<PAGE>
                                                                    Exhibit 10.4

                        SEPARATION AND RELEASE AGREEMENT

      This Separation and Release Agreement ("Agreement") is entered into as of
this 9th day of July, 2003, between COSI, INC., a Delaware corporation, and any
successor thereto (collectively, the "Company") and Nicholas Marsh III (the
"Executive").

      The Executive and the Company agree as follows:

            1. The employment relationship between the Executive and the Company
      terminated on April 30, 2003. In lieu of written notice of the Executive's
      termination pursuant to Section 6(c) of the Employment Agreement between
      the Executive and the Company, dated January 1, 2002 (the "Employment
      Agreement"), the Company has paid the Executive his salary for the month
      of May.

            2. In accordance with the Employment Agreement, the Company has
      agreed to pay the Executive certain payments and to make certain benefits
      available as set forth on Annex 1 hereto.

            3. For and in consideration of the payments and/or other benefits to
      be provided to and/or on behalf of the Executive pursuant to the
      Employment Agreement and this Agreement, the sufficiency of which the
      Executive hereby acknowledges, the Executive, on behalf of the Executive
      and the Executive's heirs, executors and assigns, hereby releases and
      forever discharges the Company and its stockholders, parents, affiliates,
      subsidiaries, divisions, any and all current and former directors,
      officers, executives and agents thereof, and their heirs and assigns, and
      any and all pension benefit or welfare benefit plans of the Company,
      including current and former trustees and administrators of such pension
      benefit and welfare benefit plans, from all claims, charges, or demands,
      in law or in equity, whether known or unknown, which may have existed or
      which may now exist from the beginning of time to the date of this
      Agreement, including, without limitation, any claims the Executive may
      have arising from or relating to the Executive's employment or termination
      from employment with the Company, including a release of any rights or
      claims the Executive may have under Title VII of the Civil Rights Act of
      1964, as amended, and the Civil Rights Act of 1991 (which prohibit
      discrimination in employment based upon race, color, sex, religion, and
      national origin); the Americans with Disabilities Act of 1990, as amended,
      and the Rehabilitation Act of 1973 (which prohibit discrimination based
      upon disability); the Family and Medical Leave Act of 1993 (which
      prohibits discrimination based on requesting or taking a family or medical
      leave); Section 1981 of the Civil Rights Act of 1866 (which prohibits
      discrimination based upon race ); Section 1985(3) of the Civil Rights Act
      of 1871 (which prohibits conspiracies to discriminate); the Executive
      Retirement Income Security Act of 1974, as amended (which prohibits
      discrimination with regard to benefits); any other federal, state or local
      laws against discrimination; or any other federal, state, or local
      statute, or common law relating to employment, wages, hours, or any other
      terms and conditions of employment. This includes a release by the
      Executive of any claims for wrongful discharge, breach of contract, torts
      or any other claims in any way related to the Executive's employment with
      or resignation or termination from the Company. This release also
<PAGE>
      includes a release of any claims for age discrimination under the Age
      Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires
      that the Executive be advised to consult with an attorney before the
      Executive waives any claim under ADEA. In addition, the ADEA provides the
      Executive with at least 21 days to decide whether to waive claims under
      ADEA and seven days after the Executive signs this Agreement to revoke
      that waiver. Notwithstanding the foregoing provisions of this Section 3,
      the release given by the Executive hereunder shall not apply to, and the
      Executive shall retain and shall be entitled to enforce by litigation or
      otherwise, all rights arising under or with respect to (i) the obligations
      of the Company to indemnify and hold harmless the Executive, (ii) all
      directors and officers liability insurance coverage applicable to the
      Executive, (iii) the Executive's rights to enforce the terms of this
      Agreement and the Employment Agreement, and (iv) any and all benefits to
      which the Executive shall be entitled under the terms of the Company's
      employee benefit plans.

            4. This Agreement is not an admission by either the Executive or the
      Company of any wrongdoing or liability.

            5. The Executive agrees he will not make, or cause any other person
      to make, any false, disparaging or derogatory statements regarding the
      Company or its subsidiaries or any of their respective current or former
      shareholders, directors, officers, employees, agents or representatives
      (in their respective capacities as current or former shareholders,
      directors, officers, employees, agents or representatives of the Company
      or its subsidiaries). The Executive further agrees not to take any action
      or make any statement the effect of which would be directly or indirectly
      to materially impair the goodwill of the Company, including, but not
      limited to any action or statement intended, directly or indirectly, to
      benefit a competitor of the Company. The Company shall take all reasonable
      measures to cause the senior officers and directors of the Company (in
      their respective capacities as senior officers and directors of the
      Company) not to make any false, disparaging or derogatory statements
      regarding the Executive.

            6. Notwithstanding any provision of this Agreement to the contrary,
      (i) the rights and benefits of the parties set forth in the Employment
      Agreement (including without limitation, Sections 7(g), 9, 10, 11, 13 and
      24) shall remain in full force and effect following the execution of this
      Agreement to the extent necessary to give effect to the terms thereof and
      (ii) the Company shall indemnify the Executive to the fullest extent
      permissible under its by-laws as in effect on the date hereof. The
      Executive agrees that he will cooperate with the Company with respect to
      any suit filed, or investigation undertaken, against the Company.

            7. The Executive waives any right to reinstatement or future
      employment with the Company following the Executive's separation from the
      Company on April 30, 2003.

            8. The Executive agrees not to engage in any act after execution of
      this Agreement that is intended, or may reasonably be expected to harm the
      reputation, business, prospects or operations of the Company, its
      officers, directors, stockholders or executives.


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      The Executive will take no action which would reasonably be expected to
      lead to unwanted or unfavorable publicity to the Company.

            9. This Agreement shall be governed by and construed in accordance
      with the laws of the State of New York, without reference to the
      principles of conflict of laws. Exclusive jurisdiction with respect to any
      legal proceeding brought concerning any subject matter contained in this
      Agreement shall be settled by arbitration as provided in the Employment
      Agreement.

            10. This Agreement and the Employment Agreement represent the
      complete agreement between the Executive and the Company concerning the
      subject matter in this Agreement and supersedes all prior agreements or
      understandings, written or oral. This Agreement may not be amended or
      modified otherwise than by a written agreement executed by the parties
      hereto or their respective successors and legal representatives.

            11. It is further understood that for a period of seven (7) days
      following the execution of this Agreement in duplicate originals, the
      Executive may revoke this Agreement, and this Agreement shall not become
      effective or enforceable until this revocation period has expired. No
      revocation of this Agreement by the Executive shall be effective unless
      the Company has received within the seven (7) day revocation period,
      written notice of any revocation, all monies received by the Executive
      under this Agreement and all originals an copies of this Agreement.

            12. This Agreement has been entered into voluntarily and not as a
      result of coercion, duress, or undue influence. The Executive acknowledges
      that the Executive has read and fully understands the terms of this
      Agreement and has been advised to consult with an attorney before
      executing this Agreement. Additionally, the Executive acknowledges that
      the Executive has been afforded the opportunity of at least twenty-one
      (21) days to consider this Agreement.

            13. This Agreement may be executed in two or more counterparts, each
      of which shall be deemed an original. This Agreement and any counterpart
      so executed shall be deemed one in the same instrument.


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<PAGE>
            The parties to this Agreement have executed this Agreement as of the
day and year first written above.

                                           COSI, INC.


                                          By:  /s/ William D. Forest As Chairman
                                              --------------------------------
                                               Name: William D. Forest
                                               Title: Executive Chairman


                                           NICHOLAS MARSH III

                                            /s/ Nicholas Marsh III
                                           -------------------------------------
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                                     ANNEX 1

The Executive shall receive the following severance payments and benefits, less
any applicable withholding taxes:

1) Commencing June 1, 2003, 52 bi-weekly payments of $15,865.38, subject to
adjustment as provided in paragraph 2) below.

2) A lump sum payment of $200,000 payable within fifteen (15) days following the
completion of the Company's pending rights offering or of another significant
funding event that results in net proceeds to the Company of at least $8.5
million (alternatively, a "Funding Event"); provided that if a Funding Event is
not completed by December 31, 2003 no such lump sum payment will be made. If
such $200,000 payment is made prior to January 15, 2004, the Company payments
referred to in paragraph 1) above will cease after the 34th bi-weekly payment
and the 34th bi-weekly payment shall be reduced to $1,442.46, such that the
Executive shall receive 33 bi-weekly payments of $15,865.38 (or $523,557.54)
plus one payment of $1,442.46 plus the lump sum payment of $200,000 for total
payments pursuant this paragraph 2) and paragraph 1) of $725,000. All such
payments shall be less applicable withholding taxes. Notwithstanding the
foregoing, on the first bi-weekly payment due after the date of this Agreement,
the Company shall pay to the Executive any amounts due hereunder not paid to the
Executive as of such payment date.

3) 24 monthly payments of $2000 to be paid to the Executive, plus an amount up
to $3,000 to be paid to the lessor of the automobile at the end of the lease on
the Executive's current automobile equal to the additional expense associated
with work-related mileage that exceed the maximum mileage under the lease.

4) Reimbursement of legal fees incurred in connection with the negotiation of
this Agreement up to $10,000.

5) All stock options held by the Executive under the Stock Option Plan (as
defined in the Employment Agreement) shall become 100% vested as of June 1, 2003
and each such option shall not be subject to accelerated exercise requirements
or early termination provisions and instead shall be exercisable through and
including the date which is the second anniversary of June 1, 2003.

6) In lieu of the Company's obligation to provide the Executive with reasonable
office space and secretarial assistance pursuant to the Employment Agreement,
the Executive will be permitted to retain the desktop computer, laptop computer
and printers issued to him by the Company; provided, all Company information
thereon shall be deleted and, upon request by the Company, Executive shall
certify in writing the deletion of such information.


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7) In the event that the Executive's elects continuing benefits coverage
pursuant to his rights under the Consolidated Omnibus Budget Reconciliation Act
("COBRA"), the Company shall pay the Executive's COBRA premiums for a period of
eighteen months following June 1, 2003.


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