaction
constituting the Change in Control, the Special Value shall
equal the weighted average of the prices paid for those Shares
by the acquiror, provided that if any portion of the
consideration paid for such Shares by the acquiror is paid in
property other than cash, the Board of Directors (as
constituted immediately prior to the CIC Date) shall determine
the fair market value of such property as of the CIC Date for
purposes of determining the Special Value under this paragraph
(f); and
	 
	 	(ii)	 	if no Shares are sold as part of the transaction
constituting the Change in Control, the Special Value shall
equal the arithmetic average of the closing prices for the
Shares on The Toronto Stock Exchange for the 20 trading days
immediately preceding the CIC Date.

The term “CIC Share” shall mean the following with respect to each Covered
RSU:

	 	(i)	 	the sum of: (A) the number of Consideration
Shares (as defined below), rounded to the nearest whole
number, that is equal to the product of (x) one Share
multiplied by (y) the number of Consideration Shares (as
defined below) received by the shareholders of Nortel Networks
in respect of one Share, if, in connection with the
transaction constituting the Change in Control, the
shareholders of Nortel Networks exchange their Shares for, or
otherwise convert their Shares into, shares of equity
securities of the acquiror (or its direct or indirect parent)
(such shares of equity securities, the “Consideration
Shares”); and (B) the amount, if any, that is equal to the
product of (x) one Share multiplied by (y) any cash or other
property, the fair market value of which shall be determined
by the Board of Directors (as constituted immediately prior to
the CIC Date), received by the shareholders of Nortel Networks
in respect of one Share, in connection with such transaction;
and
	 
	 	(ii)	 	in the case of all other transactions
constituting the Change in Control, one Share, as adjusted
pursuant to Section 7 hereof in connection with such
transaction, if applicable;

and, in each case, as further adjusted pursuant to Section 7, if applicable, in
respect of covered events occurring after such Change in Control.

The term “Covered RSU” shall mean, with respect to each Grant (or portion
thereof) that is outstanding on the CIC Date, the number of RSUs that would
have been issued to a Participant on the applicable Release Date and settled in
the form of RSU Shares had (x) the Participant continued in the employment of
Nortel Networks Companies until such Release Date and (y) all Performance
Criteria, if any, applicable to such Grant (or any applicable portion

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thereof) (in all cases, determined without regard to the occurrence of the
Change in Control) had been met (but not exceeded) during the applicable
Performance Period or Performance Segment, if any.

	 	(g)	 	Non-Transferability

The rights or interests of a Participant under the Plan shall not be
assignable or transferable, otherwise than by will or the laws governing the
devolution of property in the event of death and such rights or interests shall
not be encumbered.

	 	(h)	 	RSUs Not Shares

Under no circumstances shall a Grant or an RSU be considered a Share, nor
shall a Grant or an RSU entitle any Participant to the exercise of voting
rights, the receipt of dividends or the exercise of any other rights attaching
to ownership of a Share, until delivery of an RSU Share in settlement of such
RSU in accordance with the terms of the Plan. Notwithstanding the foregoing,
in the event that Shares are purchased and held for the benefit of a
Participant prior to delivery of RSU Shares in settlement of any RSUs, the
Committee may determine the extent to which a Participant may be entitled to
exercise any voting rights, receive dividends or exercise any other rights
attaching to ownership of such Shares.

	 	(i)	 	RSU Shares Fully Paid

RSU Shares, if issued by Nortel Networks to settle RSUs under the Plan,
shall be considered fully paid in consideration of past service that is no less
in value than the fair equivalent of the money Nortel Networks would have
received if the RSU Shares had been issued for money.

	7.	 	EFFECTS OF ALTERATION OF SHARE CAPITAL

In the event that:

	 	(a)	 	a dividend shall be declared upon the Shares
payable in Shares of Nortel Networks;
	 
	 	(b)	 	the outstanding Shares shall be changed into or
exchanged for a different number or kind of shares or other
securities of Nortel Networks or of another corporation,
whether through an arrangement, plan of arrangement,
amalgamation or other similar statutory procedure, or a share
recapitalization, subdivision or consolidation;
	 
	 	(c)	 	there shall be any change, other than those
specified in paragraphs (a) and (b) of this Section, in the
number or kind of outstanding Shares or of any shares or other
securities into which such Shares shall have been changed or
for which they shall have been exchanged; or
	 
	 	(d)	 	there shall be a distribution of assets or shares
to shareholders of Nortel Networks out of the ordinary course
of business,

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then, if the Board of Directors shall in its sole discretion determine that
such change equitably requires an adjustment in the number of RSUs with respect
to which Grants may be made pursuant to the Plan but not yet covered by Grants,
of the RSUs then covered by Grants, of the RSUs generally available for Grants
under the Plan and of the RSUs available for Grants under the Plan in any
calendar year, such adjustment shall be made by the Board of Directors and
shall be effective and binding for all purposes.

No adjustment provided for in this Section shall entitle a Participant to
be allocated a fractional RSU, or receive a fractional RSU Share or any payment
in lieu thereof, and the total adjustment with respect to each RSU shall be
limited accordingly.

	8.	 	AMENDMENT AND TERMINATION

The Board of Directors may from time to time amend, suspend or terminate
the Plan in whole or in part. The Committee may from time to time amend the
terms of Grants made under the Plan, subject to confirmation by the Board of
Directors and the obtaining of any required regulatory or other approvals and,
if any such amendment will materially adversely affect the rights of a
Participant with respect to a Grant, the obtaining of the written consent of
such Participant to such amendment. Notwithstanding the foregoing, (i) the
obtaining of the written consent of any Participant to an amendment which
materially adversely affects the rights of such Participant with respect to a
Grant shall not be required if such amendment is required to comply with
applicable laws, regulations, rules, orders of governmental or regulatory
authorities or the requirements of any stock exchange on which Shares of Nortel
Networks are listed and (ii) no amendment may be made to paragraph (f) of
Section 6 of the Plan or to the defined terms referred to in paragraph (f) of
Section 6 on or after the CIC Date.

	9.	 	MISCELLANEOUS PROVISIONS

Participation in the Plan by a Designated Employee is voluntary. No
employee shall have any claim or right to receive Grants under the Plan, and
the Grant and issuance of RSUs under the Plan shall not be construed as giving
a Participant any right to continue in the employment of Nortel Networks
Companies or to receive any additional Grants, or affect the right of Nortel
Networks Companies to terminate the employment of any Participant. Unless the
Committee determines otherwise, no notice of termination or payment in lieu
thereof shall extend the period of employment for purposes of this Plan.

The Committee and/or the Administrator may adopt and apply rules that in
its opinion will ensure that Nortel Networks Companies will be able to comply
with applicable provisions of any federal, provincial, state or local law
relating to the withholding of tax, including on the amount, if any, included
in income of a Participant. Nortel Networks Companies or the Administrator may
withhold from any amount payable to a Participant, either under this Plan, or
otherwise, such amount as may be necessary so as to ensure that Nortel Networks
Companies will be able to comply with applicable provisions of any federal,
provincial, state or local law relating to withholding of tax or other required
deductions, including on the amount, if any, includable in the income of a
Participant. Nortel Networks Companies or the Administrator shall, in this
connection, have the right in its discretion to satisfy any such withholding
tax liability by retaining or acquiring any Shares which would otherwise be

13

 

 issued or provided to a Participant hereunder, or withholding any portion
of any cash amount payable to a Participant hereunder. Nortel Networks
Companies or the Administrator shall also have the right to withhold the
delivery of any RSUs and RSU Shares and any cash payment payable to a
Participant hereunder unless and until such Participant pays to Nortel Networks
Companies a sum sufficient to indemnify Nortel Networks Companies for any
liability to withhold tax in respect of the amounts included in the income of
such Participant as a result of the settlement of RSUs under this Plan, to the
extent that such tax is not otherwise being withheld from payments to such
Participant by Nortel Networks Companies or the Administrator.

Participation in the Plan by any Participant shall be construed as
acceptance of the terms and conditions of the Plan by the Participant and as to
the Participant’s agreement to be bound thereby. The Plan shall be construed
in accordance with and governed by the laws of the Province of Ontario.

In this Plan, whenever the context so requires, the masculine gender
includes the feminine gender and a singular number includes the plural number.

	10.	 	EFFECTIVE DATE AND TERM OF THE PLAN

The Plan originally became effective upon its adoption by the Board of
Directors. Any amendments to the Plan shall become effective upon their
adoption by the Board of Directors. The Plan shall terminate on the date
determined by the Board of Directors pursuant to Section 8 hereof, and no
Grants may become effective under the Plan after the date of termination, but
such termination shall not affect any Grants that became effective pursuant to
the Plan prior to such termination.

The Plan was adopted with immediate effect on January 30, 1997 and was
subsequently amended on April 29, 1999 with immediate effect, on August 19,
1999 effective September 1, 1999, on February 15, 2000 with immediate effect,
on April 27, 2000, effective as of the Restatement Effective Date, on October
26, 2000 effective November 15, 2000, and on January 23, 2003 with immediate
effect.

14Exhibit 4.1

[LOGO]   FIRST REPUBLIC BANK
         It's a privilege to serve you(R)
         -----------------------------------------------------------------------

                                 LOAN AGREEMENT

                                (LINE OF CREDIT)

      This Loan Agreement (Line of Credit) (the "Agreement"), dated MARCH 31,
2003 for reference purposes only, is executed by and between COSI, INC., A
DELAWARE CORPORATION (the "Borrower"), and FIRST REPUBLIC BANK (the "Lender"),
with reference to the following facts:

      A. Borrower has requested a line of credit loan in the original principal
amount of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00) (referred to as the
"Loan" or the "Line of Credit Loan") from the Lender for the purposes set forth
in this Agreement.

      B. Borrower and the Lender desire to enter into this Agreement to
establish certain terms and conditions relating to the Loan.

      THEREFORE, for valuable consideration, Borrower and the Lender agree as
follows:

                                    ARTICLE 1

                                   DEFINITIONS

      For purposes of this Agreement, the following terms shall have the
following definitions:

            1.1 BORROWER'S APPLICATION. "Borrower's Application" means the
written application, if any, and all financial statements and other information
submitted by Borrower to the Lender in connection with the Lender's approval of
the Loan.

            1.2 BUSINESS DAY. "Business Day" means any day other than a day on
which commercial banks in California are authorized or required by law to close.

            1.3 COLLATERAL. "Collateral" means all real and personal property,
if any, of Borrower or any third Person now or hereafter securing all or any
part of the Obligations.

            1.4 COMMITMENT. "Commitment" means an amount equal to the original
principal face amount of the Note.

            1.5 DEFAULT. "Default" means any event which, with notice or passage
of time or both, would constitute an Event of Default.

            1.6 EVENT OF DEFAULT. "Event of Default" means the Lender's
declaration by written notice to Borrower of a default by Borrower under the
Loan Documents based on the occurrence of one or more of the events described in
Section 4.1 of this Agreement.

            1.7 GOVERNMENTAL AUTHORITIES. "Governmental Authorities" means (a)
the United States; (b) the state, county, city or other political subdivision in
which any of the Collateral is located; (c) all other governmental or
quasi-governmental authorities, boards, bureaus, agencies, commissions,
departments, administrative tribunals, instrumentalities and authorities; and
(d) all judicial authorities and public utilities having or exercising
jurisdiction over Borrower or the Collateral. The term "Governmental Authority"
means any one of the Governmental Authorities.

            1.8 GOVERNMENTAL PERMITS. "Governmental Permits" means all permits,
approvals, licenses, and authorizations now or hereafter issued by any
Governmental Authorities for or in connection with the conduct of Borrower's
business or the ownership or use by Borrower of the Collateral or any of its
other assets.

            1.9 GOVERNMENTAL REQUIREMENTS. "Governmental Requirements" means all
existing and future laws, ordinances, rules, regulations, orders, and
requirements of all Governmental Authorities applicable to Borrower, the
Collateral or any of Borrower's other assets.

            1.10 GUARANTIES. "Guaranties" means, collectively, (a) the
Continuing Guaranties of Payment and Performance and all other guaranty
agreements of any kind, if any, now or hereafter executed by the Guarantors, and
all

REV. DATE 6/00 - SFLOC            Page 1 of 14
LOAN NO:  850643866/AFS
<PAGE>

extensions, renewals, modifications and replacements of any or all of such
documents; and (b) any pledge of or grant of security interest in any
certificate of deposit, account, stock, securities, bonds, or other property or
asset of any kind, if any, now or hereafter executed by any third Person to
secure any or all of the Obligations, and all extensions, renewals,
modifications and replacements of any or all of such documents (collectively,
the "Third Party Pledge Agreements").

            1.11 GUARANTORS. "Guarantors" means, collectively, (a) the Person or
Persons, if any, now or hereafter guaranteeing payment of the Note or payment or
performance of any or all of the other Obligations, including the Persons, if
any, identified as guarantors in the Loan Schedule; and (b) the Person or
Persons, if any, now or hereafter entering into any of the Third Party Pledge
Agreements to secure any or all of the Obligations.

            1.12 LINE OF CREDIT ADVANCE. "Line of Credit Advance" means each
advance of principal under the Note made by the Lender to or for the benefit of
Borrower pursuant to a Request for Advance or otherwise.

            1.13 LOAN CLOSING. "Loan Closing" or "Closing Date" means the
earlier of the first date on which all or any part of the proceeds of the Loan
are initially disbursed by the Lender to or for the benefit of Borrower.

            1.14 LOAN DOCUMENTS. "Loan Documents" means the Note, Security
Agreements, Guaranties, Third Party Pledge Agreements, this Agreement, all other
documents now or hereafter executed by Borrower and any of the Guarantors,
respectively, and delivered to the Lender at the Lender's request in connection
with the Loan, and all extensions, renewals, modifications and replacements of
any or all of such documents.

            1.15 LOAN FEE. "Loan Fee" means the Loan fee specified in Section 5
of the Loan Schedule which shall be payable by Borrower to the Lender prior to
or on the Loan Closing.

            1.16 LOAN SCHEDULE. "Loan Schedule" means the Loan Schedule attached
to this Agreement as Exhibit "A."

            1.17 MATURITY DATE. "Maturity Date" means the stated maturity date
of the Note.

            1.18 NOTE. "Note" means (a) the promissory note dated the same date
as this Agreement executed by Borrower evidencing the Loan and all extensions,
renewals, modifications and replacements of such promissory note; and (b) any
additional note or notes now or hereafter executed by Borrower in favor of the
Lender which specifically recite that they arise out of this Agreement, and all
extensions, renewals, modifications and replacements of any or all of such note
or notes.

            1.19 OBLIGATIONS. "Obligations" means all debts, obligations, and
liabilities of Borrower to the Lender currently existing or hereafter made,
incurred or created, whether voluntary or involuntary, and however arising or
evidenced, whether direct or acquired by the Lender by assignment or succession,
whether due or not due, absolute or continent, liquidated or unliquidated,
determined or undetermined, whether under this Agreement, the Note, any of the
other Loan Documents, or otherwise, and whether Borrower may be liable
individually or jointly, or whether recovery upon such debt may be or become
barred by any statute of limitations or otherwise unenforceable, including all
attorneys' fees and costs now or hereafter payable by Borrower to the Lender
under the Loan Documents or in connection with the collection and enforcement of
such debts, obligations and liabilities. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not secure and the
term "Obligations shall not include, any debts that are or may hereafter
constitute "consumer credit" which is subject to the disclosure requirements of
the federal Truth-In Lending Act (15 U.S.C. Section 1601, et seq.) or any
similar state law in effect from time to time, unless the Lender and Borrower
shall otherwise agree in a separate written agreement.

            1.20 PERSON. "Person" means any natural person or any entity,
including any corporation, partnership, joint venture, trust, limited liability
company, unincorporated organization, trustee, or Governmental Authority.

            1.21 PERSONAL PROPERTY SECURITY AGREEMENTS. "Personal Property
Security Agreement" or "Personal Property Security Agreements" means,
collectively, any and all personal security agreements, pledge agreements, and
Third Party Pledge Agreements, if any, now or hereafter executed by Borrower or
any other Person pursuant to which Borrower or such Person grants a personal
property security interest to the Lender to secure any or all of the
Obligations, and all extensions, renewals, modifications and replacements of any
or all of such documents.

            1.22 REAL PROPERTY SECURITY INSTRUMENTS. "Real Property Security
Instrument" or "Real Property Security Instruments" means, collectively, any and
all deeds of trust and mortgages, if any, now or hereafter executed by Borrower
or any other Person pursuant to which Borrower or such Person grants a lien on
real property to the Lender to secure any or all of the Obligations, and all
extensions, renewals, modifications and replacements of any or all of such
documents.

            1.23 REQUEST FOR ADVANCE. "Request for Advance" means a written or
telephonic request (or other form of request acceptable to the Lender) for an
advance of principal under the Line of Credit Note submitted by Borrower to the
Lender pursuant to this Agreement.

                                  Page 2 of 14
<PAGE>

            1.24 SECURITY AGREEMENTS. "Security Agreements" means, collectively,
the Personal Property Security Agreements and Real Property Security
Instruments.

            1.25 OTHER TERMS. All accounting terms with an initial capital
letter that are used but not defined in this Agreement shall have the respective
meanings given to such terms in accordance with generally accepted accounting
principles, consistently applied.

                                    ARTICLE 2

                          DISBURSEMENT OF LOAN PROCEEDS

            2.1 LINE OF CREDIT. The Lender agrees, on the terms and conditions
contained in this Agreement and the other Loan Documents, to make a line of
credit Loan to Borrower during the period from the Closing Date up to but not
including the Maturity Date in the aggregate principal amount not to exceed at
any time outstanding the amount of the Commitment.

            2.2 USE OF LOAN PROCEEDS. All Loan proceeds received by Borrower
shall be used by Borrower solely for payment of those costs, charges, and other
items shown in the Loan Disbursement Instructions executed by Borrower in
connection with the Loan, general working capital purposes in the ordinary
course of Borrower's business, and any other use specified in the Loan Schedule.
The Lender shall have no obligation to monitor or verify the use or application
of any Loan proceeds disbursed by the Lender. Borrower shall not, directly or
indirectly, use all or any part of the Loan proceeds for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System (the "Board of Governors")
or to extend credit to any Person for the purpose of purchasing or carrying any
such margin stock or for any purpose which violates or is inconsistent with
Regulation X of the Board of Governors, unless such use has been expressly
approved in writing by the Lender, in its discretion.

            2.3 INITIAL LOAN FEE. Concurrently with or prior to the Closing
Date, Borrower shall pay to the Lender the Loan Fee specified in the Loan
Schedule. The entire Loan Fee shall be deemed to be fully earned by the Lender
as of the Loan Closing, and no part of the Loan Fee shall be refundable to
Borrower, whether or not the principal balance of the Loan is prepaid prior to
the Maturity Date.

            2.4 REQUESTS FOR ADVANCES UNDER LINE OF CREDIT. Each Request for
Advance shall indicate the proposed date for the Line of Credit Advance
requested by Borrower in the Request for Advance (which date shall be acceptable
to the Lender and is referred to as the "Advance Date"). Each Request for
Advance shall be satisfactory to the Lender in form and substance. Each Advance
Date shall be a Business Day. Provided that no Default or Event of Default has
occurred and is continuing, not later than 4 P.M. Pacific Standard Time on the
Advance Date, the Lender shall make the Line of Credit Advance available to
Borrower in immediately available funds by deposit or credit to an account in
Borrower's name established or to be established at one of the Lender's offices,
by check payable directly to Borrower or to a payee designated by Borrower, or
by such other method as may be designated by the Lender, as designated by the
Lender.

            2.5 RELIANCE BY LENDER. The Lender may conclusively presume that all
requests, statements, information, certifications, and representations, whether
written or oral, submitted or made by Borrower or any of its agents to the
Lender in connection with the Loan are true and correct, and the Lender shall be
entitled to rely thereon, without investigation or inquiry of any kind by the
Lender, in disbursing the Loan proceeds and taking or refraining from taking any
other action in connection with the Loan. Without limiting the generality of
this Section, Borrower acknowledges and agrees that (a) it is in the best
interest of Borrower that the Lender respond to and be entitled to rely upon
Requests for Advances that are given by Borrower in writing, by telephone, or by
other telecommunication method acceptable to the Lender without the Lender
having to inquire into the actual authority of the Person making such request
and purporting to act on behalf of Borrower; (b) therefore, the Lender may
conclusively rely on any and all Requests for Advances (whether made in writing,
by telephone, or by other telecommunication method) made by (i) any Person who
purports to be one of the agents of Borrower who has been authorized to act for
Borrower in any resolution or other form of authorization of any kind delivered
to the Lender (a "Borrower Authorization"); and (ii) any other Person who the
Lender in good faith believes to be authorized to act for Borrower
(notwithstanding the fact that such other Person is not identified in any
Borrower Authorization); and (c) Borrower assumes all risks arising out of any
lack of actual authority by any Person submitting any form of Request for
Advance (whether made in writing, by telephone, or by other telecommunication
method) to the Lender and the Lender's reliance on such Request for Advance.

                                    ARTICLE 3

                              BORROWER'S COVENANTS

            3.1 EXISTENCE OF BORROWER. If Borrower is a corporation or other
form of entity, Borrower shall maintain its existence in good standing under the
laws of the state in which it is organized and maintain its qualification as a
foreign entity in good standing in each jurisdiction in which the nature of its
business requires qualification as a foreign entity and where the failure to
qualify would have a material adverse effect on Borrower's business.

                                  Page 3 of 14
<PAGE>

            3.2 BOOKS AND RECORDS; INSPECTIONS BY LENDER. Borrower shall keep
and maintain complete and accurate books and records relating to it business at
its principal place of business. The Lender shall have access to such books and
records at all reasonable times upon not less than two (2) Business Days prior
written notice to Borrower for the purposes of examination, inspection,
verification, copying and for any other reasonable purpose. Borrower authorizes
the Lender, at its option but without any obligation of any kind to do so, to
discuss the affairs, finances and accounts of Borrower with any of its officers
and directors and with Borrower's independent accountants and auditors, and
Borrower irrevocably authorizes all accountants and auditors employed or
retained by Borrower to respond to and answer all requests from the Lender for
financial and other information regarding Borrower. Borrower waives the benefit
of any accountant-client privilege or other evidentiary privilege precluding or
limiting the disclosure or delivery of any of its books and records to the
Lender (except that Borrower does not waive any attorney-client privilege).

            3.3 REPORTS. Without limiting any of the other terms of the Loan
Documents, from time to time within ten (10) Business Days after the Lender's
written reasonable request to Borrower, Borrower shall deliver to the Lender
such reports and information available to Borrower concerning the business,
financial condition and affairs of Borrower and each Guarantor as the Lender may
reasonably request.

            3.4 PAYMENT OF OBLIGATIONS; COMPLIANCE WITH FINANCIAL COVENANTS.
Borrower shall pay all of its indebtedness under the Note and pay and perform
all of its other Obligations under the Loan Documents as and when the same
become due. Without limiting the generality of the immediately preceding
sentence, Borrower shall comply with all of the financial covenants, if any,
contained in Section 6 of the Loan Schedule (the "Financial Covenants") and the
other terms set forth in the Loan Schedule.

            3.5 NOTICE OF MATERIAL ADVERSE CHANGES. Borrower shall immediately
notify the Lender in writing of (a) any material adverse change in the financial
condition of Borrower or any Guarantor; (b) any material adverse change in the
Collateral; (c) any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any claim or claims
which, individually or in the aggregate, may cause or result in a material
adverse change in the financial condition or business of Borrower or any
material impairment in the ability of Borrower to carry on its business in
substantially the same manner as it is now being conducted; and (d) any
occurrence which could form the basis of an Event of Default.

            3.6 FURTHER ASSURANCES. Upon the Lender's request, Borrower shall
execute and deliver to the Lender such further documents and agreements, in form
and substance satisfactory to the Lender, as the Lender may reasonably require
to effectuate the terms of this Agreement and each of the other Loan Documents.

            3.7 CLAIMS. Borrower shall pay when due all claims which, if unpaid,
might become a lien or charge on any or all of the properties or assets of
Borrower.

            3.8 TAXES. Borrower shall pay when due all foreign, federal, state
and local taxes, assessments, and governmental charges now or hereafter levied
upon or against Borrower or any of its properties or assets, including all
income, franchise, personal property, real property, excise, withholding, sales
and use taxes.

            3.9 CONTEST. Borrower shall have the right to contest the payment of
any tax, assessment, charge or claim referred to in Section 3.7 or 3.8 above,
provided that (a) appropriate contest proceedings are promptly and in good faith
commenced and diligently prosecuted by Borrower; (b) a bond is posted or other
appropriate action reasonably acceptable to the Lender is taken to prevent such
tax, assessment, charge or claim from becoming a lien on the properties and
assets of Borrower; and (c) Borrower notifies the Lender in writing of the
commencement of, and any material development in, such proceedings.

            3.10 PENSION PLANS. Borrower shall pay all amounts necessary to fund
all of its present and future employee benefit plans in accordance with their
terms, and Borrower shall not permit the occurrence of any event with respect to
any such plan which would result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other Governmental
Authority.

            3.11 INSURANCE. Borrower shall maintain insurance against such risks
and liabilities, in such forms, and for such amounts as are customarily
maintained by entities engaged in the same or similar businesses and similarly
situated. The form and substance of all such insurance policies shall be
reasonably acceptable to the Lender. Such insurance shall be maintained with
financially sound and reputable insurers reasonably acceptable to the Lender.
Upon the Lender's request, Borrower shall provide the Lender with evidence
satisfactory to the Lender regarding the maintenance of the insurance required
by this Section, including proof of premium payments and copies of insurance
policies, certificates of insurance, and endorsements. If Borrower fails to
provide or pay for any policies of insurance required by this Section, the
Lender, at its option and in its discretion, but without any obligation of any
kind to do so, shall have the right to obtain the same at Borrower's expense.

            3.12 MAINTENANCE OF PROPERTIES. Borrower shall maintain its
properties in good condition and repair.

                                  Page 4 of 14
<PAGE>

            3.13 LICENSES. Borrower shall maintain all Governmental Permits
necessary for the ownership of it properties and the conduct of its businesses,
except where the failure to do so would not have a material adverse effect on
Borrower's financial condition or results of operations.

            3.14 COMPLIANCE WITH APPLICABLE LAWS. Borrower shall at all times
comply with and keep in effect all Governmental Permits relating to Borrower,
the Collateral, and Borrower's other assets. Borrower shall at all times comply
with, and shall cause the Collateral to comply with (a) all Governmental
Requirements, including all Hazardous Substance Laws; (b) all requirements and
orders of all judicial authorities which have jurisdiction over Borrower or the
Collateral; and (c) all covenants, conditions, restrictions and other documents
relating to Borrower or the Collateral, except where the failure to do so would
not have a material adverse effect on Borrower's financial condition or results
of operations.

            3.15 PLACE OF BUSINESS; BORROWER'S NAME. Borrower shall give the
Lender at least thirty (30) days prior written notice of any change in the
location of Borrower's chief executive office. Borrower shall give the Lender
not less than thirty (30) days prior written notice before changing its name or
doing business under any other name. Borrower has complied, and will in the
future comply, with all Governmental Requirements relating to the conduct of
Borrower's business under a fictitious business name.

            3.16 ANNUAL FINANCIAL STATEMENTS. Within the time period set forth
in the Loan Schedule after the close of Borrower's fiscal year, Borrower shall
deliver to the Lender a balance sheet and a statement of profit and loss for
Borrower for such fiscal year. Borrower shall cause all financial statements
furnished to the Lender under this Agreement to be certified by the party to
whom such statements apply. All annual financial statements furnished to the
Lender under this Section shall comply with the requirements of Section 7.1 of
the Loan Schedule.

            3.17 QUARTERLY/MONTHLY FINANCIAL STATEMENTS. If specifically
required by the Lender in the Loan Schedule or at any time after the Loan
Closing, (a) within forty-five (45) days after the close of each of the first
three (3) calendar quarters, Borrower shall deliver to the Lender a balance
sheet and a statement of profit and loss for Borrower for such calendar quarter;
and (b) within thirty (30) days after the end of each calendar month, Borrower
shall deliver to the Lender a balance sheet and statement of profit and loss for
Borrower for such calendar month. If the Lender specifically requires quarterly
or monthly financial statements, such statements shall comply with the
requirements of Section 7.2 of the Loan Schedule.

                                    ARTICLE 4

                              DEFAULT AND REMEDIES

            4.1 EVENTS OF DEFAULT. The Lender, at its option, may declare
Borrower to be in default under this Agreement and the other Loan Documents upon
the occurrence of any or all of the following events (the declaration of such a
default by the Lender shall constitute an "Event of Default"):

                  (a) PAYMENT OF NOTE AND OTHER MONETARY OBLIGATIONS. If
Borrower fails to pay any of its indebtedness under the Note or perform any of
its other obligations under the Loan Documents or under any other document with
Lender requiring the payment of money to the Lender or any third Person within
fifteen (15) days after the date on which such indebtedness or monetary
obligation is due; provided, however, that the fifteen (15) day grace period
contained in this Section 4.1(a) shall not apply to Borrower's obligation to pay
the outstanding principal balance and all accrued but unpaid interest under the
Note on the Maturity Date of the Note;

                  (b) FAILURE TO COMPLY WITH FINANCIAL COVENANTS, PERMIT
INSPECTIONS, OR TO PERFORM CERTAIN NON-MONETARY OBLIGATIONS UNDER OTHER LOAN
DOCUMENTS. If (i) Borrower fails to comply with any or all of the Financial
Covenants, if any; (ii) Borrower fails to permit any inspection the Collateral
or any of Borrower's books and records in accordance with the terms of the Loan
Documents; or (iii) Borrower breaches any of its non-monetary obligations to the
Lender or any third Person under any of the Loan Documents or under any other
document with Lender, which breach is not reasonably susceptible to being cured
by Borrower;

                  (c) PERFORMANCE OF NON-MONETARY OBLIGATIONS UNDER OTHER LOAN
DOCUMENTS WHICH ARE CURABLE. If (i) Borrower fails to perform any of its
non-monetary obligations to the Lender (other than those set forth in Section
4.1(b) above) or any third Person under any of the Loan Documents or under any
other document with Lender when due; and (ii) if such non-monetary obligation is
reasonably susceptible to being cured by Borrower, Borrower fails to diligently
complete a cure of its breach of such non-monetary obligation as soon as
reasonably practicable after written notice by the Lender to Borrower setting
forth such non-monetary breach, but in any event within thirty (30) days after
such notice is given; provided, however, that the thirty (30) day cure period
contained in this Section 4.1(c) shall not be deemed to apply if Borrower
commits more than two (2) such non-monetary breaches within any twelve (12)
calendar month period. Without limiting any of the terms of this Section 4.1(c),
the cure provision contained in this Section 4.1(c) (the "Cure Provision") shall
not apply with respect to Borrower's failure to comply with the Financial
Covenants or Borrower's breach of any non-monetary obligation of Borrower that
is not reasonably susceptible to being cured by Borrower, including any transfer
of the Collateral in violation of the terms of the Loan Documents.
Notwithstanding anything to the contrary contained in this Section 4.1(c) or
Section 4.1(a) above, if Borrower breaches any of the terms of the Loan
Documents, and if the Lender, in its discretion, determines that such breach
impairs the Lender's security for the Loan, the Lender,

                                  Page 5 of 14
<PAGE>

immediately upon the occurrence of any such breach, shall have the right to take
such actions and exercise such remedies under the Loan Documents as the Lender
may in good faith determine to be necessary or appropriate to avoid such
impairment;

                  (d) MISREPRESENTATION. If any request, statement, information,
certification, representation, or warranty, whether written or oral, submitted
or made by Borrower to the Lender in connection with the Loan or any other
extension of credit by the Lender to Borrower, now or in the future, is false or
misleading in any material respect;

                  (e) INSOLVENCY OF BORROWER. If (i) a petition is filed by or
against Borrower under the federal bankruptcy laws or any other applicable
federal or state bankruptcy, insolvency or similar law; (ii) a receiver,
liquidator, trustee, custodian, sequestrator, or other similar official is
appointed to take possession of Borrower, the Collateral, or any material part
of Borrower's other assets, or Borrower consents to such appointment; (iii)
Borrower makes an assignment for the benefit of creditors; (iv) Borrower takes
any action in furtherance of any of the foregoing; or (v) there is a material
adverse change in Borrower's financial condition as represented to the Lender in
connection with the Lender's approval of the Loan and the Lender reasonably
determines that such change materially impairs Borrower's ability to perform any
or all of the Obligations; provided, however, that Borrower shall have sixty
(60) days within which to cause any involuntary bankruptcy proceeding to be
dismissed or the involuntary appointment of any receiver, liquidator, trustee,
custodian, or sequestrator to be discharged. The cure provision contained in
this Section shall be in lieu of, and not in addition to, any and all other cure
provisions contained in the Loan Documents;

                  (f) INSOLVENCY OF OTHER PERSONS. If any of the events
specified in clauses (i) through (v) of Section 4.1(e) above occurs with respect
to any Guarantor, as if such Guarantor were the Borrower described therein;

                  (g) PERFORMANCE OF OBLIGATIONS TO THIRD PERSONS. If (i)
Borrower fails to pay any of its indebtedness or to perform any of its
obligations when due under any document between Borrower and any other Person
who holds a lien on the Collateral that is senior to the lien held by the Lender
in the Collateral and fails to cure such breach within any applicable cure
period under such document; or (ii) Borrower fails to pay any of its
indebtedness or to perform any of its obligations when due under any other
material document between Borrower and any other Person, provided the Lender
reasonably determines that such failure has an actual or potential material
adverse effect on the Collateral or Borrower's ability to perform any or all of
the Obligations. Nothing contained in this Section constitutes or shall be
construed as the Lender's consent to any lien being placed on the Collateral,
other than the Permitted Liens;

                  (h) ATTACHMENT. If all or any material part of the assets of
Borrower or any Guarantor are attached, seized, subjected to a writ or levied
upon by any court process and Borrower fails to cause such attachment, seizure,
writ or levy to be fully released or removed within sixty (60) days after the
occurrence of such event. The cure provision contained in this Section shall be
in lieu of, and not in addition to, any and all other cure periods contained in
the Loan Documents;

                  (i) INJUNCTIONS. If a court order is entered against Borrower
or any Guarantor enjoining the conduct of all or part of such Person's business
and Borrower fails to cause such injunction to be fully stayed, dissolved or
removed within sixty (60) days after such order is entered. The cure provision
contained in this Section shall be in lieu of, and not in addition to, any and
all other cure periods contained in the Loan Documents;

                  (j) DISSOLUTION. If Borrower or any Guarantor is a
corporation, partnership, limited liability company, trust or other entity, the
dissolution, liquidation, or termination of existence of such Person;

                  (k) TRANSFERS OF INTERESTS. If Borrower is a corporation,
partnership, limited liability company, or other entity, the sale or transfer of
an aggregate of more than twenty-five percent (25%) of the beneficial interests
in Borrower without the Lender's prior written consent;

                  (l) DEATH; INCOMPETENCE. If Borrower or any Guarantor is an
individual, the death of such Person or judicial determination that such person
is mentally incompetent, except where applicable law limits or prohibits the
Lender's declaration of a default based on such occurrences; provided, however,
that the Lender shall not declare an Event of Default to exist based solely on
the death or mental incompetence of any individual Guarantor if, within
forty-five (45) days after the occurrence of such event, Borrower causes a
substitute guarantor to execute and deliver to the Lender a continuing guaranty
in the form previously executed by the affected Guarantor, and the Lender in its
discretion determines that such substitute guarantor's financial condition is
comparable to that of the affected Guarantor and that such substitute Guarantor
is otherwise reasonably acceptable to the Lender;

                  (m) IMPAIRMENT OF SECURITY INTEREST OR LENDER'S RIGHTS. If (i)
the validity or priority of the Lender's security interest in the Collateral is
impaired for any reason; or (ii) the value of the Collateral has deteriorated,
declined or depreciated as a result of any intentional act or omission by
Borrower; or (iii) the Lender, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an event
affecting Borrower, or any Guarantor or the Collateral prior to the Closing Date
of which Lender had no actual knowledge as of the Closing Date or because of the
occurrence of such an event on or subsequent to the Closing Date;

                                  Page 6 of 14
<PAGE>

                  (n) DEFAULT BY GUARANTORS. If any Guarantor fails to pay any
of its indebtedness or perform any of its obligations under any of the
Guaranties when due or the revocation, limitation or termination or attempted
revocation, limitation or termination of any of the obligations of any Guarantor
under any of the Guaranties; or

                  (o) MISREPRESENTATION BY GUARANTORS. If any request,
statement, information, certification, representation, or warranty, whether
written or oral, submitted or made by any Guarantor to the Lender in connection
with the Loan or any other extension of credit by the Lender to Borrower or such
Guarantor, now or in the future, is false or misleading in any material respect.

            4.2 REMEDIES. Upon the Lender's election to declare Borrower to be
in default under the Loan Documents pursuant to Section 4.1 above, Borrower
shall be deemed to be in default under the Loan Documents, and the Lender shall
have the right to do any or all of the following:

                  (a) ACCELERATION. The Lender shall have the right to declare
any or all of the Obligations to be immediately due and payable, including the
entire principal amount and all accrued but unpaid interest under the Note, and
notwithstanding the Maturity Date of the Note, such Obligations shall thereupon
be immediately due and payable;

                  (b) REMEDIES UNDER OTHER LOAN DOCUMENTS. The Lender may
exercise any or all rights and remedies which the Lender may have under any or
all of the Loan Documents and applicable law;

                  (c) DISCONTINUATION OF DISBURSEMENTS. The Lender may
discontinue or withhold any or all advances of the Loan proceeds, and the Lender
shall have no further obligation to make any Line of Credit Advance; and

                  (d) DISCONTINUATION OF OTHER EXTENSIONS OF CREDIT. The Lender
may discontinue advancing money or extending credit to or for the benefit of
Borrower in connection with any other document between the Lender and Borrower.

                                    ARTICLE 5

                         WARRANTIES AND REPRESENTATIONS

            5.1 BORROWER'S WARRANTIES AND REPRESENTATIONS. As a material
inducement to the Lender's extension of credit to Borrower in connection with
the Loan, Borrower warrants and represents to the Lender as follows:

                  (a) EXISTENCE. If Borrower is a corporation, partnership,
limited liability company, trust, or other form of entity, Borrower is duly
organized, validly existing and in good standing under the laws of the state in
which Borrower is organized, and Borrower is qualified to do business and is in
good standing in each jurisdiction in which the ownership of its assets or the
conduct of its business requires qualification as a foreign entity and where the
failure to so qualify would have a material adverse effect on Borrower's
business.

                  (b) AUTHORITY TO OWN ASSETS. Borrower has the full power and
authority to own its assets and to transact the business in which it is now
engaged.

                  (c) AUTHORITY TO EXECUTE LOAN DOCUMENTS. Borrower has the full
power and authority to execute, deliver and perform its obligations under the
Loan Documents, and the execution, delivery and performance of the Loan
Documents and the consummation of the transactions contemplated thereby have
been duly authorized by all requisite action on the part of Borrower. The Person
or Persons signing the Loan Documents on behalf of Borrower are duly authorized
to execute the Loan Documents and all other documents necessary to consummate
the Loan on behalf of Borrower.

                  (d) VALID OBLIGATIONS. The Loan Documents are legal, valid and
binding obligations of Borrower and the Guarantors, as applicable, enforceable
in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally).

                  (e) NO CONSENTS REQUIRED. No consent of any other Person and
no consent, approval, authorization or other action by or filing with any
Governmental Authority not previously obtained by Borrower is required in
connection with the execution, delivery and performance of the Loan Documents by
Borrower.

                  (f) CHIEF EXECUTIVE OFFICE. Borrower's chief executive office
is located at the address set forth in Borrower's Application..

                  (g) BORROWER'S NAME. Borrower has set forth above its full and
correct name, and Borrower does not use any other names or tradenames, except
for the tradenames disclosed in Borrower's Application.

                  (h) NO VIOLATIONS. The execution, delivery and performance of
the Loan Documents and compliance with their respective terms will not conflict
with or result in a violation or breach of any of the terms or conditions

                                  Page 7 of 14
<PAGE>

of any document to which Borrower is a party or by which Borrower is bound or
any order or judgment of any court or Governmental Authority binding on
Borrower.

                  (i) ORGANIZATIONAL DOCUMENTS. Borrower's execution, delivery
and performance of the Loan Documents and Borrower's compliance with their
respective terms (i) will not violate any Governmental Requirements applicable
to Borrower; (ii) Borrower's agreement or certificate of limited partnership, if
Borrower is a limited partnership; (iii) Borrower's agreement or statement of
partnership, if Borrower is a general partnership; (iv) Borrower's articles of
incorporation or bylaws, if Borrower is a corporation; (v) Borrower's trust
agreement, if Borrower is a trust; or (vi) Borrower's articles of organization
or operating agreement, if Borrower is a limited liability company.

                  (j) TAX CLAIMS. To the best of Borrower's knowledge, there are
no claims or adjustments proposed by any taxing authority for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower and each Guarantor have filed all federal, state and local
tax returns required to be filed under applicable Governmental Requirements and
have paid all taxes, assessments, fees, penalties, and other governmental
charges that are due and payable in connection therewith.

                  (k) LITIGATION. Except for the class action litigations
previously disclosed to Lender, to the best of Borrower's knowledge, there are
no actions, suits, proceedings or investigations pending or threatened against
or affecting Borrower or any Guarantor in any court or before any other
Governmental Authority which may result, either separately or in the aggregate,
in any material adverse change in the assets, properties, business, prospects,
profits, or condition of Borrower or any of such Persons, nor does Borrower know
of any basis for any such action, suit, proceeding or investigation.

                  (l) FINANCIAL STATEMENTS. All financial statements respecting
the financial condition of Borrower which have been furnished to the Lender
prior to the Closing Date (i) are accurate and complete in all material respects
as of the dates appearing thereon; (ii) present fairly the financial condition
and results of operations of the Person to whom the financial statement applies
as of the dates and for the periods shown on such statements; and (iii) disclose
all contingent liabilities affecting the Person to whom the financial statement
applies to the extent that such disclosure is required by generally accepted
accounting principles. Since the last date covered by any such statement, there
has been no material adverse change in the financial condition of Borrower, and
Borrower is now and at all times hereafter shall continue to be solvent.

                  (m) PERIODIC FINANCIAL STATEMENTS. All financial statements
respecting the financial condition of Borrower hereafter delivered to the Lender
by Borrower shall satisfy the requirements of clauses (i) through (iii) of
Section 5.1(l) above.

                  (n) MARGIN STOCK. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any "margin stock"
(as defined in Regulation G of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Loan shall be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock, unless such use is approved in writing
by the Lender or otherwise expressly contemplated by the Loan Documents.

                  (o) LICENSES AND GOVERNMENTAL REQUIREMENTS. Neither Borrower
nor any Guarantor (i) is in violation in any material respect of any
Governmental Permits or Governmental Requirements (including all Hazardous
Substance Laws) to which it is subject; or (ii) has failed to obtain any
Governmental Permits necessary for the ownership of its properties or the
conduct of its business except where the failure to do so would not have a
material adverse effect on Borrower's financial condition or results of
operations.

                  (p) OTHER FACTS. All of the information set forth in
Borrower's Application is accurate and complete in all material respects. There
is no fact which Borrower has failed to disclose to the Lender in writing which
(i) may materially and adversely affect the assets, properties, business,
prospects, profits, or condition of Borrower, or any Guarantor; or (ii) may be
necessary to disclose in order to keep the representations and warranties
contained in this Section 5.1 from being misleading.

            5.2 BORROWER'S WARRANTIES. Borrower's warranties and representations
set forth in Section 5.1 above shall be true and correct at the time of
execution of this Agreement and as of the Closing Date, shall survive the
closing of the Loan, and shall remain true and correct as of the date on which
such warranties and representations are given. For purposes of this Agreement
and the other Loan Documents, the term "to the best of Borrower's knowledge"
shall be deemed to mean to the best knowledge of Borrower after a commercially
reasonable and diligent investigation, inspection and inquiry by Borrower.

                                    ARTICLE 6

                                  MISCELLANEOUS

            6.1 RELATIONSHIP OF PARTIES. The Lender shall not be deemed to be,
nor do the Lender or Borrower intend that the Lender shall ever become, a
partner, joint venturer, trustee, fiduciary, manager, controlling person,

                                  Page 8 of 14
<PAGE>

or other business associate or participant of any kind in the business or
affairs of Borrower, whether as a result of the Loan Documents or any of the
transactions contemplated by the Loan Documents. In exercising its rights and
remedies under the Loan Documents, the Lender shall at all times be acting only
as a lender to Borrower within the normal and usual scope of activities of a
lender.

            6.2 INDEMNIFICATION. Borrower shall indemnify and hold the Lender
and its officers, directors, agents, employees, representatives, shareholders,
affiliates, successors and assigns (collectively, the "Indemnified Parties")
harmless from and against any and all claims, demands, damages (including
special and consequential damages), liabilities, actions, causes of action,
legal proceedings, administrative proceedings, suits, injuries, costs, losses,
debts, liens, interest, fines, charges, penalties and expenses (including
attorneys', accountants', consultants', and expert witness fees and costs) of
every kind and nature (collectively, the "Claims") arising directly or
indirectly out of or relating to any or all of the following: (i) Borrower's
breach of any of its Obligations or warranties under the Loan Documents; (ii)
any act or omission by Borrower or any of its employees or agents; (iii)
Borrower's use of the Collateral or any other activity or thing allowed or
suffered by Borrower to be done on or about the any of Borrower's properties;
and (iv) any claims for commissions, finder's fees or brokerage fees arising out
of the Loan or the transactions contemplated by the Loan Documents, if such
claim is based on any act, omission or agreement by Borrower or any Affiliate.
Notwithstanding anything to the contrary contained in this Section, Borrower
shall not be obligated to indemnify any Indemnified Party for any liabilities
resulting solely from the gross negligence or intentional tortious conduct of
such Indemnified Party which such Indemnified Party is determined by the final
judgment of a court of competent jurisdiction to have committed. Borrower's
obligation to indemnify the Indemnified Parties under this Section 6.2 shall
survive the cancellation of the Note and the release of the Lender's security
interests under the Security Agreements.

            6.3 POWER OF ATTORNEY. Borrower irrevocably appoints the Lender,
with full power of substitution, as Borrower's attorney-in-fact, coupled with an
interest, with full power, in the Lender's own name or in the name of Borrower
to sign, record and file all documents referred to in Section 3.6 above. The
Lender shall have the right to exercise the power of attorney granted in this
Section directly or to delegate all or part of such power to one or more agents
of the Lender. Nothing contained in the Loan Documents shall be construed to
obligate the Lender to act on behalf of Borrower as attorney-in-fact.

            6.4 ACTIONS. Whether or not an Event of Default has occurred, the
Lender shall have the right, but not the obligation, to commence, appear in, or
defend any action or proceeding which affects or which the Lender determines may
affect (a) the Collateral; (b) Borrower's or the Lender's respective rights or
obligations under the Loan Documents; (c) the Loan; or (d) the disbursement of
any proceeds of the Loan. Whether or not an Event of Default has occurred, the
Lender shall at all times have the right to take any or all actions which the
Lender determines to be necessary or appropriate to protect the Lender's
interest in connection with the Loan.

            6.5 ATTORNEYS' FEES AND COSTS AND OTHER EXPENSES. Upon the Lender's
demand, Borrower shall reimburse the Lender for all costs and expenses,
including attorneys' fees and costs, incurred by the Lender in connection with
the exercise of any or all of the Lender's rights and remedies under the Loan
Documents; the enforcement of any or all Obligations, whether or not any legal
proceedings are instituted by the Lender; or the defense of any action or
proceeding by Borrower or any other Person relating to the Loan. Without
limiting the generality of the immediately preceding sentence, such costs and
expenses shall include all attorneys' fees and costs incurred by the Lender in
connection with any federal or state bankruptcy, insolvency, reorganization, or
other similar proceeding by or against Borrower or any Guarantor which in any
way affects the Lender's exercise of its rights and remedies under the Loan
Documents. Borrower's obligation to reimburse the Lender under this Section
shall include payment of interest on all amounts expended by the Lender from the
date of expenditure at the rate of interest applicable to principal under the
Note. Wherever any of the terms of the Loan Documents provide for the payment or
recovery of costs, fees, or other expenses (including attorneys' fees and
costs), such term shall be deemed to provide for the payment or recovery of
reasonable costs, fees, expenses, and reasonable attorneys' fees and costs.

            6.6 NO THIRD PARTY BENEFICIARIES. The Loan Documents are entered
into for the sole protection and benefit of the Lender, Borrower and Guarantors,
as applicable, and their respective permitted successors and assigns. No other
Person shall have any rights or causes of action under the Loan Documents.

            6.7 DOCUMENTS. The form and substance of all documents and
instruments which Borrower is required to deliver to the Lender under this
Agreement shall be subject to the Lender's approval.

            6.8 NOTICES. All notices and demands by the Lender to Borrower under
this Agreement shall be in writing and shall be effective on the earliest of (a)
personal delivery to Borrower; (b) two (2) days after deposit in first class or
certified United States mail, postage prepaid, addressed to Borrower at the
address set forth in the Loan Schedule; and (c) one (1) business day after
deposit with a reputable overnight delivery service, delivery charges prepaid,
addressed to Borrower at the address set forth in the Loan Schedule. All notices
and demands by Borrower to the Lender under this Agreement shall be in writing
and shall be effective on actual receipt by the Lender at the Lender's address
shown in the Loan Schedule; provided, however, that non-receipt of any such
notice or demand by the Lender as a result of the Lender's refusal to accept
delivery or the Lender's failure to notify Borrower of the Lender's change of
address shall be deemed to constitute receipt by the Lender. The addresses
specified in the Loan Schedule may be changed by notice given in

                                  Page 9 of 14
<PAGE>

accordance with this Section. If Borrower consists of more than one Person,
service of any notice on any one of such Persons by the Lender shall be
effective service on Borrower for all purposes.

            6.9 SEVERABILITY; NO OFFSETS. If any provision of the Loan Documents
shall be held by any court of competent jurisdiction to be unlawful, voidable,
void, or unenforceable for any reason, such provision shall be deemed to be
severable from and shall in no way affect the validity or enforceability of the
remaining provisions of the Loan Documents. No Obligations shall be offset by
all or part of any claim, cause of action, or cross-claim of any kind, whether
liquidated or unliquidated, which Borrower now has or may hereafter acquire or
allege to have acquired against the Lender. To the fullest extent permitted by
law, Borrower waives the benefits of any applicable law, regulation, or
procedure which provides, in substance, that where cross demands for money exist
between parties at any point in time when neither demand is barred by the
applicable statute of limitations, and an action is thereafter commenced by one
such party, the other party may assert the defense of payment in that the two
demands are compensated so far as they equal each other, notwithstanding that an
independent action asserting the claim would at the time of filing the response
be barred by the applicable statute of limitations.

            6.10 INTERPRETATION. Whenever the context of this Agreement
reasonably requires, all words used in the singular shall be deemed to have been
used in the plural, and the neuter gender shall be deemed to include the
masculine and feminine gender, and vice versa. The headings to sections of this
Agreement are for convenient reference only and shall not be used in
interpreting this Agreement. For purposes of this Agreement, (a) the term
"including" shall be deemed to mean "including without limitation"; (b) the term
"document" shall be deemed to include all written contracts, commitments,
agreements, and instruments; and (c) the term "discretion," when applied to any
determination, consent, or approval right by the Lender, shall be deemed to mean
the Lender's sole but good faith business judgment.

            6.11 TIME OF THE ESSENCE. Time is of the essence in the performance
of each provision of the Loan Documents by Borrower.

            6.12 AMENDMENTS. The Loan Documents (excluding the Guaranties) may
be modified only by a written agreement signed by Borrower and the Lender.

            6.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original, and all of which together shall
constitute one and the same document.

            6.14 ENTIRE AGREEMENT. The Loan Documents contain the entire
agreement concerning the subject matter of the Loan Documents and supersede all
prior and contemporaneous negotiations, agreements, statements, understandings,
terms, conditions, representations and warranties, whether oral or written, by
and among the Lender, Borrower and Guarantors concerning the Loan which is the
subject matter of the Loan Documents.

            6.15 NO WAIVER BY LENDER. No waiver by the Lender of any of its
rights or remedies in connection with the Obligations or of any of the terms or
conditions of the Loan Documents shall be effective unless such waiver is in
writing and signed by the Lender.

            6.16 CUMULATIVE REMEDIES. No right or remedy of the Lender under
this Agreement or the other Loan Documents shall be exclusive of any other right
or remedy under the Loan Documents or to which the Lender may be entitled. The
Lender's rights and remedies under the Loan Documents are cumulative and in
addition to all other rights and remedies which the Lender may have under any
other document with Borrower and under applicable law.

            6.17 JOINT AND SEVERAL LIABILITY. Each Person signing this Agreement
as Borrower shall be jointly and severally liable to the Lender for the
performance of Borrower's Obligations under the Loan Documents. If Borrower
consists of more than one Person, the occurrence of any Default or Event of
Default with respect to any one or more of such Persons shall constitute a
Default or Event of Default, as applicable, and (in the case of an Event of
Default) entitle the Lender to exercise its rights and remedies under Section
4.2 above. Each Borrower who is a married person agrees that the Lender shall
have the right to recourse against his or her community property and separate
property for any or all Obligations to the fullest extent permitted by law.

            6.18 ASSIGNMENT. Borrower shall not assign, encumber, or otherwise
transfer any or all of Borrower's rights under the Loan Documents, whether
voluntarily, involuntarily, or by operation of law, without the Lender's prior
written consent, which consent may be withheld in the Lender's discretion. Any
purported assignment, encumbrance or transfer by Borrower in violation of this
Section shall be void. Borrower acknowledges and agrees that the Lender's
agreement to make the Loan to Borrower and enter into the Loan Documents is
based in material part on the Lender's reliance on Borrower's particular
financial condition, credit history, character, experience, ability, skill, and
reputation, as represented by Borrower to the Lender.

            6.19 WAIVERS. Borrower waives presentment, demand for payment,
protest, notice of demand, dishonor, protest and non-payment, and all other
notices and demands in connection with the delivery, acceptance, performance,
default under, and enforcement of the Loan Documents. Borrower waives the right
to assert any statute of limitations as a defense to the enforcement of any or
all of the Loan Documents to the fullest extent permitted by law. Borrower
waives all rights, remedies, and benefits under California Civil Code Section
2822(a). Without limiting the

                                 Page 10 of 14
<PAGE>

generality of the immediately preceding sentence, in the event of Borrower's
payment in partial satisfaction of any or all of the Obligations, Lender shall
have the sole and exclusive right and authority to designate the portion of the
Obligations that is to be satisfied. Borrower and all Persons holding a lien of
any kind affecting all or part of the Collateral who have actual or constructive
notice of this Agreement waive (a) all rights to require marshalling of assets
or liens in the event of Lender's exercise of any of its rights and remedies
under the Loan Documents; and (b) all rights to require Lender to exercise any
other right or power or to pursue any other remedy which Lender may have under
any document or applicable law before exercising any other such right, power, or
remedy.

            6.20 APPLICABLE LAW; JURISDICTION. The Loan Documents shall be
governed by and construed in accordance with the laws of the State of
California. Borrower agrees that the courts of the State of California and
Federal District Courts located in San Francisco County, California, shall have
exclusive jurisdiction and venue of any action or proceeding directly or
indirectly arising out of or related to the negotiation, execution, delivery,
performance, breach, enforcement or interpretation of this Agreement and all of
the other Loan Documents or any of the transactions contemplated by or related
to any or all of the Loan Documents, regardless of whether or not any claim,
counterclaim or defense in any such action or proceeding is characterized as
arising out of fraud, negligence, intentional misconduct, breach of contract or
fiduciary duty, or violation of any Governmental Requirements. Borrower
irrevocably consents to the personal jurisdiction of such courts, to such venue,
and to the service of process in the manner provided for the giving of notices
in this Agreement. Borrower waives all objections to such jurisdiction and
venue, including all objections that are based upon inconvenience or the nature
of the forum.

            6.21 WAIVER OF RIGHT TO JURY TRIAL. BORROWER IRREVOCABLY WAIVES ALL
RIGHTS TO A JURY TRIAL IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY
KIND DIRECTLY OR INDIRECTLY ARISING OUT OF OR IN ANY WAY RELATING TO THE LOAN,
THIS NOTE, ANY AGREEMENT SECURING THIS NOTE, OR ANY OF THE OTHER DOCUMENTS
EXECUTED BY BORROWER IN CONNECTION WITH THE LOAN (COLLECTIVELY, THE "LOAN
DOCUMENTS"), ANY OR ALL OF THE REAL AND PERSONAL PROPERTY COLLATERAL SECURING
THE LOAN, OR ANY OF THE TRANSACTIONS WHICH ARE CONTEMPLATED BY THE LOAN
DOCUMENTS. THE JURY TRIAL WAIVER CONTAINED IN THIS SECTION IS INTENDED TO APPLY,
TO THE FULLEST EXTENT PERMITTED BY LAW, TO ANY AND ALL DISPUTES AND
CONTROVERSIES THAT ARISE OUT OF OR IN ANY WAY RELATED TO ANY OR ALL OF THE
MATTERS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE, INCLUDING WITHOUT
LIMITATION CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS OF ANY KIND. BORROWER ACKNOWLEDGES AND AGREES THAT (1) BORROWER HAS
CAREFULLY READ AND UNDERSTANDS ALL OF THE TERMS OF THE LOAN DOCUMENTS; (2)
BORROWER HAS EXECUTED THE LOAN DOCUMENTS FREELY AND VOLUNTARILY, AFTER HAVING
CONSULTED WITH BORROWER'S INDEPENDENT LEGAL COUNSEL AND AFTER HAVING HAD ALL OF
THE TERMS OF THE LOAN DOCUMENTS EXPLAINED TO IT BY ITS INDEPENDENT LEGAL COUNSEL
OR AFTER HAVING HAD A FULL AND ADEQUATE OPPORTUNITY TO CONSULT WITH BORROWER'S
INDEPENDENT LEGAL COUNSEL; (3) THE WAIVERS CONTAINED IN THE LOAN DOCUMENTS ARE
REASONABLE, NOT CONTRARY TO PUBLIC POLICY OR LAW, AND HAVE BEEN INTENTIONALLY,
INTELLIGENTLY, KNOWINGLY, AND VOLUNTARILY AGREED TO BY BORROWER; (4) THE WAIVERS
CONTAINED IN THE LOAN DOCUMENTS HAVE BEEN AGREED TO BY BORROWER WITH FULL
KNOWLEDGE OF THEIR SIGNIFICANCE AND CONSEQUENCES, INCLUDING FULL KNOWLEDGE OF
THE SPECIFIC NATURE OF ANY RIGHTS OR DEFENSES WHICH BORROWER HAS AGREED TO WAIVE
PURSUANT TO THE LOAN DOCUMENTS; (5) BORROWER HAS HAD A FULL AND ADEQUATE
OPPORTUNITY TO NEGOTIATE THE TERMS CONTAINED IN THE LOAN DOCUMENTS; (6) BORROWER
IS EXPERIENCED IN AND FAMILIAR WITH LOAN TRANSACTIONS OF THE TYPE EVIDENCED BY
THE LOAN DOCUMENTS; AND (7) THE WAIVERS CONTAINED IN THE LOAN DOCUMENTS ARE
MATERIAL INDUCEMENTS TO THE LENDER'S EXTENSION OF CREDIT TO BORROWER, AND THE
LENDER HAS RELIED ON SUCH WAIVERS IN MAKING THE LOAN TO BORROWER AND WILL
CONTINUE TO RELY ON SUCH WAIVERS IN ANY RELATED FUTURE DEALINGS WITH BORROWER.
THE WAIVERS CONTAINED IN THE LOAN DOCUMENTS SHALL APPLY TO ALL SUBSEQUENT
EXTENSIONS, RENEWALS, MODIFICATIONS, AND REPLACEMENTS OF THE LOAN DOCUMENTS.
THIS NOTE MAY BE FILED WITH ANY COURT OF COMPETENT JURISDICTION AS BORROWER'S
WRITTEN CONSENT TO BORROWER'S WAIVER OF A JURY TRIAL. BORROWER HAS INITIALED
THIS SECTION BELOW TO INDICATE ITS AGREEMENT WITH THE JURY TRIAL WAIVER AND
OTHER TERMS CONTAINED IN THIS SECTION.

                                 Page 11 of 14
<PAGE>

            6.22 SUCCESSORS. Subject to the restrictions contained in the Loan
Documents, the Loan Documents shall be binding upon and inure to the benefit of
the Lender and Borrower and their respective permitted successors and assigns.

BORROWER:

COSI, INC.,
A DELAWARE CORPORATION

BY:  /s/ KENNETH S. BETUKER
   -------------------------
    KENNETH S. BETUKER
    CHIEF FINANCIAL OFFICER

LENDER:

FIRST REPUBLIC BANK

BY:  /s/ SCOTT MCCREA
   -------------------------
ITS:  Managing Director

                                 Page 12 of 14
<PAGE>

                                 LOAN AGREEMENT

                                (LINE OF CREDIT)

                                   EXHIBIT "A"

                                  LOAN SCHEDULE

THIS LOAN SCHEDULE IS AN INTEGRAL PART OF THE LOAN AGREEMENT BETWEEN THE LENDER
AND BORROWER, AND THE FOLLOWING TERMS ARE INCORPORATED IN AND MADE A PART OF THE
LOAN AGREEMENT TO WHICH THIS LOAN SCHEDULE IS ATTACHED:

================================================================================

1.    BORROWER: COSI, INC., A DELAWARE CORPORATION

================================================================================

2.    GUARANTORS: ERIC GLEACHER, CHARLES PHILIPS AND ZIFF INVESTORS PARTNERSHIP,
      L.P. II, A DELAWARE LIMITED PARTNERSHIP

================================================================================

3.    BORROWER'S NOTICE ADDRESS:    COSI, INC., A DELAWARE CORPORATION
                                    242 W. 36TH STREET
                                    NEW YORK, NY 10018

================================================================================

4.    LENDER'S NOTICE ADDRESS:      FIRST REPUBLIC BANK
                                    111 PINE STREET
                                    SAN FRANCISCO, CALIFORNIA 94111
                                    ATTENTION: MANAGER, COMMERCIAL LOAN
                                               OPERATIONS

================================================================================

5.    LOAN FEE: TWENTY-TWO THOUSAND FIVE HUNDRED AND 00/100 DOLLARS ($22,500.00)

================================================================================

6.    FINANCIAL COVENANTS. BORROWER SHALL COMPLY WITH THE FOLLOWING FINANCIAL
      COVENANTS:

      NOT APPLICABLE

================================================================================

7.    ACCOUNTING.

      7.1   ANNUAL FINANCIAL STATEMENTS. N/A.

      7.2   QUARTERLY/MONTHLY FINANCIAL STATEMENTS. N/A.

                                 Page 13 of 14
<PAGE>

================================================================================

8.    NATURE OF LINE OF CREDIT. THE LINE OF CREDIT LOAN IS A REVOLVING LINE OF
      CREDIT LOAN, AND WITHIN THE LIMITS OF THE COMMITMENT AND SUBJECT TO THE
      TERMS AND CONDITIONS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS,
      BORROWER MAY BORROW, PREPAY PURSUANT TO THE NOTE EVIDENCING LINE OF CREDIT
      LOAN, AND REBORROW THE PRINCIPAL AMOUNT OF THE LINE OF CREDIT LOAN.

================================================================================

9.    AUTHORIZATION TO CHARGE ACCOUNT.

      9.1   AUTOMATIC PAYMENT AUTHORIZATION. NO AUTOMATIC DEDUCTIONS ARE
            PRESENTLY AUTHORIZED, BUT BORROWER MAY BY SEPARATE WRITTEN
            AGREEMENT, NOW OR IN THE FUTURE, AUTHORIZE THE LENDER TO MAKE
            AUTOMATIC PAYMENT DEDUCTIONS AGAINST AN ACCOUNT MAINTAINED BY
            BORROWER WITH THE LENDER.

================================================================================

10.   OTHER COVENANTS.

      Borrower shall at all times comply with all of the following additional
      covenants: N/A.

                                 Page 14 of 14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00051-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00051-of-00352.parquet"}]]