**EXHIBIT 10.5****COSI, INC.****FRANCHISE AGREEMENT**
 

 
**TABLE OF CONTENTS**        Section   Page1.  GRANT  1         2.  TERM AND RENEWAL  3         3.  DUTIES OF FRANCHISOR  4         4.  FEES  5         5.  SITE, CONSTRUCTION AND OPENING OF BUSINESS  6         6.  TRAINING  7         7.  TECHNOLOGY  8         8.  OTHER DUTIES OF FRANCHISEE  10         9.  PROPRIETARY MARKS  15         10.  MANUALS  16         11.  CONFIDENTIAL INFORMATION  17         12.  ACCOUNTING AND RECORDS  17         13.  MARKETING AND PROMOTION  18         14.  INSURANCE  21         15.  TRANSFER OF INTEREST  22         16.  DEFAULT AND TERMINATION  25         17.  OBLIGATIONS UPON TERMINATION OR EXPIRATION  27         18.  COVENANTS  28         19.  CORPORATE, LIMITED LIABILITY COMPANY, OR PARTNERSHIP FRANCHISEE  29 
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        Section   Page20.  TAXES, PERMITS, AND INDEBTEDNESS  30         21.  INDEPENDENT CONTRACTOR AND INDEMNIFICATION  30         22.  APPROVALS AND WAIVERS  31         23.  WARRANTIES OF OPERATOR  31         24.  NOTICES  31         25.  ENTIRE AGREEMENT  31         26.  SEVERABILITY AND CONSTRUCTION  32         27.  APPLICABLE LAW AND DISPUTE RESOLUTION  32         28.  ACKNOWLEDGMENTS  33  EXHIBIT A – DATA SHEETEXHIBIT B – ADA CERTIFICATIONEXHIBIT C – LIST OF FRANCHISEE’S PRINCIPALSEXHIBIT D – AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTSEXHIBIT E – GUARANTYEXHIBIT F – CONFIDENTIALITY AND NON-COMPETE AGREEMENTS
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**FRANCHISE AGREEMENT**     THIS FRANCHISE AGREEMENT (the “**Agreement**”) is made and entered into on this                      day of                                         , 200       (the “**Effective Date**”), by and between: ̈  Cosi, Inc, aDelawarecorporation whoseprincipal place ofbusiness is 1751Lake Cook Road,6thFloor, Deerfield,Illinois 60015(“**Franchisor**”); and  ̈                                                                                                                                                                         a[resident of][corporationorganized in][limited liabilitycompany organizedin] *[select one]*,having offices at                                                                                                                                                                                                                                                                                                                            (“**Franchisee**”).BACKGROUND:     A.  Franchisor owns a format and system (the “**System**”) relating to the establishment andoperation of fast casual restaurants, which operate at retail locations that display Franchisor’sinterior and exterior trade dress and feature and operate under the Proprietary Marks (as definedbelow) (each a “**Cosi Restaurant**”). Cosi Restaurants are designed using Franchisor’s interior tradedress to be welcoming and comfortable for customers, and offer menus specializing in Franchisor’ssignature flatbread, sandwiches, soups, salads, gourmet coffee and specialty beverages and fooditems using Franchisor’s proprietary recipes, formulae and techniques (“**Proprietary Products**”), aswell as other non-proprietary food, beverage, and other compatible items designated by Franchisorfrom time to time (collectively, “**Products**”).     B. The distinguishing characteristics of the System include distinctive exterior and interiordesign, decor, color schemes, fixtures, and furnishings; recipes, standards and specifications forproducts, equipment, materials, and supplies; uniform standards, specifications, and procedures foroperations; purchasing and sourcing procedures; procedures for inventory and management control;training and assistance; and marketing and promotional programs; all of which may be changed,improved, and further developed by Franchisor from time to time.     C. The System is identified by means of certain trade names, service marks, trademarks, logos,emblems, and indicia of origin as are now designated and may hereafter be designated by Franchisorin writing for use in connection with the System including the mark “Cosi” and other marks (the“**Proprietary Marks**”).     D. Franchisee desires to enter into the business of operating a restaurant as a CosiRestaurant under the System and using the Proprietary Marks, and wishes to enter into thisagreement with Franchisor for that purpose, and to receive the training and other assistanceprovided by Franchisor in connection therewith.     E. Franchisee understands and acknowledges the importance of the high standards of Franchisorfor quality, cleanliness, appearance, and service and the necessity of operating the businessfranchised hereunder in conformity with the standards and specifications of Franchisor.     **NOW, THEREFORE,**the parties agree as follows:**GRANT**     ***Grant and Acceptance*****. Franchisor grants to Franchisee the right, and Franchiseehereby undertakes the obligation, upon the terms and conditions set forth in this Agreement to: (a)establish and operate a Cosi Restaurant (the “**Franchised Restaurant**”), (b) use, only in connectiontherewith, the Proprietary Marks and the System, as they may be changed, improved, or furtherdeveloped from time to time by Franchisor; and (c) operate the Franchised Restaurant only at theApproved Location (as defined in Section 1.2 below) in accordance with this Agreement.**     ***Approved Location*****. Franchisee shall develop and operate the Franchised Restaurantonly at the site specified in Exhibit A to this Agreement as the “**Approved Location**” (which shallhave been identified pursuant to a Site Selection Agreement between Franchisor and Franchisee,unless Franchisee possessed such site at the time Franchisee applied to Franchisor for franchiserights for the Franchised Restaurant). Franchisee shall not relocate the Franchised Restaurantwithout Franchisor’s prior written consent and/or otherwise in writing by Franchisor, as providedin Section 8.19 below.**     ***Limit on Sales*****. Franchisee’s rights hereunder shall be limited to offering andselling Products at the Franchised Restaurant, and only to retail customers of the FranchisedRestaurant for (a) customer consumption on the premises of**
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**the Franchised Restaurant at the Approved Location (the “**Premises**”); and (b) for customercarry-out consumption of Products sold at the Franchised Restaurant; provided that all suchactivities shall be conducted only in accordance with the requirements of this Agreement and theprocedures set forth in the Manuals (as defined in Section 10 below) and all applicable laws.Franchisee may apply in writing for Franchisor’s approval to engage in off-Premises delivery oroff-Premises catering activities, and if approved by Franchisor, Franchisee may engage in suchactivities pursuant to such programs, policies terms, and conditions as Franchisor may establishfrom time to time. Franchisee shall not, without the prior written approval of Franchisor, engagein any other type of sale of, or offer to sell, or distribution of Products, including, but notlimited to: selling, distributing or otherwise providing, any Products to third parties atwholesale, or for resale or distribution by any third party; and selling, distributing or otherwiseproviding any Products through catalogs, mail order, toll free numbers for delivery, or electronicmeans (e.g., the Internet).**     ***Territory and Reserved Rights*****. Except as otherwise provided in this Agreement, duringthe term of this Agreement, Franchisor shall not establish or operate, nor license any other personto establish or operate, a Cosi Restaurant at any location within the territory specified inExhibit A (the “**Territory**”). Franchisor retains the rights, among others, on any terms andconditions Franchisor deems advisable, and without granting Franchisee any rights therein:**          **To own, acquire, establish, and/or operate and license others to establish and operate,Cosi Restaurants under the System at any location outside the Territory notwithstanding theirproximity to the Territory or the Approved Location or their actual or threatened impact on salesof the Franchised Restaurant;**          **To own, acquire, establish and/or operate and license others to establish and operate,non-restaurant businesses under the Proprietary Marks, at any location within or outside theTerritory.**          **To own, acquire, establish and/or operate, and license others to establish and operate,businesses under proprietary marks other than the Proprietary Marks, whether such businesses aresimilar or different from the Franchised Restaurant, at any location within or outside theTerritory notwithstanding their proximity to the Territory or the Approved Location or their actualor threatened impact on sales of the Franchised Restaurant;**          **To own, acquire, establish, and/or operate and license others to establish and operate, CosiRestaurants under the Proprietary Marks at Institutional Accounts (as defined below) at anylocation within or outside the Territory. As used in this Agreement, “**Institutional Accounts**”shall mean outlets that serve primarily the customers located within the facility, such as captiveaudience facilities (examples include, but are not limited to, parks charging admission, stadiums,amusement parks and centers, theaters and art centers), limited purpose facilities (examplesinclude, but are not limited to, airports, transportation centers, department stores, in-doorshopping centers, business and industrial complexes, museums, educational facilities, hospitals,art centers, and recreational parks), limited access facilities (examples include, but are notlimited to, military complexes, buyer club businesses, educational facilities, business andindustrial complexes), and other types of institutional accounts.**          **To sell and to distribute, directly or indirectly, or to license others to sell and todistribute, directly or indirectly, any products (including the Products) through grocery orconvenience stores or through outlets that are primarily retail in nature, or through mail order,toll free numbers, or the Internet, including those products bearing Franchisor’s Proprietary Marksprovided that distribution within the Territory shall not be from a Cosi Restaurant establishedunder the System that is operated from within the Territory (except from a Cosi Restaurant at anInstitutional Account);**          **To (i) acquire one or more retail businesses that are the same as, or similar to, CosiRestaurants then operating under the System (each an “**Acquired Business**”), which may be at anylocation within or outside the Territory notwithstanding their proximity to the Territory or theApproved Location or their actual or threatened impact on sales of the Franchised Restaurant, andto (ii) operate and/or license others to operate any Acquired Business under its existing name oras a Cosi Restaurant under the System, subject to the following conditions that apply to eachAcquired Business located within the Territory:**               **Except as provided in Section 1.4.6.2 below, and provided that Franchisee is incompliance with this Agreement and any other agreement with Franchisor, Franchisor shall offer toFranchisee the option to purchase and operate, as a Cosi Restaurant, an Acquired Business that ispurchased by Franchisor for operation by Franchisor or its affiliates. Franchisor shall provideFranchisee with written notice of Franchisor’s purchase of the Acquired Business(es), the terms andconditions applicable to the Franchisee’s option to purchase such Acquired Business(es), and suchother information that Franchisor deems necessary to include in the notice. The terms andconditions offered to Franchisee shall include, without limitation, the**
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**following: (a) the purchase price will be based on Franchisor’s purchase price for suchAcquired Business, and if the Acquired Business was part of an Acquired System (as defined below inSection 1.4.6.2), then Franchisee’s purchase price for such Acquired Business shall be determinedusing a ratio equal to the sales during the prior year of such Acquired Business as compared to thetotal sales in such prior year of all Acquired Businesses purchased by Franchisor in the sametransaction; and (b) the requirement that Franchisee enter into Franchisor’s then-current form ofSystem franchise agreement for the Acquired Business. If Franchisee does not elect to purchase, orfails to complete the purchase of, an Acquired Business, Franchisor shall have the right to operateitself, or through its affiliates or third party licensees or franchisees, the Acquired Businessunder any trade name or trademarks including the Proprietary Marks.**               **If an Acquired Business is part of a system of retail businesses that Franchisor acquires (an“**Acquired System**”), Franchisee shall have no right to purchase, and Franchisor shall not beobligated to offer Franchisee any option to purchase, any Acquired Business that is operated by alicensee or franchisee under the Acquired System. Franchisor may license such unit to be operatedunder any trade name or trademarks including the Proprietary Marks, and may also license to thelicensee or franchisee additional units of the Acquired System that the licensee or franchisee hasthe right to develop and operate within the Territory.****TERM AND RENEWAL**     ***Initial Term******.*****This Agreement shall be in effect upon its acceptance and execution byFranchisor and, except as otherwise provided herein, this Agreement shall expire ten (10) yearsfrom the Effective Date.**     ***Renewal******.*****Franchisee may apply to operate the Franchised Restaurant for two (2)additional consecutive terms of five (5) years each if the following conditions are met prior toeach renewal:**          **Franchisee shall give Franchisor written notice of Franchisee’s election to renew at leastsix (6) months, but not more than twelve (12) months, prior to the end of the term of thisAgreement;**          **Franchisee shall not have any past due monetary obligations or other outstanding obligationsto Franchisor and its affiliates, the approved suppliers of the System, or the lessor of thePremises;**          **Franchisee shall not be in default of any provision of this Agreement, or successor hereto, orany other agreement between Franchisee and Franchisor or its affiliates, the approved suppliers ofthe System, or the lessor of the Premises; and Franchisee shall have substantially complied withall the terms and conditions of such agreements during the terms thereof;**          **Franchisee and Franchisor shall execute a mutual general release, in a form prescribed byFranchisor, of any and all claims against Franchisor and its affiliates, and their respectiveofficers, directors, agents, and employees;**          **Franchisee shall execute the then-current form of franchise agreement offered by Franchisor,which shall supersede this Agreement in all respects, and the terms of which may differ from theterms of this Agreement including requirements to pay additional and/or higher fees, except thatFranchisee shall not be required to pay any initial franchise fee;**          **Franchisee shall comply with the then-current qualification and training requirements ofFranchisor;**          **Franchisee shall make or provide for, in a manner satisfactory to Franchisor, such renovationand modernization of the Premises as Franchisor may reasonably require, including installation ofnew equipment and renovation of signs, furnishings, fixtures, and decor to reflect the then-currentstandards and image of the System;**          **Franchisee shall present evidence satisfactory to Franchisor that Franchisee has the right toremain in possession of the Premises (or such other location acceptable to Franchisor) for theduration of the renewal term;**
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          **Franchisee shall not be required to pay an initial franchise fee, and instead shall payFranchisor a renewal fee equal to Seven Thousand Five Hundred Dollars ($7,500).**          **Franchisee, at the time of renewal, satisfies Franchisor’s standards of financialresponsibility and, if requested by Franchisor, Franchisee demonstrates to Franchisor thatFranchisee has sufficient financial resources and means to continue to operate the FranchisedRestaurant during the renewal term.****DUTIES OF FRANCHISOR**     ***Franchisor’s Prototype Plans******.*****Franchisor shall make available, at no charge toFranchisee, prototype design plans and specifications for the construction of a Cosi Restaurant andfor the exterior and interior design and layout, fixtures, furnishings, equipment, and signs.Franchisee acknowledges that such standard design plans and specifications shall not contain therequirements of any federal, state or local law, code or regulation (including without limitationthose concerning the Americans with Disabilities Act (the “**ADA**”) or similar rules governing publicaccommodations or commercial facilities for persons with disabilities), nor shall such planscontain the requirements of, or be used for, construction drawings or other documentation necessaryto obtain permits or authorization to build a specific Cosi Restaurant, compliance with all ofwhich shall be Franchisee’s responsibility and at Franchisee’s expense. Franchisee understands andacknowledges that Franchisor has the right to modify the prototype design plans and specifications,and develop additional prototype design plans and specifications, as Franchisor deems appropriatefrom time to time (however Franchisor will not modify the prototype plans and specifications forthe Franchised Restaurant developed pursuant to this Agreement once those prototype architecturalplans and specifications have been given to Franchisee). Franchisee shall adapt the standard plansto the Franchised Restaurant’s location, as provided in Section 5.1 hereof, subject to Franchisor’sapproval.**     ***Initial Training*****. Franchisor shall provide its initial training for operators andmanagers (“**Initial Training**”), as described in Section 6 of this Agreement, for up to four (4)trainees (unless this Agreement is for the third or subsequent Cosi Restaurant being developedpursuant to a Cosi Area Development Agreement between Franchisor and Franchisee (or an affiliate ofFranchisee), in which event the terms set forth in Section 6.1.3 below shall apply with respect tothe pre-opening training of Franchisee, the Designated Principal and any General Manager).Franchisor shall also provide such ongoing training as it may, from time to time, deem appropriate.**     ***Opening Training*****. Franchisor will furnish to Franchisee, at Franchisee’s premises andat Franchisor’s expense, one (1) or more of Franchisor’s representatives for the purpose offacilitating the opening of the Franchised Restaurant. During this training, such representativewill also assist Franchisee in establishing and standardizing procedures and techniques essentialto the operation of a Cosi Restaurant and shall assist in training personnel; however, Franchiseeacknowledges that Franchisor shall not be responsible for training or offering guidance withrespect to compliance with any laws, ordinances or other legal matters. Prior to the arrival ofFranchisor’s representative(s), Franchisee shall have completed all training of Franchisee’sinitial staff of employees for the Franchised Restaurant, as shall be necessary for Franchisee tocomply with its staffing obligations under Section 8.4 below. Should Franchisee request additionalassistance from Franchisor in order to facilitate the opening of the Franchised Restaurant, andshould Franchisor deem it necessary and appropriate to comply with the request, Franchisee shallpay Franchisor’s per diem charges and Franchisor’s out of pocket expenses in providing suchadditional assistance as set forth from time to time in the Manuals.**     ***Loan of Manuals******.*****Franchisor shall provide Franchisee, on loan, copies of theFranchisor’s confidential operations manuals and other manuals, instructional materials, andwritten policies and correspondence (collectively, the “**Manuals**”), as more fully described inSection 10 hereof.**     ***Advertising Programs and Materials******.*****Franchisor shall review and shall have the rightto approve or disapprove all advertising and promotional materials that Franchisee proposes to use,pursuant to Section 13 below. Franchisor shall administer the System or Market Ad Funds, if suchfunds exist or are created, in the manner set forth in Section 13 below.**     ***Grand Opening Advertising******.*****Franchisor shall assist Franchisee in developing andconducting the Grand Opening Advertising Program (as described in Section 13.6 below), whichprogram shall be conducted at Franchisee’s expense.**     ***Guidance******.*****Franchisor may provide periodic advice or offer guidance to Franchisee inthe marketing, management, and operation of the Franchised Restaurant as Franchisor determines atthe time(s) and in the manner determined by Franchisor.**     ***Inspections******.*****Franchisor shall conduct, as it deems advisable, inspections of theoperation of the Franchised Restaurant by Franchisee.**
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     ***List of Suppliers******.*****Franchisor shall, in the Manuals (or otherwise in writing asdetermined by Franchisor), provide Franchisee with a list of suppliers designated and/or approvedby Franchisor to supply Products, equipment, signage, materials and services to franchisees in theSystem.**     ***Delegation******.*****Franchisee acknowledges and agrees that any duty or obligation imposed onFranchisor by this Agreement may be performed by any distributor, designee, employee, or agent ofFranchisor, as Franchisor may direct.**     ***Fulfillment of Obligations*****. In fulfilling its obligations pursuant to this Agreement,and in conducting any activities or exercising any rights pursuant to this Agreement, Franchisor(and its affiliates) shall have the right: (i) to take into account, as it sees fit, the effecton, and the interests of, other franchised businesses and systems and in which Franchisor has aninterest and on Franchisor’s (and its affiliates’) own activities; (ii) to share market and productresearch, and other proprietary and non-proprietary business information, with other franchisedbusinesses and systems in which Franchisor (or its affiliates) has an interest, or withFranchisor’s affiliates; (iii) to introduce proprietary and non-proprietary items or operationalequipment used by the System into other franchised systems in which Franchisor has an interest;and/or (iv) to allocate resources and new developments between and among systems, and/orFranchisor’s affiliates, as Franchisor sees fit. Franchisee understands and agrees that all ofFranchisor’s obligations under this Agreement are subject to this Section 3.11, and that nothing inthis Section 3.11 shall in any way affect Franchisee’s obligations under this Agreement.****FEES**     ***Franchise Fee******.*****The initial franchise fee shall be the amount specified in Exhibit A(the “**Franchise Fee**”), which is paid as specified in Exhibit A in consideration of the franchisegranted herein. The Franchise Fee (as reflected in Exhibit A) shall be Forty Thousand Dollars($40,000), unless Franchisee (or an affiliate of Franchisee) is an existing franchisee under theSystem and is operating another Cosi Restaurant as of the Effective Date, in which event theinitial franchise fee shall be Thirty Five Thousand Dollars ($35,000). The Franchise Fee shall bepaid in full upon the execution of this Agreement (net either (if applicable): (i) the SiteSelection Fee (if any) that Franchisee previously paid to Franchisor if Franchisee entered into aCosi Site Selection Agreement with Franchisor relating to the Franchised Restaurant, or (ii) thedevelopment credit, if any, that may be applied from the remaining portion (if any) of the AreaDevelopment Fees that Franchisee previously paid to Franchisor if Franchisee signed a separate CosiArea Development Agreement with Franchisor relating to the Franchised Restaurant).**     ***Refundability******.*****Payment of the Franchise Fee shall be non-refundable in considerationof administrative and other expenses incurred by Franchisor in granting this franchise and forFranchisor’s lost or deferred opportunity to franchise others.**     ***Royalty Fees******.*****For each Week during the term of this Agreement, Franchisee shall: (a)pay Franchisor a continuing royalty fee in an amount equal to five percent (5%) of the Net Sales ofthe Franchised Restaurant (“**Royalty Fees**”); and (b) report to Franchisor, in the manner specifiedby Franchisor its Net Sales (a “**Sales Report**”). As used in this Agreement, the following termsshall apply:**          **The term “**Week**” means the period starting with the commencement of business on Tuesday andconcluding at the close of business on the following Monday (or, if the Franchised Restaurant isnot open on a Monday, the immediately preceding business day); however, Franchisor shall have theright to designate in writing any other period of not less than seven days to constitute a “Week”under this Agreement.**          **The term “**Net Sales**” means all revenue from the sale of all Products and all other income ofevery kind and nature related to, derived from, or originating from the Franchised Restaurant,whether at retail or wholesale (whether such sales are permitted or not), whether for cash, check,or credit, and regardless of collection in the case of check or credit; provided, however, that“Net Sales” excludes any customer refunds, coupon sales, sales taxes, and/or other taxes collectedfrom customers by Franchisee and actually transmitted to the appropriate taxing authorities.**          **If a state or local law in which the Franchised Restaurant is located prohibits or restrictsin any way Franchisee’s ability to pay and Franchisor’s ability to collect Royalty Fees or otheramounts based on Net Sales derived from the sale of alcoholic beverages at the FranchisedRestaurant then Franchisor and Franchisee shall increase the percentage rate for calculatingRoyalty Fees, and change the definition of Net Sales to exclude sales of alcoholic beverages, in amanner such that the Royalty Fees to be paid by Franchisee, and received by Franchisor, shall beequal to such amounts as Franchisee would have been required to pay, and Franchisor would havereceived, if sales from alcoholic beverages were included from Net Sales.**     ***Advertising Contributions******.*****Franchisee shall make weekly advertising contributionsfor marketing and promotion as Franchisor may direct pursuant to Section 13.1 based on the NetSales of the Franchised Restaurant.**
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     ***When Payments Due******.*****All payments required by Sections 4.3 and 4.4 above based on theNet Sales for the preceding Week, and the Sales Report required by Section 4.3 for the Net Salesfor the preceding Week, shall be paid and submitted so as to be received by Franchisor by the third(3****rd****) business day after the close of each Week. Franchisee shall deliver to Franchisorany and all reports, statements and/or other information required under Section 12.2 below, at thetime and in the format reasonably requested by Franchisor. Franchisee shall establish anarrangement for electronic funds transfer or deposit of any payments required under this Section.Franchisee shall execute Franchisor’s current form of “Authorization Agreement for PrearrangedPayments (Direct Debits),” a copy of which is attached to this Agreement as Exhibit D, andFranchisee shall comply the payment and reporting procedures specified by Franchisor in the Manual.Franchisee expressly acknowledges and agrees that Franchisee’s obligations for the full and timelypayment of Royalty Fees and Advertising Contributions (and all other amounts provided for in thisAgreement) shall be absolute, unconditional, fully earned, and due upon Franchisee’s generation andreceipt of Net Sales. Franchisee shall not for any reason delay or withhold the payment of all orany part of those or any other payments due hereunder, put the same in escrow or set-off sameagainst any claims or alleged claims Franchisee may allege against Franchisor, the System Ad Fund,the Market Ad Fund or others. Franchisee shall not, on grounds of any alleged non-performance byFranchisor or others, withhold payment of any fee, including without limitation Royalty Fees oradvertising contributions, nor withhold or delay submission of any reports due hereunder includingbut not limited to Sales Reports.**     ***Designated Accountants and Fees******.*****If required by Franchisor, Franchisee shall use acertified public accountant service designated or approved by Franchisor for bookkeeping andfinancial records management. Franchisee shall pay such service provider or Franchisor, asdirected by Franchisor, a fee for these services for each month in such reasonable amount as theservice provider or Franchisor may periodically designate.**     ***Additional Payments******.*****Franchisee shall pay to Franchisor, within fifteen (15) days ofany written request by Franchisor which is accompanied by reasonable substantiating material, anymonies which Franchisor has paid, or has become obligated to pay, on behalf of Franchisee, byconsent or otherwise under this Agreement.**     ***Overdue Payments and Reports******.*****Any payment, contribution, statement, or report notactually received by Franchisor on or before such date shall be overdue. If any contribution orpayment is overdue, Franchisee shall pay Franchisor immediately upon demand, in addition to theoverdue amount: (i) a late payment fee in an amount equal to five percent (5%) of the overdueamount, and (ii) interest on the overdue amount from the date it was due until paid, at the rate ofone and one-half percent (1.5%) per month, or the maximum rate permitted by law, whichever is less.Entitlement to such interest shall be in addition to any other remedies Franchisor may have.**     ***No Subordination******.*****Franchisee shall not subordinate to any other obligation itsobligation to pay Franchisor the royalties and/or any other fee or charge payable to Franchisor,whether under this Agreement or otherwise.****SITE, CONSTRUCTION AND OPENING OF BUSINESS**     ***Preparing a Location******.*****Before commencing any construction of the FranchisedRestaurant, Franchisee, at its expense, shall comply, to Franchisor’s satisfaction, with all of thefollowing requirements:**          **Franchisee shall employ a qualified, licensed architect or engineer who has been approvedor designated (as described below) by Franchisor to prepare, subject to Franchisor’s approval,preliminary plans and specifications for site improvement and/or construction of the FranchisedRestaurant based upon prototype plans and/or specifications furnished by Franchisor, as describedin Section 3.1 above. Franchisor shall have the right to designate one or more suppliers of designservices and/or architecture services to supply such services to the System. If Franchisordesignates a design firm and/or architecture firm prior to the time Franchisee commences to developthe Franchised Restaurant, Franchisee shall employ such designated supplier(s) to prepare alldesigns and plans for the Franchised Restaurant, unless Franchisee obtains Franchisor’s priorwritten approval to use an alternative professional. If Franchisor has not designated a designfirm or architecture firm, Franchisee shall be responsible for locating and employing a qualifieddesign consultant and architect who is/are licensed in the jurisdiction in which the FranchisedRestaurant will be located, and who is reputable and experienced in providing design andarchitecture services. Franchisee shall be solely responsible for payments for all design andarchitecture services. Franchisee acknowledges and agrees that Franchisor shall not be liable forthe unsatisfactory performance of any contractor retained by Franchisee.**          **Franchisee shall comply with all federal, state and local laws, codes and regulations,including the applicable provisions of the ADA regarding the construction, design and operation ofthe Franchised Restaurant. In the event Franchisee receives any complaint, claim, other noticealleging a failure to comply with the ADA, Franchisee shall provide Franchisor with a copy of suchnotice within five days after receipt thereof.**          **Franchisee shall be responsible for obtaining all zoning classifications and clearances thatmay be required by state or local laws, ordinances, or regulations or that may be necessary oradvisable owing to any restrictive covenants relating to the Approved Location. After havingobtained such approvals and clearances, Franchisee shall**
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**submit to Franchisor, for Franchisor’s approval, final plans for construction based upon thepreliminary plans and specifications. Franchisor’s review and approval of plans shall be limitedto review of such plans to assess compliance with Franchisor’s design standards for CosiRestaurants, including such items as trade dress, presentation of Proprietary Marks, and theproviding to the potential customer of certain products and services that are central to thefunctioning of Cosi Restaurants. Such review is not designed to assess compliance with federal,state or local laws and regulations, including the ADA, as compliance with such laws is the soleresponsibility of Franchisee. Once approved by Franchisor, such final plans shall not thereafterbe changed or modified without the prior written permission of Franchisor. Any such change madewithout Franchisor’s prior written permission shall constitute a default and Franchisor maywithhold its authorization to open the Franchised Restaurant until the unauthorized change isrectified (or reversed) to Franchisor’s reasonable satisfaction. Prior to opening the FranchisedRestaurant and prior to renovating the Franchised Restaurant after its initial opening, Franchiseeshall execute an ADA Certification in the form attached to this Agreement as Exhibit B thatcertifies in writing to Franchisor that the Franchised Restaurant and any proposed renovationscomply with the ADA.**          **Franchisee shall obtain all permits and certifications required for the lawful constructionand operation of the Franchised Restaurant and shall certify in writing to Franchisor that all suchpermits and certifications have been obtained.**          **Franchisee shall employ a qualified licensed general contractor who is acceptable toFranchisor to construct the Franchised Restaurant and to complete all improvements. Franchiseeshall obtain and maintain in force during the entire period of construction the insurance requiredunder Section 14 below.**          **Throughout the construction process, Franchisee shall comply with Franchisor’s requirementsand procedures for periodic inspections of the Premises, and shall fully cooperate withFranchisor’s representatives in such inspections by rendering such assistance as they mayreasonably request.**     ***Opening Date******.*****Unless delayed by the occurrence of events constituting “forcemajeure” as defined in Section 5.3 below, Franchisee shall construct, furnish, and open theFranchised Restaurant in accordance with this Agreement and shall open the Franchised Restaurantnot later than six (6) months after the Effective Date after the Approved Location is identified.Time is of the essence. Franchisee shall provide Franchisor with written notice of its specificintended opening date and Franchisee’s request for Franchisor’s approval to open on such date, byno later than thirty (30) days prior to such intended opening date. Additionally, Franchisee shallcomply with all other of Franchisor’s pre-opening requirements, conditions and procedures(including, without limitation, those regarding pre-opening scheduling and communications), as setforth in this Agreement, the Manuals, and/or elsewhere in writing by Franchisor, Franchise andshall obtain Franchisor’s written approval prior to opening the Franchised Restaurant.**     ***Force Majeure******.*****As used in this Agreement, “**force majeure**” means an act of God, war,civil disturbance, act of terrorism, government action, fire, flood, accident, hurricane,earthquake, or other calamity, strike or other labor dispute, or any other cause beyond thereasonable control of Franchisee; provided, however, force majeure shall not include Franchisee’slack of adequate financing.****TRAINING**     ***Initial Training and Attendees******.*****Before opening the Franchised Restaurant, Franchiseeshall have satisfied all initial training obligations required by Franchisor, which are as follows:**          **Franchisee (or, if Franchisee is other than an individual, the Designated Principal(defined in Section 8.3 below)), and, if applicable, the General Manager and up to two (2)additional persons as Franchisor may require, shall attend and successfully complete, toFranchisor’s satisfaction, the initial training program offered by Franchisor at a locationdesignated by Franchisor (unless this Agreement is for the third or subsequent Cosi Restaurantbeing developed pursuant to a Cosi Area Development Agreement between Franchisor and Franchisee (oran affiliate of Franchisee), in which event the requirements set forth in Section 6.1.3 below shallapply with respect to the pre-opening training of Franchisee, the Designated Principal and anyGeneral Manager). If any required attendee does not satisfactorily complete such training,Franchisor may require that a replacement person attend and successfully complete, to Franchisor’ssatisfaction, the initial training program.**          **If Franchisee is other than an individual, Franchisor may require (in addition to the trainingof the Designated Principal and General Manager) that any or all owners of beneficial interests inFranchisee (each a “**Principal**”), who are individuals and own at least a ten percent (10%)beneficial interests in Franchisee, attend and successfully complete, to Franchisor’s satisfaction,such portions of the initial training program as determined by Franchisor appropriate forPrincipals not involved in the day-to-day operations of the Franchised Restaurant.**
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          **If this Agreement is for the third or subsequent Cosi Restaurant being developed pursuant to aCosi Area Development Agreement between Franchisor and Franchisee (or an affiliate of Franchisee),then Franchisee shall be responsible for the conducting the initial training of its DesignatedPrincipal, its General Manager (if applicable), and any other managerial personnel, in accordancewith the requirements and conditions as Franchisor may from time to time establish for suchtraining. Franchisor’s requirements for initial training by Franchisee shall be set forth in theManuals or other written materials and shall include, but are not limited to, the requirement thatall such training activities be conducted: (a) by the Principals or personnel of Franchisee (or anaffiliate of Franchisee), who have completed Franchisor’s initial training program to thesatisfaction of the Franchisor, and who remain acceptable to Franchisor to provide initialtraining; and (b) following the procedures and conditions established by Franchisor. If Franchisordetermines that the training provided by Franchisee does not satisfy Franchisor’s standards andrequirements, or that any newly trained individual is not trained to Franchisor’s standards, thenFranchisor may require that such newly trained individual(s) attend and complete an initialtraining program provided by Franchisor prior to the opening of the Franchised Restaurant.**          **Franchisee must satisfy all pre-opening training requirements under this Section 6.1 by nolater than thirty (30) days prior to the schedule opening of the Franchised Restaurant.**     ***New or Replacement Designated Principal and Managers******.*****In the event thatFranchisee’s Designated Principal, or (if required) General Manager cease active employment in theFranchised Restaurant, Franchisee shall enroll a qualified replacement who is acceptable toFranchisor in Franchisor’s training program reasonably promptly following cessation of employmentof said individual, provided that Franchisee may train replacement General Managers in accordancewith Section 6.3 below. The replacement Designated Principal, and any required managers shallcomplete the initial training program as soon as is practicable and in no event later than any timeperiods as Franchisor may specify from time to time in the Manuals and otherwise in writing.Franchisor reserves the right to review any Franchisee trained personnel and require that suchpersons attend and complete, to the satisfaction of Franchisor, the initial training programoffered by Franchisor at a location designated by Franchisor.**     ***Training by Franchisee of Additional or Replacement General Managers******.*****Franchiseeshall have the option of training any General Manager (following the training of the first GeneralManager by Franchisor) at the Franchised Restaurant or other Cosi Restaurant operated by Franchiseeor its affiliates, provided that the training is conducted: (a) by the Designated Principal orother personnel who has completed Franchisor’s initial training program, to the satisfaction of theFranchisor (and who remain acceptable to Franchisor to provide such training); (b) in accordancewith any requirements or standards as Franchisor may from time to time establish in writing forsuch training; and (c) Franchisee is in compliance with all agreements between Franchisee andFranchisor.**     ***Refresher Training******.*****Franchisor may also require that Franchisee or its DesignatedPrincipal and General Manager attend such refresher courses, seminars, and other training programsas Franchisor may reasonably require from time to time, provided that such training shall notexceed seven (7) days per person each year, and attendance for up to three (3) days per person eachyear at conventions, if any, conducted for Franchisor’s franchisees.**     ***Training Costs******.*****The cost of all training (instruction and required materials) shallbe borne by Franchisor, except as provided in Section 6.7 below. All other expenses incurred inconnection with training, including without limitation the costs of transportation, lodging, meals,wages, and worker’s compensation insurance, shall be borne by Franchisee.**     ***Location of Training******.*****All training programs shall be at such times as may bedesignated by Franchisor. Training programs shall be provided at Franchisor’s headquarters and/orsuch other locations as Franchisor may designate.**     ***Additional On-site Training******.*****If Franchisee requests that Franchisor provideadditional on-site training or that any other training programs offered or required by Franchisorbe conducted for Franchisee at the Franchised Restaurant, and Franchisor do so, then Franchiseeagrees that it shall pay Franchisor’s then-current per diem charges and out-of-pocket expenses,which shall be as set forth in the Manual or otherwise in writing.****TECHNOLOGY**     ***Computer Systems and Required Software******.*****The following terms and conditions shallapply with respect to the Computer System and Required Software:**          **Franchisor shall have the right to specify or require that certain brands, types, makes,and/or models of communications, computer systems, and hardware to be used by, between, or amongCosi Restaurants, including without limitation: (a) back office and point of sale systems, data,audio, video, and voice storage, retrieval, and transmission systems for use at Cosi Restaurants,between or among Cosi Restaurants, and between and among the Franchised Restaurant and Franchisorand/or Franchisee; (b) Cash Register Systems; (c) physical, electronic, and other**
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**security systems; (d) printers and other peripheral devices; (e) archival back-up systems; and(f) internet access mode and speed (collectively, the “**Computer System**”).**          **Franchisor shall have the right, but not the obligation, to develop or have developed for it,or to designate: (a) computer software programs and accounting system software that Franchisee mustuse in connection with the Computer System (“**Required Software**”), which Franchisee shall install;(b) updates, supplements, modifications, or enhancements to the Required Software, which Franchiseeshall install; (c) the tangible media upon which such Franchisee shall record data; and (d) thedatabase file structure of Franchisee’s Computer System.**          **Franchisee shall record all sales on computer-based point of sale systems approved byFranchisor or on such other types of cash registers as may be designated by Franchisor in theManual or otherwise in writing (“**Cash Register Systems**”), which shall be deemed part of theFranchisee’s Computer System.**          **Franchisee shall make, from time to time, such upgrades and other changes to the ComputerSystem and Required Software as Franchisor may request in writing (collectively, “**ComputerUpgrades**”).**          **Franchisee shall comply with all specifications issued by Franchisor with respect to theComputer System and the Required Software, and with respect to Computer Upgrades. Franchisee shallalso afford Franchisor unimpeded access to Franchisee’s Computer System and Required Software asFranchisor may request, in the manner, form, and at the times requested by Franchisor.**     ***Data******.*****Franchisor may, from time-to-time, specify in the Manual or otherwise inwriting the information that Franchisee shall collect and maintain on the Computer System installedat the Franchised Restaurant, and Franchisee shall provide to Franchisor such reports as Franchisormay reasonably request from the data so collected and maintained. All data pertaining to theFranchised Restaurant, and all data created or collected by Franchisee in connection with theSystem, or in connection with Franchisee’s operation of the business (including without limitationdata pertaining to or otherwise concerning the Franchised Restaurant’s customers) or otherwiseprovided by Franchisee (including, without limitation, data uploaded to, or downloaded fromFranchisee’s Computer System) is and will be owned exclusively by Franchisor, and Franchisor willhave the right to use such data in any manner that Franchisor deems appropriate withoutcompensation to Franchisee. Copies and/or originals of such data must be provided to Franchisorupon Franchisor’s request. Franchisor hereby licenses use of such data back to Franchisee for theterm of this Agreement, at no additional cost, solely for Franchisee’s use in connection with thebusiness franchised under this Agreement.**     ***Privacy******.*****Franchisee shall abide by all applicable laws pertaining to privacy ofinformation collected or maintained regarding customers or other individuals (“**Privacy**”), and shallcomply with Franchisor’s standards and policies pertaining to Privacy. If there is a conflictbetween Franchisor’s standards and policies pertaining to Privacy and applicable law, Franchiseeshall: (a) comply with the requirements of applicable law; (b) immediately give Franchisor writtennotice of said conflict; and (c) promptly and fully cooperate with Franchisor and Franchisor’scounsel as Franchisor may request to assist Franchisor in its determination regarding the mosteffective way, if any, to meet Franchisor’s standards and policies pertaining to Privacy within thebounds of applicable law.**     ***Telecommunications******.*****Franchisee shall comply with Franchisor’s requirements (as setforth in the Manual or otherwise in writing) with respect to establishing and maintainingtelecommunications connections between Franchisee’s Computer System and Franchisor’s Extranet (asdefined below), if any, and/or such other computer systems as Franchisor may reasonably require.**     ***Extranet******.*****Franchisor may establish a website providing private and securecommunications between Franchisor, Franchisee, franchisees, licensees and other persons andentities as determined by Franchisor, in its sole discretion (an “**Extranet**”). Franchisee shallcomply with Franchisor’s requirements (as set forth in the Manual or otherwise in writing) withrespect to connecting to the Extranet, and utilizing the Extranet in connection with the operationof the Franchised Restaurant. The Extranet may include, without limitation, the Manuals, trainingother assistance materials, and management reporting solutions (both upstream and downstream, asFranchisor may direct). Franchisee shall purchase and maintain such computer software and hardwareas may be required to connect to and utilize the Extranet.**     ***Websites******.*****As used in this Agreement, the term “**Website**” means an interactiveelectronic document, series of symbols, or otherwise, that is contained in a network of computerslinked by communications software. The term Website includes, but is not limited to, Internet andWorld Wide Web home pages. In connection with any Website, Franchisee agrees to the following:**          **Franchisor shall have the right, but not the obligation, to establish and maintain aWebsite, which may, without limitation, promote the Proprietary Marks, any or all of the Products,Cosi Restaurants, the franchising of Cosi Restaurants, and/or the System. Franchisor shall havethe sole right to control all aspects of the Website, including**
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**without limitation its design, content, functionality, links to the websites of third parties,legal notices, and policies and terms of usage; Franchisor shall also have the right to discontinueoperation of the website.**          **Franchisor shall have the right, but not the obligation, to designate one or more web page(s)to describe Franchisee and/or the Franchised Restaurant, with such web page(s) to be located withinFranchisor’s Website. Franchisee shall comply with Franchisor’s policies with respect to thecreation, maintenance and content of any such webpages; and Franchisor’s shall have the right torefuse to post and/or discontinue posting any content and/or the operation of any webpage.**          **Franchisee shall not establish a separate Website, without Franchisor’s prior written approval(which Franchisor shall not be obligated to provide). If approved to establish a Website,Franchisee shall comply with Franchisor’s policies, standards and specifications with respect tothe creation, maintenance and content of any such Website. Franchisee specifically acknowledgesand agrees that any Website owned or maintained by or for the benefit of Franchisee shall be deemed“advertising” under this Agreement, and will be subject to (among other things) Franchisor’sapproval under Section 13 below.**          **Franchisor shall have the right to modify the provisions of this Section 7 relating toWebsites as Franchisor shall solely determine is necessary or appropriate.**     ***Online Use of Marks******.*****Franchisee shall not use the Proprietary Marks or anyabbreviation or other name associated with Franchisor and/or the System as part of any e-mailaddress, domain name, and/or other identification of Franchisee in any electronic medium.Franchisee agrees not to transmit or cause any other party to transmit advertisements orsolicitations by e-mail or other electronic media without Franchisor’s prior written consent as toFranchisee’s plan for transmitting such advertisements.**     ***No Outsourcing without Prior Written Approval******.*****Franchisee shall not hire third partyor outside vendors to perform any services or obligations in connection with the Computer System,Required Software, or any other of Franchisee’s obligations without Franchisor’s prior writtenapproval therefor. Franchisor’s consideration of any proposed outsourcing vendor(s) may beconditioned upon, among other things, such third party or outside vendor’s entry into aconfidentiality agreement with Franchisor and Franchisee in a form that is reasonably provided byFranchisor.**     ***Changes to Technology******.*****Franchisee and Franchisor acknowledge and agree that changesto technology are dynamic and not predictable within the term of this Agreement. In order toprovide for inevitable but unpredictable changes to technological needs and opportunities,Franchisee agrees that Franchisor shall have the right to establish, in writing, reasonable newstandards for the implementation of technology in the System; and Franchisee agrees that it shallabide by those reasonable new standards established by Franchisor as if this Section 7 wereperiodically revised by Franchisor for that purpose.****OTHER DUTIES OF FRANCHISEE**     ***Details of Operation******.*****Franchisee understands and acknowledges that every detail ofthe System and this Agreement is important to Franchisee, Franchisor, and other franchisees inorder to develop and maintain high operating, quality and service standards, to increase the demandfor the Products sold by all operators, to protect Cosi Restaurants operating under the System, andto protect the reputation and goodwill of Franchisor.**     ***Comply with the Agreement, including the Manuals******.*****Franchisee shall operate theFranchised Restaurant in strict conformity with this Agreement and such standards andspecifications as Franchisor may from time to time prescribe in the Manuals or otherwise inwriting, and shall refrain from deviating from such standards, specifications, and procedureswithout the prior written consent of Franchisor.**     ***Management of Business & Designated Principal******.*****If Franchisee is other than anindividual, prior to beginning training, Franchisee shall comply with the following:**          **Franchisee shall designate, subject to Franchisor’s reasonable approval, one Principal whois both an individual person and owns at least a ten percent (10%) beneficial interest inFranchisee, and who shall be responsible for general oversight and management of the operations ofthe Franchised Restaurant on behalf of Franchisee (the “**Designated Principal**”). In the event theperson designated as the Designated Principal dies, becomes incapacitated, transfers his/herinterest in Franchisee, or otherwise ceases to supervise the operations of the FranchisedRestaurant, Franchisee shall promptly designate a new Designated Principal, subject to Franchisor’sreasonable approval.**          **Franchisee shall inform Franchisor in writing whether Franchisee (or, if Franchisee is otherthan an individual, the Designated Principal) will assume full-time responsibility for the dailysupervision and operation of the**
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**Franchised Restaurant. If not, Franchisee shall employ a full-time unit manager (the “**GeneralManager**”) whose qualifications shall be reasonably acceptable to Franchisor (including, but notlimited to, the requirement that such individual possess sufficient experience in the management ofa business) to assume full-time responsibility for the daily supervision and operation of theFranchised Restaurant.**          **Franchisee acknowledges and agrees that Franchisor shall have the right to rely upon either orboth the Designated Principal or General Manager to have been given by Franchisee theresponsibility and decision-making authority regarding the Franchised Restaurant’s operation andFranchisee’s business.**     ***Staffing******.*****Franchisee agrees to maintain a competent, conscientious, staff (whoare trained by Franchisee to Franchisor’s standards and requirements) in numbers sufficient topromptly service customers and to take such steps as are necessary to ensure that its employeespreserve good customer relations; render competent, prompt, courteous, and knowledgeable service;comply with such uniforms and/or dress code as Franchisor may prescribe; and meet such minimumstandards as Franchisor may establish from time to time in the Manuals. In no way limiting theforegoing, Franchisee shall have on duty at all times at least one (1) manager and/or hourlyemployee trained in management activities, who has completed all training and certificationsrequired by Franchisor. Franchisee shall be solely responsible for all employment decisions andfunctions of the Franchised Restaurant, including those related to hiring, firing, wage and hourrequirements, recordkeeping, supervision, and discipline of employees.**     ***Use of Premises******.*****Franchisee shall use the Premises solely for the operation of theFranchised Restaurant; shall keep the Franchised Restaurant open and in normal operation for suchminimum hours and days as Franchisor may specify; shall refrain from using or permitting the use ofthe Premises for any other purpose or activity at any time without first obtaining the writtenconsent of Franchisor. As described in Section 1.3 herein, Franchisee shall not engage in cateringor delivery except with Franchisor’s prior written approval and only in accordance with the termsand conditions specified in writing by Franchisor, including without limitation guidelines andrequirements relating to insurance coverage and vehicle use in such activities.**     ***Conformity to Standards*****. To insure that the highest degree of quality and service ismaintained, Franchisee shall operate the Franchised Restaurant in strict conformity with suchmethods, standards, and specifications as Franchisor may from time to time prescribe in the Manualsor otherwise in writing. Without limitation, Franchisee agrees as follows:**          **Franchisee shall purchase and install prior to the opening of the Franchised Restaurant,and thereafter maintain, all fixtures, furnishings, equipment, decor, and signs, and maintain insufficient supply supplies and materials, as Franchisor may prescribe in the Manuals or otherwisein writing. Franchisee shall refrain from deviating therefrom by the use of any unapproved itemwithout the prior written consent of Franchisor.**          **Franchisee shall offer and sell only Products that Franchisor specifies from time to time,unless otherwise approved in writing by Franchisor; and Franchisee shall offer and sell allProducts as Franchisor may specify from time to time as required offerings at the FranchisedRestaurant. Franchisee shall offer and sell the Products utilizing the ingredients and employingthe preparation standards and techniques, as specified by Franchisor. Franchisee is prohibitedfrom offering or selling any products or services at or from the Franchised Restaurant that havenot previously been authorized by Franchisor, and shall discontinue selling and offering for saleany Products which Franchisor shall have the right to disapprove, in writing, at any time. IfFranchisee wishes to offer or sell any products or services that have not previously beenauthorized by Franchisor, Franchisee must first make a written request to Franchisor, requestingauthorization to offer or sell such products or services in accordance with Section 8.7 below.Franchisor may deny such approval for any reason.**          **Franchisee shall permit Franchisor or its agents, at any reasonable time, to remove samples ofProducts, without payment therefor, in amounts reasonably necessary for testing by Franchisor or anindependent laboratory to determine whether said samples meet Franchisor’s then-current standardsand specifications. In addition to any other remedies it may have under this Agreement, Franchisormay require Franchisee to bear the cost of such testing if the supplier of the item has notpreviously been approved by Franchisor or if the sample fails to conform to Franchisor’sspecifications.**          **Franchisee shall refrain from selling, offering to sell, or permitting any other party to sellor offer to sell beer, wine, or any form of liquor, without the advance written authorization ofFranchisor (“**Alcoholic Beverages**”). Franchisee acknowledges and agrees that Alcoholic Beveragesare optional Products and if approved by Franchisor to offer and sell Alcoholic Beverages at theFranchised Restaurant, Franchisee shall: (i) be solely responsible for complying with all with alllaws and regulations relating to alcohol and alcohol service or preparation; (ii) shall comply withFranchisor’s standards, specifications and terms of Franchisor regarding the offer, sale, andpresentation of Alcoholic Beverage, as approved Products, and shall obtain and maintain suchadditional insurance coverage as Franchisor may require pursuant to Section 14 of this Agreement.**
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          **Franchisor may designate an independent evaluation service to conduct a “mystery shopper”quality control and evaluation program with respect to Franchisor or affiliate-owned and/orfranchised Cosi Restaurants. Franchisee agrees that the Franchised Restaurant will participate insuch mystery shopper program, as prescribed and required by Franchisor, provided thatFranchisor-owned, affiliate-owned, and franchised Cosi Restaurants also will participate in suchprogram to the extent Franchisor has the right to require such participation. Franchisor shallhave the right to require Franchisee to pay the then-current charges imposed by such evaluationservice with respect to inspections of the Franchised Restaurant, and Franchisee agrees that itshall promptly pay such charges; provided, however, that such charges shall not exceed Five HundredDollars ($500) during each year of this Agreement.**          **Franchisee shall participate in all customer surveys and satisfaction audits, which mayrequire that Franchisee provide discount or complimentary Products, provided that such discountedor complimentary sales shall not be included in the Net Sales of the Franchised Restaurant.Additionally, Franchisee shall participate in any complaint resolution and other programs asFranchisor may reasonably establish for the System, which programs may include, without limitation,providing discounts or refunds to customers.**     ***Purchases and Approved Suppliers*****. Franchisee shall purchase all equipment,fixtures, furnishings, signs, décor, supplies, services, and products (including the Products)required for the establishment and operation of the Franchised Restaurant from suppliers designatedor approved in writing by Franchisor (as used in this Section 8.7 the term “supplier” shall includemanufacturers, distributors and other forms of suppliers). In determining whether it will approveany particular supplier, Franchisor shall consider various factors, including but not limited towhether the supplier can demonstrate, to Franchisor’s continuing reasonable satisfaction, theability to meet Franchisor’s then-current standards and specifications for such items; who possessadequate quality controls and capacity to supply Franchisee’s needs promptly and reliably; whoseapproval would enable the System, in Franchisor’s sole opinion, to take advantage of marketplaceefficiencies; and who have been approved in writing by Franchisor prior to any purchases byFranchisee from any such supplier, and have not thereafter been disapproved. Franchisor reservesthe right to designate, at any time and for any reason, a single supplier for any equipment,supplies, services, or products (including any Products) and to require Franchisee to purchaseexclusively from such designated supplier, which exclusive designated supplier may be Franchisor oran affiliate of Franchisor.**          **Notwithstanding anything to the contrary in this Agreement, Franchisee shall purchase allof its requirements for Proprietary Products (which may include, but are not limited to dressings,spreads, coffee, and coffee beans, bread mixtures, meat ingredients) from Franchisor’s designee(s),as set forth in Section 8.8 below (through such distributor or distributors as Franchisor maydesignate). Franchisor shall have the right to introduce additional, substitute new, ordiscontinue Proprietary Products from time to time.**          **If Franchisee desires to purchase any Products (except for Proprietary Products) or otheritems, equipment, supplies, services from suppliers other than those previously designated orapproved by Franchisor, Franchisee must first submit to Franchisor a written request forauthorization to purchase such items. Franchisee shall not purchase from any supplier until, andunless, such supplier has been approved in writing by Franchisor. Franchisor may deny suchapproval for any reason, including its determination to limit the number of approved suppliers.Franchisee must submit to Franchisor such information and samples as Franchisor may reasonablyrequire, and Franchisor shall have the right to require periodically that its representatives bepermitted to inspect such items and/or supplier’s facilities, and that samples from the proposedsupplier, or of the proposed items, be delivered for evaluation and testing either to Franchisor orto an independent testing facility designated by Franchisor. Permission for such inspections shallbe a condition of the initial and continued approval of such supplier. A charge not to exceed thereasonable cost of the evaluation and testing shall be paid by Franchisee. Franchisor may alsorequire that the supplier comply with such other requirements as Franchisor may deem appropriate,including payment of reasonable continuing inspection fees and administrative costs, or otherpayment to Franchisor by the supplier on account of their dealings with Franchisee or otherfranchisees, for use, without restriction (unless otherwise instructed by the supplier) and forservices that Franchisor may render to such suppliers.**          **Franchisor reserves the right, at its option, to reinspect from time to time the facilitiesand products of any such approved supplier and to revoke its approval upon the supplier’s failureto continue to meet any of Franchisor’s then-current criteria. Upon receipt of written notice ofsuch revocation, Franchisee shall cease to sell or use any disapproved item, Products and/or ceaseto purchase from any disapproved supplier.**          **Nothing in the foregoing shall be construed to require Franchisor to approve any particularsupplier, nor to require Franchisor to make available to prospective suppliers, standards andspecifications for formulas, which Franchisor shall have the right to deem confidential.**
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          **Notwithstanding anything to the contrary contained in this Agreement, Franchisee acknowledgesand agrees that, at Franchisor’s sole option, Franchisor may establish one or more strategicalliances or preferred vendor programs with one or more nationally or regionally-known supplierswho are willing to supply all or some Cosi Restaurants with some or all of the products and/orservices that Franchisor requires for use and/or sale in the development and/or operation of CosiRestaurants. In this event, Franchisor may limit the number of approved suppliers with whomFranchisee may deal, designate sources that Franchisee must use for some or all Products and otherproducts and services, and/or refuse any of Franchisee’s requests if Franchisor believes that thisaction is in the best interests of the System or the franchised network of Cosi Restaurants.Franchisor shall have unlimited discretion to approve or disapprove of the suppliers who may bepermitted to sell Products to Franchisee.**          **Franchisor and its affiliates may receive payments or other compensation from suppliers onaccount of such suppliers’ dealings with Franchisee and other franchisees; and Franchisor may useall amounts so received for any purpose Franchisor and its affiliates deem appropriate.**     ***Proprietary Products*****. Franchisee acknowledges and agrees that the ProprietaryProducts offered and sold at Cosi Restaurants are manufactured in accordance with secret blends,standards, and specifications of Franchisor and/or Franchisor’s affiliates, and are ProprietaryProducts of Franchisor and/or its affiliates. In order to maintain the high standards of quality,taste, and uniformity associated with Proprietary Products sold at all Cosi Restaurants in theSystem, Franchisee agrees to purchase Proprietary Products only from Franchisor, or itsdesignee(s), and not to offer or sell any other items not approved by Franchisor at or from theFranchised Restaurant. In connection with the handling, storage, transport and delivery of anyProprietary Products purchased from Franchisor, its affiliates or designee(s), Franchiseeacknowledges that any action or inaction by any third party (e.g., an independent carrier) inconnection with the handling, storage, transport and delivery of the Proprietary Products shall notbe attributable to nor constitute negligence of Franchisor. A request shall not be approved unlessand until Franchisee receives written approval from Franchisor.**     ***Inspections******.*****Franchisee shall permit Franchisor and its agents to enter upon thePremises at any time during normal business hours for the purpose of conducting inspections of thePremises and the operations, of Franchisee. Franchisee shall cooperate with representatives of thestandards of in such inspections by rendering such assistance as they may reasonably request; and,upon notice from Franchisor or its agents, and without limiting other rights of Franchisor underthis Agreement, shall take such steps as may be necessary to correct immediately any deficienciesdetected during any such inspection. Should Franchisee, for any reason, fail to correct suchdeficiencies within a reasonable time as determined by Franchisor, Franchisor shall have the right,but not the obligation, to correct any deficiencies which may be susceptible to correction byFranchisor and to charge Franchisee the actual expenses of Franchisor in so acting, which shall bepayable by Franchisee upon demand. The foregoing shall be in addition to such other remediesFranchisor may have.**     ***Trademarked Items*****. Franchisee shall ensure that all advertising and promotionalmaterials, signs, decorations, paper goods (including wrapping and containers for products,napkins, menus and all forms and stationery used in the Franchised Restaurant), Products, and otheritems specified by Franchisor bear the Proprietary Marks in the form, color, location, and mannerprescribed by Franchisor. Franchisee shall place and illuminate all signs in accordance withFranchisor’s specifications.**     ***Participation in Promotions******.*****Franchisee shall participate in promotional programsdeveloped by Franchisor for the System, in the manner directed by Franchisor in the Manuals orotherwise in writing, to the extent such promotional programs do not directly affect Franchisee’spricing freedom. In no way limiting the foregoing, Franchisee agrees that if required byFranchisor:**          **Franchisee shall participate in all programs and services for frequent customers, seniorcitizens, children, an other categories, which may include providing discount or complimentaryProducts.**          **Franchisee shall sell or otherwise issue gift cards or certificates (together “**Gift Cards**”)that have been prepared utilizing the standard form of Gift Card provided or designated byFranchisor, and only in the manner specified by Franchisor in the Manual or otherwise in writing.Franchisee shall fully honor all Gift Cards that are in the form provided or approved by Franchisorregardless of whether a Gift Card was issued by Franchisee or another Cosi Restaurant. Franchiseeshall sell, issue, and redeem (without any offset against any Royalty Fees) Gift Cards inaccordance with procedures and policies specified by Franchisor in the Manual or otherwise inwriting, including those relating to procedures by which Franchisee shall request reimbursement forGift Cards issued by other Cosi Restaurants and for making timely payment to Franchisor, otheroperators of Cosi Restaurants, or a third-party service provider for Gift Cards issued from theFranchised Restaurant that are honored by Franchisor or other Cosi Restaurant operators.**     ***Health /Standards*****. Franchisee shall meet and maintain the highest healthstandards and ratings applicable to the operation of the Franchised Restaurant under the Manualsand applicable health ordinances. Franchisee shall also**
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**comply with the requirements set forth in the Manuals for submitting to Franchisor a copy of aviolation or citation relating to Franchisee’s failure to maintain any health or safety standardsin the operation of the Franchised Restaurant.**     ***Maintenance of Premises******.*****Franchisee shall maintain the Franchised Restaurant and thePremises in a clean, orderly condition and in excellent repair; and, in connection therewith,Franchisee shall, at its expense, make such repairs and replacements thereto (but no others withoutprior written consent of Franchisor) as may be required for that purpose, including such periodicrepainting or replacement of obsolete signs, furnishings, equipment, and decor as Franchisor mayreasonably direct.**     ***Ongoing Upgrades and Refurbishments******.*****As set forth in Section 8.6.1, throughout theterm of this Agreement, Franchisee shall maintain all fixtures, furnishings, equipment, decor, andsigns as Franchisor may prescribe from time to time in the Manuals or otherwise in writing.Franchisee shall make such changes, upgrades, refurbishment, and replacements as Franchisor mayperiodically require, in the time frames specified by Franchisor.**     ***Five-Year Refurbishment and Renovations******.*****At the request of Franchisor, but not moreoften than once every five (5) years, unless sooner required by Franchisee’s lease, Franchiseeshall refurbish the Premises, at its expense, to conform to the restaurant design, trade dress,color schemes, and presentation of the Proprietary Marks in a manner consistent with thethen-current image for new Cosi Restaurants. Such refurbishment may include structural changes,installation of new equipment and signs, remodeling, redecoration, and modifications to existingimprovements, and shall be completed pursuant to such standards, specifications and deadlines asFranchisor may specify.**     ***Compliance with Lease******.*****Franchisee shall comply with all terms of its lease orsublease, its financing agreements (if any), and all other agreements affecting the operation ofthe Franchised Restaurant; shall undertake best efforts to maintain a good and positive workingrelationship with its landlord and/or lessor; and shall not engage in any activity which mayjeopardize Franchisee’s right to remain in possession of, or to renew the lease or sublease for,the Premises.**     ***Obligations to Third Parties*****. Franchisee must at all times pay its distributors,contractors, suppliers, trade creditors, employees and other creditors promptly as the debts andobligations to such persons become due, and failure to do so shall constitute a breach of thisAgreement.**     ***Notice of Legal Actions*****. Franchisee shall notify Franchisor in writing within five(5) days of the commencement of any suit to foreclose any lien or mortgage, or any action, suit, orproceeding, and of the issuance of any order, writ, injunction, award, or decree of any court,agency, or other governmental instrumentality, including health agencies, which (i) relates to theoperation of the Franchised Restaurant, (ii) may adversely affect the operation or financialcondition of the Franchised Restaurant, or (iii) may adversely affect Franchisee’s financialcondition.**     ***No Relocation******.*****Franchisee shall not relocate the Franchised Restaurant from theApproved Location without the prior written approval of Franchisor. If Franchisee desires torelocate the Franchised Restaurant, the following terms and conditions shall apply:**          **Franchisee shall submit such materials and information as Franchisor may request for theevaluation of the requested plan of relocation. Franchisor may, in its sole discretion, require anyor all of the following as conditions of its approval for relocation: (i) Franchisee not be indefault under any provision of this Agreement, or any other agreement between Franchisee andFranchisor; (ii) the proposed substitute location meets Franchisor’s then-current standards forCosi Restaurants; (iii) the lease (if applicable) for the proposed substitute location must complywith Franchisor’s then-current lease requirements for Cosi Restaurants (which may include therequirement that the lease contain certain terms and conditions, which be different than, or inaddition to, those terms Franchisor required as of the Effective Date with respect to the ApprovedLocation), and Franchisee must obtain Franchisor’s approval of the proposed lease; (iv) Franchiseemust possess the financial resources to meet the costs associated with relocating; (v) Franchiseeenter into Franchisor then-current form of Franchise Agreement (which shall replace thisAgreement), provided that Franchisee shall not be required to pay an initial fee; and (vi)Franchisee pay a relocation fee equal to twenty five percent (25%) of Franchisor’s then-currentinitial franchise fee.**          **If, through no fault of Franchisee, the Premises are damaged or destroyed by an event suchthat repairs or reconstruction cannot be completed within sixty (60) days thereafter, thenFranchisee shall have forty five (45) days after such event in which to apply for Franchisor’sapproval to relocate and/or reconstruct the Premises, which approval shall not be unreasonablywithheld and, in such event, the relocation fee described in Section 8.19.1 above shall not apply.**     ***Franchisee Advisory Councils******.*****If Franchisor should, during the term of thisAgreement, form or require the formation of a franchisee advisory council or association(hereinafter “**Advisory Council**”) or such successor council or association to serve as an advisorycouncil to Franchisor with respect to advertising, marketing, and other matters relating tofranchised Cosi Restaurants, Franchisee shall become a member of the Advisory Council. In suchevent, Franchisee**
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**shall pay to the Advisory Council all dues and assessments authorized by the Advisory Counciland shall otherwise abide by the rules and regulations of the Advisory Council and shall at alltimes maintain its membership in the Advisory Council in good standing.**     ***Changes to the System******.*****Franchisee acknowledges and agrees that from time to timehereafter Franchisor may change or modify the System presently identified by the Proprietary Marks,as Franchisor deems appropriate, including without limitation to reflect the changing market and tomeet new and changing consumer demands, and that variations and additions to the System may berequired from time to time to preserve and enhance the public image of the System and operations ofCosi Restaurants. Changes to the System may include, without limitation, the adoption and use ofnew, modified, or substituted products, services, equipment and furnishings and new techniques andmethodologies, and (as described in Section 9 below) additional or substitute trademarks, servicemarks and copyrighted materials. Franchisee shall, upon reasonable notice, accept, implement, useand display in the operation of the Franchised Restaurant any such changes in the System, as ifthey were part of this Agreement at the time of execution hereof, at Franchisee’s sole expense.Additionally, Franchisor reserves the right, in its sole discretion, to vary the standardsthroughout the System, as well as the services and assistance that Franchisor may provide to somefranchisees based upon the peculiarities of a particular site or circumstance, existing businesspractices, or other factors that Franchisor deems to be important to the operation of any CosiRestaurant or the System. Franchisee shall have no recourse against Franchisor on account of anyvariation to any franchisee and shall not be entitled to require Franchisor to provide Franchiseewith a like or similar variation hereunder.**     ***Modifications Proposed by Franchisee******.*****Franchisee shall not implement any change tothe System (including the use of any product or supplies not already approved by Franchisor)without Franchisor’s prior written consent. Franchisee acknowledges and agrees that, with respectto any change, amendment, or improvement in the System or use of additional product or supplies forwhich Franchisee requests Franchisor’s approval: (i) Franchisor shall have the right to incorporatethe proposed change into the System and shall thereupon obtain all right, title, and interesttherein without compensation to Franchisee, (ii) Franchisor shall not be obligated to approve oraccept any request to implement change, and (iii) Franchisor may from time to time revoke itsapproval of particular change or amendment to the System, and upon receipt of written notice ofsuch revocation, Franchisee shall modify its activities in the manner described by Franchisor.****PROPRIETARY MARKS**     ***Ownership*****. Franchisor represents with respect to the Proprietary Marks that:**          **Franchisor is the owner of all right, title, and interest in and to the Proprietary Marks.**          **Franchisor will take all steps reasonably necessary to preserve and protect the ownership andvalidity in and to the Proprietary Marks.**     ***License to Franchisee*****. Franchisee’s right to use the Proprietary Marks is limitedto such uses as are authorized under this Agreement, and any unauthorized use thereof shallconstitute an infringement of rights of Franchisor.**     ***Terms of Franchisee’s Usage*****. With respect to Franchisee’s use of the ProprietaryMarks, Franchisee agrees to:**          **Use only the Proprietary Marks designated by Franchisor, and to use them only in themanner authorized and permitted by Franchisor;**          **Franchisee shall use the Proprietary Marks only for the operation of the business franchisedhereunder and only at the location authorized hereunder, or in Franchisor-approved advertising forthe business conducted at or from that location;**          **Operate and advertise the Franchised Restaurant only under the name “Cosi,” and use theProprietary Marks without prefix or suffix, unless otherwise authorized or required by Franchisor.**          **Franchisee shall not use the Proprietary Marks as part of its corporate or other legal name,or as part of any e-mail address, domain name, or other identification of Franchisee in anyelectronic medium. Franchisee may, as necessary to conduct the business of the FranchisedRestaurant and to obtain governmental licenses and permits for the Franchised Restaurant, indicatethat Franchisee shall be operating the Franchised Restaurant under the trade name “Cosi,” providedthat Franchisee shall also clearly identify itself as the owner and operator of the FranchisedRestaurant;**          **Identify itself as the owner of the Franchised Restaurant (in the manner required byFranchisor) in conjunction with any use of the Proprietary Marks, including on invoices, orderforms, receipts, and business stationery, as well as at such conspicuous locations on the Premisesas Franchisor may designate in writing;**
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          **Not to use the Proprietary Marks to incur any obligation or indebtedness on behalf ofFranchisor;**          **Execute any documents deemed necessary by Franchisor to obtain protection for the ProprietaryMarks or to maintain their continued validity and enforceability; and**          **Promptly notify Franchisor of any suspected unauthorized use of the Proprietary Marks, anychallenge to the validity of the Proprietary Marks, or any challenge to Franchisor’s ownership of,the right of Franchisor to use and to license others to use, or Franchisee’s right to use, theProprietary Marks. Franchisee acknowledges that Franchisor has the sole right to direct andcontrol any administrative proceeding or litigation involving the Proprietary Marks, including anysettlement thereof. Franchisor has the right, but not the obligation, to take action against usesby others that may constitute infringement of the Proprietary Marks. Franchisor shall defendFranchisee against any third-party claim, suit, or demand arising out of Franchisee’s use of theProprietary Marks. If Franchisor, in its sole discretion, determines that Franchisee has used theProprietary Marks in accordance with this Agreement, the cost of such defense, including the costof any judgment or settlement, shall be borne by Franchisor. If Franchisor, in its solediscretion, determines that Franchisee has not used the Proprietary Marks in accordance with thisAgreement, the cost of such defense, including the cost of any judgment or settlement, shall beborne by Franchisee. In the event of any litigation relating to Franchisee’s use of theProprietary Marks, Franchisee shall execute any and all documents and do such acts as may, in theopinion of Franchisor, be necessary to carry out such defense or prosecution, including, but notlimited to, becoming a nominal party to any legal action. Except to the extent that suchlitigation is the result of Franchisee’s use of the Proprietary Marks in a manner inconsistent withthe terms of this Agreement, Franchisor agrees to reimburse Franchisee for its out-of-pocket costsin doing such acts.**     ***Franchisee Acknowledgments*****. Franchisee expressly understands and acknowledgesthat:**          **Franchisor is the owner of all right, title, and interest in and to the Proprietary Marksand the goodwill associated with and symbolized by them, and that Franchisor has the sole right touse, and license others to use, the Proprietary Marks;**          **During the term of this Agreement and after its expiration or termination, Franchisee shallnot directly or indirectly contest the validity of Franchisor’s ownership of, or right to use andto license others to use, the Proprietary Marks;**          **Franchisee’s use of the Proprietary Marks does not give Franchisee any ownership interest orother interest in or to the Proprietary Marks;**          **Any and all goodwill arising from Franchisee’s use of the Proprietary Marks shall inure solelyand exclusively to the benefit of Franchisor, and upon expiration or termination of this Agreement,no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee’suse of the System or the Proprietary Marks;**          **The right and license of the Proprietary Marks granted hereunder to Franchisee isnonexclusive, and Franchisor thus has and retains the rights, among others: (a) to use theProprietary Marks itself in connection with selling the Products; (b) to grant other licenses forthe Proprietary Marks; and (c) to develop and establish other systems using the Proprietary Marks,similar proprietary marks, or any other proprietary marks, and to grant licenses thereto withoutproviding any rights therein to Franchisee; and**          **Franchisor shall have the right to substitute different proprietary marks for use inidentifying the System and the businesses operating thereunder at the sole discretion ofFranchisor.****MANUALS**     ***The Manuals and Furnishings to Franchisee*****. In order to protect the reputation andgoodwill of Franchisor and to maintain high standards of operation under the System, Franchiseeshall operate the Franchised Restaurant in accordance with the standards, methods, policies, andprocedures specified in the Manuals, which Franchisee shall receive on loan from Franchisor, viaelectronic access or otherwise, for the term of this Agreement upon completion by Franchisee ofinitial training. The Manuals may be set forth in several volumes, including such amendmentsthereto, as Franchisor may publish from time to time. Additionally, Franchisee acknowledges andagrees that Franchisor may provide a portion or all (including updates and amendments) of theManuals, and other instructional information and materials in, or via, electronic media, includingwithout limitation, through the use of computer disks, or the Internet.**
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     ***The Manuals are Proprietary and Confidential*****. Franchisee shall treat the Manuals, anyother materials created for or approved for use in the operation of the Franchised Restaurant, andthe information contained therein, as confidential, and shall use all reasonable efforts tomaintain such information (both in electronic and other formats) as proprietary and confidential.Franchisee shall not download, copy, duplicate, record, or otherwise reproduce the foregoingmaterials, in whole or in part, or otherwise make the same available to any unauthorized person.**     ***The Manuals Remain Franchisor’s Property*****. The Manuals shall remain the sole propertyof Franchisor and shall be accessible only from a secure place on the Premises, and shall bereturned to Franchisor, as set forth in Section 17.8 below, upon the termination or expiration ofthis Agreement.**     ***Revisions to the Manuals*****. Franchisor may from time to time revise the contents of theManuals, and Franchisee expressly agrees to comply with each new or changed standard. Franchiseeshall ensure that the Manuals are kept current at all times. In the event of any dispute as to thecontents of the Manuals, the terms of the master copies maintained at the home office of Franchisorshall be controlling.****CONFIDENTIAL INFORMATION**     ***Agreement with respect to Confidentiality*****. Franchisee acknowledges and agrees that itshall not, during the term of this Agreement or thereafter, communicate, divulge, or use for thebenefit of any other person or entity any confidential information, knowledge, or know-howconcerning Franchisor, the System, the Products and/or the marketing, management or operations ofthe Franchised Restaurant that may be communicated to Franchisee or of which Franchisee may beapprised by virtue of Franchisee’s operation under the terms of this Agreement. Franchisee shalldivulge such confidential information only to such of its employees as must have access to it inorder to operate the Franchised Restaurant. Any and all information, knowledge, know-how, andtechniques which Franchisor designates as confidential shall be deemed confidential for purposes ofthis Agreement, except information which Franchisee can demonstrate came to its attention prior todisclosure thereof by Franchisor; or which, at or after the time of disclosure by Franchisor toFranchisee, had become or later becomes a part of the public domain, through publication orcommunication by others.**     ***Individual Covenants of Confidentiality*****. At Franchisor’s request, Franchisee shallrequire its manager and any personnel having access to any confidential information of Franchisorto execute covenants that they will maintain the confidentiality of information they receive inconnection with their employment by Franchisee at the Franchised Restaurant. Such covenants shallbe in a form satisfactory to Franchisor (the current forms of which are included in Exhibit F tothis Agreement), which shall include specific identification of Franchisor as a third-partybeneficiary of such covenants with the independent right to enforce them.**     ***Remedies for Breach*****. Franchisee acknowledges that any failure to comply with therequirements of this Section 11 will cause Franchisor irreparable injury, and Franchisee agrees topay all court costs and reasonable attorney’s fees incurred by Franchisor in obtaining specificperformance of, or an injunction against violation of, the requirements of this Section 11.**     ***Grantback*****. Franchisee agrees to disclose to Franchisor all ideas, concepts, methods,techniques and products conceived or developed by Franchisee, its affiliates, owners or employeesduring the term of this Agreement relating to the development and/or operation of the FranchisedRestaurant. Franchisee hereby grants to Franchisor and agrees to procure from its affiliates,owners or employees a perpetual, non-exclusive, and worldwide right to use any such ideas,concepts, methods, techniques in all restaurant businesses operated by Franchisor or itsaffiliates, franchisees and designees. Franchisor shall have no obligation to make any payments toFranchisee with respect to any such ideas, concepts, methods, techniques or products. Franchiseeagrees that Franchisee will not use or allow any other person or entity to use any such concept,method, technique or product without obtaining Franchisor’s prior written approval.****ACCOUNTING AND RECORDS**     ***Books and Records*****. With respect to the operation and financial condition of theFranchised Restaurant, Franchisor may require that Franchisee adopt, until otherwise specified byFranchisor, a fiscal year that coincides with Franchisor’s then-current fiscal year, as specifiedby Franchisor in the Manual or otherwise in writing. Franchisee shall maintain for a period of notless than seven (7) years during the term of this Agreement, and, for not less than seven (7) yearsfollowing the termination, expiration, or non-renewal of this Agreement, full, complete, andaccurate books, records, and accounts in accordance with generally accepted accounting principlesand in the form and manner prescribed by Franchisor from time to time in the Manuals or otherwisein writing, including but not limited to: (i) daily transaction reports; (ii) cash receipts journaland general ledger; (iii) cash disbursements and weekly payroll journal and schedule; (iv) monthlybank statements, deposit slips and cancelled checks; (v) all tax returns; (vi) supplier’s invoices(paid and unpaid); (vii) dated daily and weekly transaction journal; (viii) semi-annual fiscalperiod balance sheets and fiscal period profit and loss statements; (ix) such other records asFranchisor may from time to time request.**     ***Franchisee’s Reports to Franchisor*****. In addition to the Sales Reports requiredpursuant to Section 4.3 above, Franchisee shall:**
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          **Prepare by the twenty first (21****st****) day of each calendar month a balance sheetand profit and loss statement and an activity report for the last preceding calendar month, whichshall be in the form prescribed by Franchisor. Franchisee shall maintain and submit suchstatements and reports to Franchisor at the times as Franchisor may designate or otherwise request.**          **Submit to Franchisor within ninety (90) days after the end of each calendar year, unlessFranchisor designates in writing a different due date, during the term of this Agreement, a profitand loss statement for such year and a balance sheet as of the last day of such year, prepared onan accrual basis in accordance with U.S. generally accepted accounting principles (“**GAAP**”),including but not limited to all adjustments necessary for fair presentation of the financialstatements. Franchisee shall certify such financial statements to be true and correct.Additionally, Franchisor reserves the right to require Franchisee to prepare (or cause to beprepared) and provide to Franchisor annual financial statements, (that includes a fiscal year-endbalance sheet, an income statement of the Franchised Restaurant for such fiscal year reflecting allyear-end adjustments, and a statement of changes in cash flow of Franchisee), and to require thatsuch statements be prepared on a review basis by an independent certified public accountant (whoFranchisor may require to be retained in accordance with Section 4.6). Franchisee shall providesuch additional information, if any, as Franchisor may reasonably require in order for Franchisorto meet its obligations under GAAP.**          **Franchisee shall maintain its books and records, and provide all statements and reports toFranchisor, using the standard statements, templates, categories, and chart of accounts thatFranchisor provides to Franchisee.**          **Submit to Franchisor such other periodic reports, forms and records as specified, and in themanner and at the time as specified in the Manual or as Franchisor shall otherwise require inwriting from time to time (including without limitation the requirement that Franchisee provide ormake available to Franchisor certain sales and financial information in electronic format and/or byelectronic means).**     ***Inspection and Audit*****. Franchisor and its agents shall have the right at allreasonable times to examine and copy, at the expense of Franchisor, the books, records, accounts,and/or business tax returns of Franchisee. Franchisor shall also have the right, at any time, tohave an independent audit made of the books of Franchisee. If an inspection should reveal that anycontributions or payments have been understated in any statement or report to Franchisor, thenFranchisee shall immediately pay to Franchisor the amount understated upon demand, in addition tointerest from the date such amount was due until paid, at the rate of eighteen percent (18%) perannum, or the maximum rate permitted by law, whichever is less. If an inspection discloses anunderstatement in any statement or report of three percent (3%) or more, Franchisee shall, inaddition to repayment of monies owed with interest, reimburse Franchisor for any and all costs andexpenses connected with the inspection (including travel, lodging and wages expenses, andreasonable accounting and legal costs). The foregoing remedies shall be in addition to any otherremedies Franchisor may have.****MARETING AND PROMOTION**     ***Franchisee’s Advertising Obligations******.*****Recognizing the value of marketing andpromotion, and the importance of the standardization of marketing and promotion programs to thefurtherance of the goodwill and public image of the System, Franchisee and Franchisor agree asfollows:**          **Franchisor reserves the right to require that Franchisee, during each Week (except forexpenditures on local advertising and promotion, which shall be measured on an annual basis), spendand/or contribute on advertising and promotion amounts, which, in the aggregate, are equal to fivepercent (5%) of Franchisee’s Net Sales during the preceding Week to advertise and to promote theFranchised Restaurant (together, the “**Advertising Obligation**”); provided, however, that theAdvertising Obligations may exceed such amount under the circumstances set forth in Section 13.1.4below. The Advertising Obligation shall be in the form of the following, and in such proportionsas may be designated by Franchisor in writing from time to time: (i) contributions paid to theSystem Ad Fund, pursuant to Section 13.2 below, (ii) contributions paid to any Market Ad Fund, asmay be established pursuant to Section 13.3 below, and/or (iii) expenditures by Franchisee on“local advertising and promotion” pursuant to Section 13.4.**          **As of the Effective Date and until Franchisee receives written notice from Franchisor of newallocations, the allocation of the Advertising Obligations shall be as follows: one percent (1%)ofNet Sales shall be contributed by Franchisee to the System Ad Fund, zero percent (0%) of Net Salesshall be contributed by Franchisee to a Market Ad Fund, and one percent (1%) of Net Sales shall bespent by Franchisee on local advertising and promotion.**          **The Advertising Obligation is the minimum requirement only, and that Franchisee may, and isencouraged to, expend additional funds for marketing and promotion. In addition to the AdvertisingObligation, Franchisee shall undertake and complete the Grand Opening Advertising Program, asprovided in Section 13.5 below.**
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          **Franchisee’s aggregate Advertising Obligations may exceed five percent (5%) of Franchisee’sNet Sales, if the members of a Market Ad Fund, of which Franchisee is a member, approve (asdescribed in Section 13.3.3 below) required contributions to the Market Ad Fund that, whenaggregated with Franchisee’s other requirements under this Section 13, would cause Franchisee’sAdvertising Obligations to exceed five percent (5%) of Franchisee’s Net Sales.**     ***System Ad Fund******.*****Franchisor shall have the right at any time, in its solediscretion to establish a fund for system-wide advertising and promotion of the System (the “**SystemAd Fund**”). During the existence of the System Ad Fund, Franchisee shall contribute to the SystemAd Fund in the manner specified in Section 4.4 above, such amounts as Franchisor may specify inaccordance with Section 13.1 above. The System Ad Fund shall be maintained and administered byFranchisor as follows:**          **Franchisor shall direct all marketing programs, with sole discretion over the concepts,materials, and media used in such programs and the placement and allocation thereof. Franchisor isnot obligated, in administering the System Ad Fund, to make expenditures for Franchisee which areequivalent or proportionate to Franchisee’s contribution, or to ensure that any particularFranchisee benefits directly or****pro****rata from expenditures by the System Ad Fund.**          **The System Ad Fund, all contributions thereto, and any earnings thereon, shall be usedexclusively to meet any and all costs of maintaining, administering, directing, conducting, andpreparing marketing, advertising, public relations, and/or promotional programs and materials, andany other activities including socially responsible activities, which Franchisor believes willenhance the image of the System, including, among other things, the costs of preparing andconducting media marketing campaigns; direct mail advertising; marketing surveys and other publicrelations activities; employing advertising and/or public relations agencies to assist therein;sponsorship of organizations and events; purchasing promotional items; conducting and administeringin-store promotions; and providing promotional and other marketing materials and services to theCosi Restaurants operating under the System.**          **Franchisee shall contribute to the System Ad Fund by separate payment made payable (or asotherwise directed for payment) to Franchisor. All sums paid by Franchisee to the System Ad Fundshall be accounted for separately and shall not be used to defray any of the expenses ofFranchisor, except for such reasonable costs, salaries and overhead, if any, as Franchisor mayincur in activities reasonably related to the direction and implementation of the System Ad Fundand marketing programs for operators and the System, including costs of personnel for creating andimplementing marketing, advertising, and promotional programs. The System Ad Fund and any earningsfrom it shall not otherwise inure to the benefit of Franchisor. Franchisor shall maintain separatebookkeeping accounts for the System Ad Fund.**          **Franchisor, upon request, shall provide Franchisee with an annual accounting of System Ad Fundreceipts and disbursements.**          **Franchisor reserves the right, in its sole discretion, to discontinue the System Ad Fund uponwritten notice to Franchisee.**          **Franchisor may, but is not required to, make available to Franchisee from time to time,marketing plans and promotional materials, including newspaper mats, coupons, merchandisingmaterials, sales aids, point-of-purchase materials, special promotions, direct mail materials, andsimilar marketing and promotional materials produced from contributions to the System Ad Fund.Franchisee acknowledges and agrees that it shall be reasonable for Franchisor to not provide anysuch materials to Franchisee during any period in which Franchisee is in not in full compliancewith its obligations to contribute to the System Ad Fund. Additionally, if monies of the System AdFund are used to produce point of sale materials, or other samples or other promotional materialsand items, Franchisor may, on the behalf of the System Ad Fund, sell such items to franchisees inthe System at a reasonable price, and any proceeds from the sale of such items or materials shallbe contributed to the System Ad Fund.**     ***Market Ad Fund******.*****Franchisor shall have the right to designate any geographicalarea for purposes of establishing a regional or local market advertising fund (“**Market Ad Fund**”).If a Market Ad Fund is established for the geographic area in which the Franchised Restaurant islocated, Franchisee shall become a member of such Market Ad Fund within thirty (30) days after thedate on which the Market Ad Fund commences operation, or at the time the Franchisee commencesoperation hereunder. In no event shall Franchisee be required to be a member of more than one (1)Market Ad Fund. The following provisions shall apply to each such Market Ad Fund:**          **Each Market Ad Fund shall be organized and governed in a form and manner, and shallcommence operations on a date, approved in advance by Franchisor in writing. Unless otherwisespecified by Franchisor, the activities carried on by each Market Ad Fund shall be decided by amajority vote of its members. Any Cosi Restaurant**
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**that Franchisor operates in the region shall have the same voting rights as those owned by itsfranchisees. Each Cosi Restaurant owner shall be entitled to cast one (1) vote for each CosiRestaurant its owns that belongs to the Market Ad Fund. Any disputes arising among or betweenFranchisee, other franchisees in the Market Ad Fund, and/or the Market Ad Fund, shall be resolvedin accordance with the rules and procedures set forth in the Market Ad Fund’s governing documents.**          **Each Market Ad Fund shall be organized for the exclusive purpose of administering regional orlocal advertising programs and developing, subject to Franchisor’s approval, standardizedpromotional materials for use by the members in local advertising and promotion.**          **Franchisee shall contribute to the Market Ad Fund in such amounts as Franchisor may specifypursuant to Section 13.1 above, unless the members of the Market Ad Fund, by a majority voteconducted in accordance with the rules, bylaws, or other governing documents of the Market Ad Fund,agree to an increase the Market Ad Fund contribution to a rate in excess of the amount required byFranchisor.**          **Franchisee shall submit its required contributions to the Market Ad Fund at the time requiredby Franchisor, together with such statements or reports as may be required by Franchisor or by theMarket Ad Fund with Franchisor’s prior written approval. If so requested by Franchisor in writing,Franchisee shall submit its payments and reports to the Market Ad Fund directly to Franchisor fordistribution to the Market Ad Fund.**          **Franchisor maintains the right to terminate any Market Ad Fund. A Market Ad Fund shall not beterminated, however, until either: (a) all monies in that Market Ad Fund have been expended foradvertising and/or promotional purposes; or (b) Franchisor has transferred the unexpended monies tothe System Ad Fund in the event there are no longer any Cosi Restaurants operating within thegeographic area covered by such Market Ad Fund.**     ***Local Advertising*****. Franchisee shall comply with the following with respect to“local advertising and promotion” for the Franchised Restaurant:**          **Franchisee shall spend on an annual basis such amounts as Franchisor may specify inaccordance with Section 13.1 above. Franchisee shall account for such expenditures on a routinebasis and shall prepare, in accordance with the schedule and procedures specified by Franchisorfrom time to time, detailed reports describing the amount of money expended on local advertisingand promotion during such previous period. Franchisee shall maintain all such statements, reportsand records, and shall submit same to Franchisor as Franchisor may specify in the Manuals orotherwise request of Franchisee. Additionally, at the request of Franchisor, Franchisee shallsubmit bills, statements, invoices, or other documentation satisfactory to Franchisor to evidenceFranchisee’s advertising or marketing activities.**          **As used in this Agreement, the term “**local advertising and promotion**” shall refer toadvertising and promotion related directly to the Franchised Restaurant, and shall, unlessotherwise specified, consist only of the direct costs of purchasing advertising materials(including, but not limited to, camera-ready advertising and point of sale materials), media (spaceor time), promotion, direct out-of-pocket expenses related to costs of advertising and salespromotion (including, but not limited to, advertising agency fees and expenses, cash and “in-kind”promotional payments to landlords, postage, shipping, telephone, and photocopying), and such otheractivities and expenses as Franchisor, in its sole discretion, may specify. Franchisor may provideto Franchisee, in the Manuals or otherwise in writing information specifying the types ofadvertising and promotional activities and costs which shall not qualify as “local advertising andpromotion,” including, without limitation, the value of advertising coupons, and the costs ofproducts provided for free or at a reduced charge for charities or other donations.**          **Upon written notice to Franchisee, Franchisor may require Franchisee to participate inmandatory promotions as Franchisor may develop and implement from time to time.**     ***Grand Opening Advertising*****. In addition to the Advertising Obligation, Franchiseeshall expend a minimum of Five Thousand Dollars ($5,000) for grand opening advertising andpromotional programs in conjunction with the Franchised Restaurant’s initial grand opening,pursuant to a grand opening marketing plan developed by Franchisor or developed by Franchisee andapproved in writing by Franchisor (the “**Grand Opening Advertising Program**”). The Grand OpeningAdvertising Program shall be executed and completed within one (1) month after the FranchisedRestaurant commences operation. Franchisee shall submit to Franchisor, for Franchisor’s priorwritten approval, a marketing plan and samples of all advertising and promotional material notprepared or previously approved by Franchisor. For the purpose of this Agreement, the GrandOpening Advertising Program shall be considered local advertising and promotion, as provided underSection 13.4 above. Franchisor reserves the right to require Franchisee to deposit with Franchisorthe funds required under this Section 13.5 to distribute as may be necessary to conduct the GrandOpening Advertising Program.**
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     ***Standards for Advertising******.*****All advertising, marketing and promotion to be used byFranchisee, the System Ad Fund or any Market Ad Fund shall be in such media and of such type andformat as Franchisor may approve, shall be conducted in a dignified manner, and shall conform tosuch standards and requirements as Franchisor may specify. Franchisee shall not use any marketingor promotional plans or materials that are not provided by Franchisor unless and until Franchiseehas submitted the materials to Franchisor, pursuant to the procedures and terms set forth inSection 13.7 herein.**     ***Franchisor’s Approval of Proposed Plans and Materials******.*****If Franchisee desires to usemarketing and promotional plans and materials that have not been provided or previously approved byFranchisor, Franchisee shall submit samples of all such marketing and promotional plans andmaterials to Franchisor (as provided in Section 24 herein) for prior approval (except with respectto prices to be charged). If written notice of disapproval is not received by Franchisee fromFranchisor within five (5) business days of the date of receipt by Franchisor of such samples ormaterials, Franchisor shall be deemed to have approved them.**     ***Directory Listings******.*****Franchisee shall, at its expense and in addition to itsexpenditures for local advertising and promotion, obtain listings in the white and yellow pages oflocal telephone directories. Franchisee shall comply with Franchisor’s specifications concerningsuch listings, including the form and size of such listings, and the number of directories in whichsuch listings shall be placed. Additionally, Franchisee shall be required to obtain listings inand/or advertise with Franchisor and other franchisees in the System, on electronic yellow pagedirectories and other on-line directories as Franchisor may designate. Franchisor reserves theright to place such, and subsequently modify or remove, on-line listings and advertisements onbehalf of Franchisee. For any listings or advertisements posted by or on behalf of Franchisee,Franchisee shall promptly pay, upon demand by Franchisor, its pro-rata share of the costs.Additionally, these activities may be carried out through the use of the System Ad Fund.**     ***Ownership of Advertising Plans and Materials******.*****Franchisee acknowledges and agrees thatany and all copyrights in and to advertising and promotional materials developed by or on behalf ofFranchisee which bear the Proprietary Marks shall be the sole property of Franchisor, andFranchisee agrees to execute such documents (and, if necessary, require its independent contractorsto execute such documents) as may be deemed reasonably necessary by Franchisor to give effect tothis provision. Any advertising, marketing, promotional, public relations, or sales concepts,plans, programs, activities, or materials proposed or developed by Franchisee for the FranchisedRestaurant or the System and approved by Franchisor may be used by Franchisor and other operatorsunder the System of Franchisor without any compensation to Franchisee.****INSURANCE**     ***Insurance*****. Franchisee shall procure at its expense and maintain in full force andeffect during the term of this Agreement, an insurance policy or policies protecting Franchisee andFranchisor, and their officers, directors, partners and employees against any loss, liability,personal injury, death, or property damage or expense whatsoever arising or occurring upon or inconnection with Franchisee’s operations and the Franchised Restaurant, as Franchisor may reasonablyrequire for their own and Franchisee’s protection. Franchisor and such of its respectiveaffiliates shall be named additional insured in such policy or policies.**     ***Coverages*****. Such policy or policies shall be written by an insurance companysatisfactory to Franchisor in accordance with standards and specifications set forth in the Manualor otherwise in writing; provided, however, that Franchisor shall have the right to designate fromtime to time, one or more insurance companies as the insurance carrier(s) for Cosi Restaurants, andif required by Franchisor, Franchisee shall be obtain its insurance coverage from the designatedinsurance company (or companies). The policy or policies shall include, at a minimum (except asdifferent coverages, umbrella coverages, and policy limits may reasonably be specified for allFranchisees from time to time by Franchisor in the Manual or otherwise in writing) the following:**          **Builder’s risk insurance that satisfies the standards and specifications set forth byFranchisor in the Manual or otherwise in writing to cover any period(s) of renovation orconstruction at the Franchised Restaurant.**          **All risks coverage insurance on the Franchised Restaurant and all fixtures, equipment,supplies and other property used in the operation of the Franchised Restaurant, for full repair andreplacement value of the equipment, improvements and betterments, without any applicableco-insurance clause, except that an appropriate deductible clause shall be permitted.**          **Worker’s compensation and employer’s liability insurance as well as such other insurance asmay be required by statute or rule of the state in which the Franchised Restaurant is located andoperated. If Franchisee is permitted to and elects not to have worker’s compensation insurance forits owners and officers, Franchisee shall have alternative coverages at all times for work-relatedinjuries.**
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          **Comprehensive general liability insurance with limits of at least One Million Dollars($1,000,000) per occurrence, and Two Million Dollars ($2,000,000) general aggregate, and productliability insurance with limits of at least Two Million Dollars ($2,000,000) general aggregatelimit including the following coverages: personal injury (employee and contractual inclusiondeleted); products/completed operation; and tenant’s legal liability; insuring Franchisor andFranchisee against all claims, suits, obligations, liabilities and damages, including attorneys’fees, based upon or arising out of actual or alleged personal injuries or property damage resultingfrom, or occurring in the course of, or on or about or otherwise relating to the FranchisedRestaurant, provided that the required amounts herein may be modified from time to time byFranchisor to reflect inflation or future experience with claims.**          **Automobile liability insurance, and property damage liability, including owned, non-owned, andhired vehicle coverage, with at least One Million Dollars ($1,000,000) combined single limit, andTwo Million Dollars ($2,000,000) general aggregate limit.**          **Host liquor liability (if Franchisee shall offer alcohol at the Franchised Restaurant) with atleast One Million Dollars ($1,000,000) per occurrence.**          **Excess liability coverage over general liability, automobile liability, liquor liability andemployer’s liability, with at least One Million Dollars ($1,000,000) per occurrence.**          **Such insurance and types of coverage as may be required by the terms of any lease for thePremises, or as may be required from time to time by Franchisor.**          **Business interruption insurance for actual losses sustained.**     ***Certificates of Insurance*****. The insurance afforded by the policy or policiesrespecting liability shall not be limited in any way by reason of any insurance which may bemaintained by Franchisor. Prior to commencing any renovations or construction at the FranchisedRestaurant, Franchisee shall provide Franchisor with a Certificate of Insurance for the builder’srisk insurance required under Section 14.2.1. At least thirty (30) days prior to the opening ofthe Franchised Restaurant, but in no event later than the date on which Franchisee acquires aninterest in the real property on which it will develop and operate the Franchised Restaurant, andthereafter on an annual basis, Franchisee shall provide Franchisor with a Certificate of Insuranceshowing compliance with the foregoing requirements (except with respect to the builder’s riskinsurance, which shall have already been in effect pursuant to Section 14.2.1 above). Suchcertificate shall state that said policy or policies will not be canceled or altered without atleast thirty (30) days prior written notice to Franchisor and shall reflect proof of payment ofpremiums. Maintenance of such insurance and the performance by Franchisee of the obligations underthis Paragraph shall not relieve Franchisee of liability under the indemnity provision set forth inthis Agreement. Franchisee acknowledges that minimum limits as required above may be modified byFranchisor in its sole discretion from time to time, by written notice to Franchisee.**     ***Franchisor’s Right to Procure Insurance for Franchisee*****. Should Franchisee, for anyreason, not procure and maintain such insurance coverage as required by this Agreement, Franchisorshall have the right and authority (without, however, any obligation to do so) immediately toprocure such insurance coverage and to charge same to Franchisee, which charges, together with areasonable fee for expenses incurred by Franchisor in connection with such procurement, shall bepayable by Franchisee immediately upon notice.****TRANSFER OF INTEREST**     ***Franchisor’s Rights to Transfer*****. Franchisor shall have the right to transfer orassign this Agreement and all or any part of its rights or obligations herein to any person orlegal entity, and any designated assignee of Franchisor shall become solely responsible for allobligations of Franchisor under this Agreement from the date of assignment. In addition, andwithout limitation to the foregoing, Franchisee expressly affirms and agrees that Franchisor maysell its assets, its Proprietary Marks, or its System; may sell its securities in a public offeringor in a private placement; may merge, acquire other corporations, or be acquired by anothercorporation; and may undertake a refinancing, recapitalization, leveraged buy-out, or othereconomic or financial restructuring.**     ***No Transfers Without Franchisor’s Approval*****. Franchisee understands and acknowledgesthat the rights and duties set forth in this Agreement are personal to Franchisee or the Principalsof Franchisee if Franchisee is not an individual, and that Franchisor has granted this franchise inreliance on Franchisee’s or Franchisee’s Principals’ business skill, financial capacity, andpersonal character. Accordingly:**          **Franchisee shall not, without the prior written consent of Franchisor, transfer, pledge orotherwise encumber: (a) the rights and/or obligations of Franchisee under this Agreement; or (b)any material asset of Franchisee or the Franchised Restaurant.**
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          **If Franchisee is a corporation or limited liability company, Franchisee shall not, without theprior written consent of Franchisor, issue any voting securities or securities convertible intovoting securities, and the recipient of any such securities shall become a Principal under thisAgreement, if so designated by Franchisor.**          **If Franchisee is a partnership or limited partnership, the partners of the partnership shallnot, without the prior written consent of Franchisor, admit additional general partners, remove ageneral partner, or otherwise materially alter the powers of any general partner. Each generalpartner shall automatically be deemed a Principal of Franchisee.**          **A Principal shall not, without the prior written consent of Franchisor, transfer, pledge orotherwise encumber any interest of the Principal in Franchisee, as such is identified in Exhibit C.**     ***Conditions on Transfer*****. Franchisor shall not unreasonably withhold any consentrequired by Section 15.2 above; provided, that if the proposed transfer alone or together withother previous, simultaneous, or proposed transfers would have the effect of changing control ofFranchisee, results in the assignment of the rights and obligations of Franchisee under thisAgreement, or transfers the ownership interest in all or substantially all of the assets of theFranchised Restaurant or the business franchised hereunder, Franchisor shall have the right torequire any or all of the following as conditions of its approval:**          **All of Franchisee’s monetary obligations and all other outstanding obligations toFranchisor, its affiliates, and the approved suppliers of the System have been satisfied in full;**          **Franchisee shall not be in default under any provision of this Agreement, any other agreementbetween Franchisee and Franchisor or its affiliate, the approved suppliers of the System, or thelessor (or sublessor) for the Premises;**          **Each transferor (and, if the transferor is other than an individual, the transferor and suchowners of beneficial interest in the transferor as Franchisor may request) shall have executed ageneral release in a form satisfactory to Franchisor of any and all claims against Franchisor andits affiliates and their respective officers, directors, agents, and employees;**          **The transferee of a Principal shall be designated as a Principal and each transferee who isdesignated a Principal shall enter into a written agreement, in a form satisfactory to Franchisor,agreeing to be bound as a Principal under the terms of this Agreement as long as such person orentity owns any interest in Franchisee. Additionally, the transferee and/or such owners of thetransferee as Franchisor may request, shall guarantee the performance of the transferee’sobligations in writing in a form satisfactory to Franchisor;**          **The transferee shall demonstrate to Franchisor’s satisfaction that the terms of the proposedtransfer do not place an unreasonable financial or operational burden on the transferee, and thatthe transferee (or, if the transferee is other than an individual, such owners of beneficialinterest in the transferee as Franchisor may request) meets Franchisor’s then-current applicationqualifications (which may include educational, managerial, socially responsible, and businessstandards, good moral character, business reputation, and credit rating); has the aptitude andability to operate the Franchised Restaurant and absence of conflicting interests; and has adequatefinancial resources and capital to operate the Franchised Restaurant;**          **At Franchisor’s option, Franchisee shall execute the form of franchise agreement then beingoffered to new System franchisees, and such other ancillary agreements required by Franchisor forthe business franchised hereunder, which agreements shall supersede this Agreement and itsancillary documents in all respects, and the terms of which may differ from the terms of thisAgreement including, without limitation, a higher and/or additional fees;**          **If so requested by Franchisor, Franchisee, at its expense, shall upgrade the FranchisedRestaurant, and other equipment to conform to the then-current standards and specifications of newCosi Restaurants then-being established in the System, and shall complete the upgrading and otherrequirements within the time specified by Franchisor.**          **The transferor shall remain liable for all of the obligations to Franchisor in connection withthe Franchised Restaurant that arose prior to the effective date of the transfer and shall executeany and all instruments reasonably requested by Franchisor to evidence such liability;**
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          **The transferee (and, if the transferee is not an individual, such Principals of the transfereeas Franchisor may request) and the transferee’s manager (if applicable) shall, at the transferee’sexpense, successfully attend and successfully complete any training programs then in effect foroperators and managers upon such terms and conditions as Franchisor may reasonably require;**          **Franchisee shall pay a transfer fee in an amount equal to fifty percent (50%) of Franchisor’sthen-current initial franchise fee to compensate Franchisor for its expenses incurred in connectionwith the transfer.**          **The transferor(s), at the request of Franchisor, shall agree in writing to comply with thecovenants set forth in Section 18 below.**     ***Additional Terms*****. For any transfer not covered by Section 15.3, each transfereeshall, in addition to the requirement of obtaining Franchisor’s consent as provided in Section 15.2, be subject to the requirements of Sections 15.3.3 and 15.3.4 above (with respect to execution ofreleases and personal guarantees).**     ***Security Interests*****. Neither Franchisee nor any Principal shall grant a securityinterest in, or otherwise encumber, any of the assets or securities of Franchisee, including theFranchised Restaurant unless Franchisee satisfies the requirements of Franchisor, which include,without limitation, execution of an agreement by the secured party in which it acknowledges thecreditor’s obligations under this Section 15, and agrees that in the event of any default byFranchisee under any documents related to the security interest, Franchisor shall have the rightand option (but not the obligation) to be substituted as obligor to the secured party and to cureany default of Franchisee, and, in the event Franchisor exercises such option, any acceleration ofindebtedness due to Franchisee’s default shall be void.**     ***Right of First Refusal*****. If Franchisee or any Principal desires to accept any*****bonafide*****offer from a third party to purchase Franchisee, any material asset of Franchisee, or anydirect or indirect interest in Franchisee, Franchisee or such Principal shall promptly notifyFranchisor, and shall provide such information and documentation relating to the offer asFranchisor may require. Franchisor shall have the right and option, exercisable within thirty (30)days after receipt of the written transfer request and the required information and documentationrelated to the offer (including any information that Franchisor may reasonably request tosupplement or clarify information provided to Franchisor with the written transfer request), tosend written notice to the seller that Franchisor intends to purchase the seller’s interest on thesame terms and conditions offered by the third party; provided, however, a spouse, domesticpartner, parent or child of the seller shall not be considered a third party for purposes of thisSection 15.6. If Franchisor elects to purchase the seller’s interest, closing on such purchaseshall occur within forty-five (45) days from the date of notice to the seller of the election topurchase by Franchisor, or, if longer, on the same timetable as contained in the*****bona fide*****offer.**          **Any material change thereafter in the terms of the offer from the third party or byFranchisee, or a change in the identity of the third party shall constitute a new offer subject tothe same rights of first refusal by Franchisor as in the case of the third party’s initial offer.Failure of Franchisor to exercise the option afforded by this Section 15.6 shall not constitute awaiver of any other provision of this Agreement, including all of the requirements of this Section15, with respect to a proposed transfer.**          **If the consideration, terms, and/or conditions offered by a third party are such thatFranchisor may not reasonably be required to furnish the same consideration, terms, and/orconditions, then Franchisor may purchase the interest proposed to be sold for the reasonableequivalent in cash. If the parties cannot agree within a reasonable time on the reasonableequivalent in cash of the consideration, terms, and/or conditions offered by the third party,Franchisor shall designate an independent appraiser to make a binding determination. The cost ofany such appraisal shall be shared equally by Franchisor and Franchisee. If Franchisor elects toexercise its right under this Section 15.6, Franchisor shall have the right to set off all amountsdue from Franchisee, and one-half (1/2) of the cost of the appraisal, if any, against any payment tothe seller.**     ***Death of a Principal*****. Upon the death of a Principal, the deceased’s executor,administrator, or other personal representative shall transfer the deceased’s interest to a thirdparty approved by Franchisor within twelve (12) months after the death. If no personalrepresentative is designated or appointed or no probate proceedings are instituted with respect tothe deceased’s estate, then the distributee of such interest must be approved by Franchisor. Ifthe distributee is not approved by Franchisor, then the distributee shall transfer the deceased’sinterest to a third party approved by Franchisor within twelve (12) months after the deceased’sdeath.**     ***Permanent Disability of Controlling Principal*****. Upon the permanent disability of anyPrincipal with a controlling interest in Franchisee, Franchisor shall have the right to requiresuch interest to be transferred to a third party in accordance with the conditions described inthis Section 15 within six (6) months after notice to Franchisee. “**Permanent Disability**” shallmean any physical, emotional, or mental injury, illness, or incapacity that would prevent a personfrom performing the obligations set forth in this Agreement for at least six (6) consecutive monthsand from which condition recovery within six (6) consecutive months from the date of determinationof disability is unlikely. Permanent disability**
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**shall be determined by a licensed practicing physician selected by Franchisor upon examinationof such person or, if such person refuses to be examined, then such person shall automatically bedeemed permanently disabled for the purposes of this Section 15.8 as of the date of refusal.Franchisor shall pay the cost of the required examination.**     ***Notice to Franchisor of Death or Permanent Disability*****. Upon the death or permanentdisability any Principal of Franchisee, such person or his representative shall promptly notifyFranchisor of such death or claim of permanent disability. Any transfer upon death or permanentdisability shall be subject to the same terms and conditions as any*****inter vivos*****transfer.**     ***Limited Exceptions*****. Notwithstanding anything to the contrary in this Section 15:**          **Franchisee shall not be required to pay the transfer fee due under Section 15.3.10 above,if the transferee: (a) is a spouse, domestic partner, parent, or direct lineal descendant orsibling of Franchisee or of a Principal of Franchisee (or more than one of such persons), providedthat the transferee has been involved in, and is knowledgeable regarding, the operations of theFranchised Restaurant; (b) is a Principal of Franchisee; or (c); is a transferee under Sections15.7 or 15.8 above.**          **If Franchisee is an individual and seeks to transfer this Agreement to a corporation,partnership, or limited liability company formed for the convenience of ownership, the conditionsof Sections 15.3.6 (signing a new franchise agreement), 15.3.7 (upgrading the FranchisedRestaurant), and 15.3.10 (transfer fee) shall not apply, and Franchisee may undertake suchtransfer, provided that Franchisee owns one hundred percent (100%) of the equity interest in thetransferee entity, and the Franchisee personally guarantees, in a written guaranty satisfactory toFranchisor, the performance of the obligations of the Franchisee under the Franchise Agreement.**     ***Securities Offerings*****. All materials required for any offering of securities orpartnership interests in Franchisee by federal or state law shall be submitted to Franchisor by theofferor for review prior to filing with any government agency; and any materials to be used in anyexempt offering shall be submitted to Franchisor for review prior to their use. No offering shallimply, by use of the Proprietary Marks or otherwise, that Franchisor is participating in anunderwriting, issuance, or offering of securities of either Franchisee or Franchisor; and review byFranchisor of any offering shall be limited solely to the subject of the relationship betweenFranchisee and Franchisor. At its option, Franchisor may require the offering materials to containwritten statements or disclaimers prescribed by Franchisor including, but not limited to, anylimitations stated above in this paragraph. Franchisee and the other participants in the offeringmust fully indemnify Franchisor in connection with the offering. For each proposed offering,Franchisee shall reimburse Franchisor for its actual costs and expenses associated with reviewingthe proposed offering materials, including legal and accounting fees. Franchisee shall giveFranchisor written notice at least sixty (60) days prior to the date of commencement of anyoffering or other transaction covered by this Section 15.11. Any such offering shall be subject toprior written consent of Franchisor and right of first refusal as provided in Section 15.6.**     ***No Waiver*****. The consent of Franchisor to any transfer pursuant to this Section 15shall not constitute a waiver of any claims it may have against the transferring party, nor shallit be a waiver of the right of Franchisor to demand exact compliance with any of the terms of thisAgreement by the transferor or transferee.**     ***Bankruptcy*****. If Franchisee or any person holding any interest (direct or indirect) inFranchisee becomes a debtor in a proceeding under the U.S. Bankruptcy Code or any similar law inthe U.S. or elsewhere, it is the parties’ understanding and agreement that any transfer of theownership of Franchisee, Franchisee’s obligations and/or rights hereunder and/or any materialassets of Franchisee, shall be subject to all of the terms of this Section 15.**     ***No Transfers in Violation of Law*****. Notwithstanding anything to the contrary in thisAgreement, no transfer shall be made if the transferee, any of its affiliates, or the fundingsources for either is a person or entity designated with whom Franchisor, or any of its affiliates,are prohibited by law from transacting business.****DEFAULT AND TERMINATION**     ***Automatic Termination*****. Franchisee shall be in default under this Agreement, and allrights granted to Franchisee herein shall automatically terminate without notice to Franchisee, ifFranchisee shall become insolvent or make a general assignment for the benefit of creditors; if apetition in bankruptcy is filed by Franchisee or such a petition is filed against and not opposedby Franchisee; if Franchisee is adjudicated a bankrupt or insolvent; if a bill in equity or otherproceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee’sbusiness or assets is filed and consented to by Franchisee; if a receiver or other custodian(permanent or temporary) of Franchisee’s assets or property, or any part thereof, is appointed byany court of competent jurisdiction; if proceedings for a composition with creditors under anystate or federal law should be instituted by or against Franchisee; if a final judgment remainsunsatisfied or of record for thirty (30) days or longer (unless supersedeas bond is filed); ifFranchisee is dissolved; if execution is levied against Franchisee’s business or property; if suitto foreclose any lien or mortgage against the Premises or equipment is**
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**instituted against Franchisee and not dismissed within thirty (30) days; or if the real orpersonal property of the Franchised Restaurant shall be sold after levy thereupon by any sheriff,marshal, or constable.**     ***Termination Upon Notice*****. Franchisee shall be deemed to be in default and Franchisormay, at its option, terminate this Agreement and all rights granted hereunder, without affordingFranchisee any opportunity to cure the default, effective immediately upon the provision of noticeto Franchisee (in the manner provided under Section 24 hereof), upon the occurrence of any of thefollowing events of default:**          **If Franchisee fails to complete all pre-opening obligations and to open the FranchisedRestaurant within the time limits as provided in Section 5.2 above;**          **If Franchisee or any of its Principals is convicted of a felony, a crime involving moralturpitude, or any other crime or offense that Franchisor believes is reasonably likely to have anadverse effect on the System, the Proprietary Marks, the Products, the goodwill associatedtherewith, or the interest of Franchisor therein;**          **If a threat or danger to public health or safety results from the construction, maintenance,or operation of the Franchised Restaurant;**          **If Franchisee’s action or inaction, at any time, results in the loss of the right topossession of the Premises, or forfeiture of the right to do or transact business in thejurisdiction where the Franchised Restaurant is located;**          **If Franchisee or any Principal purports to transfer any rights or obligations under thisAgreement or any interest to any third party in a manner that is contrary to the terms of Section15 hereof;**          **If Franchisee knowingly maintains false books or records, or knowingly submits any falsestatements or reports to Franchisor;**          **If, contrary to the terms of Sections 9 or 10 hereof, Franchisee discloses or divulges thecontents of the Manuals or other confidential information provided to Franchisee by Franchisor;**          **If Franchisee fails to comply with the covenants in Section 18.2 below or fails to timelyobtain execution of the covenants required under Section 18.5 below;**          **If Franchisee misuses or makes any unauthorized use of the Proprietary Marks or any otheridentifying characteristics of the System, or if Franchisee otherwise operates the FranchisedRestaurant in a manner that materially impairs the reputation or goodwill associated with theSystem, Proprietary Marks, Products, or the rights of Franchisor therein;**          **If Franchisee, after curing a default pursuant to Sections 16.3 or 16.4 hereof, commits thesame default again, whether or not cured after notice.**          **If Franchisee commits three (3) or more defaults under this Agreement in any twelve (12) monthperiod, whether or not each such default has been cured after notice (this provision in no waylimits Section 16.2.10 above);**          **If Franchisee at any time ceases to operate or otherwise abandons the Franchised Restaurantfor a period of three (3) consecutive days unless such closure is approved in writing byFranchisor, or excused by*****force majeure*****.**          **If Franchisee breaches any material provision of this Agreement which breach is notsusceptible to cure.**     ***Notice and Opportunity to Cure — 7 Days*****. Upon the occurrence of any of thefollowing events of default, Franchisor may, at its option, terminate this Agreement by givingwritten notice of termination (in the manner set forth under Section 24 hereof) stating the natureof the default to Franchisee at least seven (7) days prior to the effective date of termination;provided, however, that Franchisee may avoid termination by immediately initiating a remedy to curesuch default, curing it to the satisfaction of Franchisor, and by promptly providing proof thereofto Franchisor within the seven (7) day period. If any such default is not cured within thespecified time, or such longer period as applicable law may require, this Agreement shall terminatewithout further notice to Franchisee, effective immediately upon the expiration of the seven (7)day period or such longer period as applicable law may require.**
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          **If Franchisee fails, refuses, or neglects promptly to pay any monies owing to Franchisoror its affiliates when due;**          **If Franchisee refuses to permit Franchisor to inspect the Premises, or the books, records, oraccounts of Franchisee upon demand; or**          **If Franchisee fails to operate the Franchisor during such days and hours specified in theManuals (this provision in no way limits Section 16.2.12.**     ***Notice and Opportunity to Cure -30 Days*****. Except as otherwise provided in Sections16.1, 16.2 and 16.3 of this Agreement, upon any other default by Franchisee, Franchisor mayterminate this Agreement by giving written notice of termination (in the manner set forth underSection 24 hereof) stating the nature of the default to Franchisee at least thirty (30) days priorto the effective date of termination; provided, however, that Franchisee may avoid termination byimmediately initiating a remedy to cure such default, curing it to the satisfaction of Franchisor,and by promptly providing proof thereof to Franchisor within the thirty (30) day period. If anysuch default is not cured within the specified time, or such longer period as applicable law mayrequire, this Agreement shall terminate without further notice to Franchisee, effective immediatelyupon the expiration of the thirty (30) day period or such longer period as applicable law mayrequire.****OBLIGATIONS UPON TERMINATION OR EXPIRATION**     Upon termination or expiration of this Agreement, all rights granted hereunder toFranchisee shall terminate, and:     ***Stop Operating*****. Franchisee shall immediately cease to operate the FranchisedRestaurant, and shall not thereafter, directly or indirectly, represent to the public or holditself out as a present or former operator of Franchisor in connection with the promotion oroperation of any other business.**     ***Stop Using the System*****. Franchisee shall immediately and permanently cease to use, inany manner whatsoever, any confidential methods, procedures, and techniques associated with theSystem; the Proprietary Mark “Cosi” and all other Proprietary Marks and distinctive forms, slogans,signs, symbols, and devices associated with the System. In particular, Franchisee shall cease touse all signs, marketing materials, displays, stationery, forms, products, and any other articleswhich display the Proprietary Marks.**     ***Cancel Assumed Names*****. Franchisee shall take such action as may be necessary to cancelany assumed name registration or equivalent registration obtained by Franchisee which contains themark “Cosi” or any other Proprietary Marks, and Franchisee shall furnish Franchisor with evidencesatisfactory to Franchisor of compliance with this obligation within five (5) days aftertermination or expiration of this Agreement.**     ***The Premises*****. If Franchisee leased the Premises, Franchisee shall, at the option ofFranchisor, assign to Franchisor any interest which Franchisee has in any lease or sublease for thePremises. If Franchisee owns the Premises, Franchisee shall, at the option of Franchisor, sell orlease the Premises to Franchisor at the then-current fair market value for, as applicable, thepurchase or lease of the Premises. If the parties cannot agree on fair market value (for, asapplicable, the purchase or lease of the premises) within a reasonable time, an independentappraiser acceptable to Franchisee shall be designated by Franchisor, and his determination shallbe binding. If Franchisor elects to exercise any option to lease or purchase herein provided, itshall have the right to set off all amounts due from Franchisee under this Agreement, and the costsof the appraisal, if any, against any payment(s) therefore. In the event Franchisor does not electto exercise its option to acquire the Premises, by lease or purchase, Franchisee shall make suchmodifications or alterations to the Premises immediately upon termination or expiration of thisAgreement as may be necessary to distinguish the appearance of the Premises from that of CosiRestaurants under the System, and shall make such specific additional changes thereto as Franchisormay reasonably request for that purpose. In the event Franchisee fails or refuses to comply withthe requirements of this Section 17.4, Franchisor shall have the right to enter upon the Premises,without being guilty of trespass or any other tort, for the purpose of making or causing to be madesuch changes as may be required, at the expense of Franchisee, which expense Franchisee agrees topay upon demand. Additionally, if Franchisor does not elect to exercise the option to acquire thePremises by lease or purchase, Franchisee shall comply with Section 18.3 below regarding aCompetitive Business (as defined in Section 18.2.3 below).**     ***Phone Numbers and Directory Listings*****. In addition, Franchisee shall cease use of alltelephone numbers and any domain names, websites, e-mail addresses, and any other identifiers,whether or not authorized by Franchisor, used by Franchisee while operating the FranchisedRestaurant, and shall promptly execute such documents or take such steps necessary to removereference to the Franchised Restaurant from all trade or business telephone directories, including“yellow” and “white” pages, or at Franchisor’s request transfer same to Franchisor. Franchiseehereby authorizes Franchisor to instruct issuers of any telephone and internet domain nameservices, and other providers to transfer any such telephone numbers, domain names, websites,addresses, and any other identifiers to Franchisor upon termination of this Agreement, without needfor any further approval from Franchisee. Without limiting the foregoing, if requested byFranchisor, Franchisee shall provide, during the term or upon termination of this Agreement,written confirmation of**
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**Franchisor’s rights under this Section 17.5. Franchisee agrees that it shall sign suchdocuments and do such things (without cost to Franchisee) that may be reasonably requested byFranchisor in order to implement this Section 17.5.**     ***No Use of Proprietary Marks or Trade Dress in other Businesses*****. Franchisee agrees, inthe event it continues to operate or subsequently begins to operate any other business, not to useany reproduction, counterfeit, copy, or colorable imitation of the Proprietary Marks, either inconnection with such other business or the promotion thereof, which, in the sole discretion ofFranchisor, is likely to cause confusion, mistake, or deception, or which, in the sole discretionof Franchisor, is likely to dilute the rights of Franchisor in and to the Proprietary Marks.Franchisee further agrees not to utilize any designation of origin, description, or representation(including but not limited to reference to Franchisor, the System, or the Proprietary Marks) which,in the sole discretion of Franchisor, suggests or represents a present or former association orconnection with Franchisor, the System, or the Proprietary Marks.**     ***Pay Franchisor All Amounts Due*****. Franchisee shall promptly pay all sums owing toFranchisor and its affiliates. In the event of termination for any default of Franchisee, suchsums shall include all damages, costs, and expenses, including reasonable attorneys’ fees, incurredby Franchisor as a result of the default and termination, which obligation shall give rise to andremain, until paid-in-full, a lien in favor of Franchisor against any and all of the personalproperty, furnishings, equipment, signs, fixtures, and inventory owned by Franchisee and on thePremises at the time of default.**     ***Return Manuals and Confidential Information*****. Franchisee shall, at its own expense,immediately deliver to Franchisor the Manuals and all other records, correspondence, andinstructions containing confidential information relating to the operation of the FranchisedRestaurant (and any copies thereof, even if such copies were made in violation of this Agreement),all of which are acknowledged to be the property of Franchisor.**     ***Franchisor’s Option to Purchase Certain Assets*****. Franchisor shall have the option, tobe exercised within thirty (30) days after termination, to purchase from Franchisee any or all ofthe furnishings, equipment, signs, fixtures, supplies, or inventory of Franchisee related to theoperation of the Franchised Restaurant, at the lesser of Franchisee’s cost or fair market value.The cost for such items shall be determined based upon a five (5) year straight-line depreciationof original costs. For equipment that is five (5) or more years old, the parties agree that fairmarket value shall be deemed to be ten percent (10%) of the equipment’s original cost. IfFranchisor elects to exercise any option to purchase herein provided, it shall have the right toset off all amounts due from Franchisee.**     ***Comply with Covenants*****. Franchisee and Principals shall comply with the covenantscontained in Section 18.3 of this Agreement.****COVENANTS**     ***Full Time and Best Efforts*****. Franchisee covenants that, during the term of thisAgreement, except as otherwise approved in writing by Franchisor, Franchisee (or, if Franchisee isnot an individual, the Designated Principal) or Franchisee’s fully-trained General Manager shalldevote full time and best efforts to the management and operation of the Franchised Restaurant.**     ***During the Agreement Term*****. Franchisee specifically acknowledges that, pursuant tothis Agreement, Franchisee will receive valuable, specialized training and confidentialinformation, including information regarding the operational, sales, promotional, and marketingmethods and techniques of Franchisor and the System. Franchisee covenants that during the term ofthis Agreement, except as otherwise approved in writing by Franchisor, Franchisee shall not, eitherdirectly or indirectly, for itself, or through, on behalf of, or in conjunction with any person orlegal entity:**          **Divert or attempt to divert any present or prospective business or customer of any CosiRestaurant to any competitor, by direct or indirect inducement or otherwise, or do or perform,directly or indirectly, any other act injurious or prejudicial to the goodwill associated with theProprietary Marks and the System;**          **Employ or seek to employ any person who is at that time employed by Franchisor or by any otherfranchisee of Franchisor, or otherwise encourage such person to leave his or her employment; or**          **Own, maintain, operate, engage in, be employed by, provide any assistance to, or have any morethan a one percent (1%) interest in (as owner or otherwise) any Competitive Business (as definedbelow). A “**Competitive Business**” shall be consider to be retail food businesses with menuofferings consisting predominantly of salads, sandwiches, or coffee offered in a fast casualenvironment. Furthermore, Franchisee acknowledges and agrees that Franchisee shall be consideredin default under this Agreement and that this Agreement will be subject to termination as providedin Section 16.2.8 herein, in the event that a person in the immediate family (including spouse,domestic partner, parent or child) of Franchisee (or, if Franchisee is other than an individual,each Principal that is subject to these covenants) engages in a Competitive Business that wouldviolate this Section 18.2.3 if such person was subject to the covenants of this Section 18.2.3.**
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     ***After the Agreement and After a Transfer*****. Franchisee covenants that, except asotherwise approved in writing by Franchisor, for a continuous uninterrupted period of two (2) yearscommencing upon the date of: (a) a transfer permitted under Section 15 of this Agreement; (b)expiration of this Agreement; (c) termination of this Agreement (regardless of the cause fortermination); (d) a final order of a duly authorized arbitrator, panel of arbitrators, or a courtof competent jurisdiction (after all appeals have been taken) with respect to any of the foregoingor with respect to enforcement of this Section 18.3; or (e) any or all of the foregoing.**          **Franchisee shall not either directly or indirectly, for itself, or through, on behalf of,or in conjunction with any person or legal entity, own, maintain, operate, engage in, be employedby, provide assistance to, or have any interest in (as owner or otherwise) any Competitive Businessthat is, or is intended to be, located at the Approved Location, within the Territory, within aradius of seven hundred fifty (750) feet of any other Cosi Restaurant located in an urban area, orwithin a radius of one (1) mile of any other Cosi Restaurant located in an suburban area; provided,however, that this provision shall not apply to the operation by Franchisee of any business underthe System under a franchise agreement with Franchisor; or**          **Franchisee shall not sublease, assign, or sell Franchisee’s interest in any lease, sublease,or ownership of the Premises or assets of the Franchised Restaurant to a third party for theoperation of a Competitive Business, or otherwise arrange or assist in arranging for the operationby a third party of a Competitive Business.**     ***Exception for Ownership in Public Entities*****. Sections 18.2.3 and 18.3 shall notapply to ownership by Franchisee of a less than five percent (5%) beneficial interest in theoutstanding equity securities of any corporation which has securities registered under theSecurities Exchange Act of 1934.**     ***Personal Covenants*****. At the request of Franchisor, Franchisee shall obtain and furnishto Franchisor executed covenants similar in substance to those set forth in this Section 18(including covenants applicable upon the termination of a person’s relationship with Franchisee)and the provisions of Sections 10 and 15 of this Agreement (as modified to apply to an individual)from any or all of the following persons: (a) the Designated Principal, (b) all managers and otherpersonnel employed by Franchisee who have received or will receive training and/or otherconfidential information; (c) all officers, directors, and Principals who have or will receivetraining or access to confidential information, or who are or may be involved in the management andoperation of the Franchised Restaurant. Every covenant required by this Section 18.5 shall be in aform approved by Franchisor, including specific identification of Franchisor as a third-partybeneficiary of such covenants with the independent right to enforce them.**     ***Covenants as Independent Clauses*****. The parties agree that each of the foregoingcovenants shall be construed as independent of any other covenant or provision of this Agreement.If all or any portion of a covenant in this Section 18 is held unreasonable or unenforceable by acourt or agency having valid jurisdiction in an unappealed final decision to which Franchisor is aparty, Franchisee expressly agrees to be bound by any lesser covenant subsumed within the terms ofsuch covenant that imposes the maximum duty permitted by law, as if the resulting covenant wereseparately stated in and made a part of this Section 18.**     ***Franchisor’s Right to Reduce Scope of the Covenants*****. Franchisee understands andacknowledges that Franchisor shall have the right, in its sole discretion, to reduce the scope ofany covenant set forth in this Section 18, or any portion thereof, without Franchisee’s consent,effective immediately upon receipt by Franchisee of written notice thereof; and Franchisee agreesthat it shall comply forthwith with any covenant as so modified, which shall be fully enforceablenotwithstanding the provisions of Section 25 hereof.**     ***Covenants Survive Claims*****. Franchisee expressly agrees that the existence of anyclaims it may have against Franchisor, whether or not arising from this Agreement, shall notconstitute a defense to the enforcement by Franchisor of the covenants in this Section 18;provided, however, any claims Franchisee may have against Franchisor may be brought in a separateproceeding. Franchisee agrees to pay all costs and expenses (including reasonable attorneys’ fees)incurred by Franchisor in connection with the enforcement of this Section 18.****CORPORATE, LIMITED LIABILITY COMPANY, OR PARTNERSHIP FRANCHISEE**     ***List of Principals*****. If Franchisee is a corporation, limited liability company, orpartnership, each Principal of Franchisee, and the interest of each Principal in Franchisee, shallbe identified in Exhibit C hereto. Franchisee shall maintain a list of all Principals andimmediately furnish Franchisor with an update to the information contained in Exhibit C upon anychange, which shall be made only in compliance with Section 15 above.**     ***Guaranties*****. Such Principals as Franchisor may request shall execute a guaranty,indemnification, and acknowledgment of Franchisee’s obligations under this Agreement in the formattached hereto as Exhibit E. As set forth in Section 8.3, the Designated Principal shall at alltimes have at least a ten percent (10%) interest in Franchisee.**
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     ***Corporations and Limited Liability Companies*****. If Franchisee is a corporation orlimited liability company, Franchisee shall comply with the following requirements:**          **Franchisee shall be newly organized and its governing documents shall at all times providethat its activities are confined exclusively to operating the Franchised Restaurant.**          **Franchisee shall, upon request of Franchisor, promptly furnished to Franchisor copies ofFranchisee’s articles of incorporation, bylaws, articles of organization, operating agreementand/or other governing documents, and any amendments thereto, including the resolution of the Boardof Directors or members authorizing entry into this Agreement.**          **Franchisee shall maintain stop-transfer instructions against the transfer on its records ofany equity securities; and each stock certificate or issued securities of Franchisee shallconspicuously endorse upon its face a statement, in a form satisfactory to Franchisor, whichreferences the transfer restrictions imposed by this Agreement; provided, however, that therequirements of this Section 18.2.3 shall not apply to a publicly-held corporation.**     ***Partnerships and Limited Liability Partnerships*****. If Franchisee or any successorto or assignee of Franchisee is a partnership or limited liability partnership, Franchisee shallcomply with the following requirements:**          **Franchisee shall be newly organized and its partnership agreement shall at all timesprovide that its activities are confined exclusively to operating the Franchised Restaurant.**          **Franchise shall furnish Franchisor with a copy of its partnership agreement as well as suchother documents as Franchisor may reasonably request, and any amendments thereto.**          **The partners of the partnership shall not, without the prior written consent of Franchisor,admit additional general partners, remove a general partner, or otherwise materially alter thepowers of any general partner.****TAXES, PERMITS, AND INDEBTEDNESS**     ***Taxes*****. Franchisee shall promptly pay when due all taxes levied or assessed, includingunemployment and sales taxes, and all accounts and other indebtedness of every kind incurred byFranchisee in the operation of the Franchised Restaurant. Franchisee shall pay to Franchisor anamount equal to any sales tax, gross receipts tax, or similar tax (other than income tax) imposedon Franchisor with respect to any payments to Franchisor required under this Agreement, unless thetax is credited against income tax otherwise payable by Franchisor.**     ***Dispute About Taxes*****. In the event of any bona fide dispute as to Franchisee’sliability for taxes assessed or other indebtedness, Franchisee may contest the validity or theamount of the tax or indebtedness in accordance with procedures of the taxing authority orapplicable law, but in no event shall Franchisee permit a tax sale or seizure by levy or executionor similar writ or warrant, or attachment by a creditor, to occur against the Premises of theFranchised Restaurant, or any improvements thereon.**     ***Compliance with Laws*****. Franchisee shall comply with all federal, state, and locallaws, rules, and regulations, and shall timely obtain any and all permits, certificates, orlicenses necessary for the full and proper conduct of the Franchised Restaurant, including licensesto do business, fictitious name registrations, sales tax permits, and fire clearances.****INDEPENDENT CONTRACTOR AND INDEMNIFICATION**     ***No Fiduciary Relationship*****. Franchisee is an independent contractor. Franchisor andFranchisee are completely separate entities and are not fiduciaries, partners, joint venturers, oragents of the other in any sense and neither shall have the power to bind the other. No act orassistance given by either party to the other pursuant to this Agreement shall be construed toalter the relationship. Franchisee shall be solely responsible for compliance with all federal,state, and local laws, rules and regulations, and for Franchisee’s policies, practices, anddecisions relating to the operation of the Franchised Restaurant.**     ***Public Notice*****. During the term of this Agreement, Franchisee shall hold itself out tothe public as an independent contractor operating the Franchised Restaurant pursuant to a franchiseagreement from Franchisor. Franchisee agrees to take such action as may be necessary to do so,including exhibiting a notice of that fact in a conspicuous place at the Premises, the content ofwhich Franchisor reserves the right to specify.**     ***No Assumption of Liability*****. Nothing in this Agreement authorizes Franchisee to makeany contract, agreement, warranty, or representation on the behalf of Franchisor, or to incur anydebt or other obligation in the name of Franchisor;**
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**and Franchisor shall in no event assume liability for, or be deemed liable hereunder as aresult of, any such action; nor shall Franchisor be liable by reason of any act or omission ofFranchisee in its operation of the Franchised Restaurant or for any claim or judgment arisingtherefrom against Franchisee or Franchisor.**     ***Indemnification*****. Franchisee shall indemnify and hold Franchisor, Franchisor’s ownersand affiliates, and their respective officers, directors, and employees (the “**Indemnitees**”)harmless against any and all causes of action, claims, losses, costs, expenses, liabilities,litigation, damages or other expenses (including, but not limited to, settlement costs andattorneys’ fees) arising directly or indirectly from, as a result of, or in connection with theoperation of the Franchised Restaurant and/or Franchisee’s conduct under this Agreement(notwithstanding any claims that the Indemnitees are or were negligent). Franchisee agrees thatwith respect to any threatened or actual litigation, proceeding or dispute which could directly orindirectly affect any of the Indemnitees, the Indemnitees shall have the right, but not theobligation, in their discretion, to: (i) choose counsel, (ii) direct, manage and/or control thehandling of the matter; and (iii) settle on behalf of the Indemnitees, and/or Franchisee, any claimagainst the Indemnitees. All vouchers, canceled checks, receipts, receipted bills or otherevidence of payments for any such losses, liabilities, costs, damages, charges or expenses ofwhatsoever nature incurred by any Indemnitee shall be taken as prima facie evidence of Franchisee’sobligation hereunder.****APPROVALS AND WAIVERS**     ***Approval Requests******.*****Whenever this Agreement requires the prior authorization, approvalor consent of Franchisor, Franchisee shall make a timely written request to Franchisor therefor,and such approval or consent must be obtained in writing.**     ***Non-waiver******.*****No failure of Franchisor to exercise any power reserved to it hereunder,or to insist upon strict compliance by Franchisee with any obligation or condition hereunder, andno custom or practice of the parties in variance with the terms hereof, shall constitute a waiverof Franchisor’s right to demand exact compliance with the terms hereof. Waiver by Franchisor ofany particular default by Franchisee shall not be binding unless in writing and executed by theparty sought to be charged and shall not affect or impair Franchisor’s right with respect to anysubsequent default of the same or of a different nature; nor shall any delay, waiver, forbearance,or omission of Franchisor to exercise any power or rights arising out of any breach or default byFranchisee of any of the terms, provisions, or covenants hereof, affect or impair Franchisor’srights nor shall such constitute a waiver by Franchisor of any right hereunder or of the right todeclare any subsequent breach or default. Subsequent acceptance by Franchisor of any payment(s)due to it hereunder shall not be deemed to be a waiver by Franchisor of any preceding breach byFranchisee of any terms, covenants or conditions of this Agreement.****WARRANTIES OF OPERATOR**     ***Reliance by Franchisor******.*****Franchisor entered into this Agreement in reliance upon thestatements and information submitted to Franchisor by Franchisee in connection with this Agreement.Franchisee represents and warrants that all such statements and information submitted byFranchisee in connection with this Agreement are true, correct and complete in all materialrespects. Franchisee agrees to promptly advise Franchisor of any material changes in theinformation or statements submitted.**     ***Compliance with Laws*****. Franchisee represents and warrants to Franchisor that neitherFranchisee (including, without limitation, any and all of its employees, directors, officers andother representatives), nor any of its affiliates or the funding sources for either is a person orentity designated with whom Franchisor, or any of its affiliates, are prohibited by law fromtransacting business.****NOTICES**     Any and all notices required or permitted under this Agreement shall be in writing andshall be personally delivered, sent by registered mail, or by other means which affords the senderevidence of delivery, or of rejected delivery, to the respective parties at the addresses shown onthe signature page of this Agreement, unless and until a different address has been designated bywritten notice to the other party. Any notice by a means which affords the sender evidence ofdelivery, or rejected delivery, shall be deemed to have been given at the date and time of receiptor rejected delivery.**ENTIRE AGREEMENT**     This Agreement, the attachments hereto, and the documents referred to herein constitutethe entire Agreement between Franchisor and Franchisee concerning the subject matter hereof, andsupersede any prior agreements, no other representations having induced Franchisee to execute thisAgreement. Except for those permitted to be made unilaterally by Franchisor hereunder, noamendment, change, or variance from this Agreement shall be binding on either party unless mutuallyagreed to by the parties and executed by their authorized officers or agents in writing.
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**SEVERABILITY AND CONSTRUCTION**     ***Severable Parts******.*****Except as expressly provided to the contrary herein, each portion,section, part, term, and/or provision of this Agreement shall be considered severable; and if, forany reason, any section, part, term, and/or provision herein is determined to be invalid andcontrary to, or in conflict with, any existing or future law or regulation by a court or agencyhaving valid jurisdiction, such shall not impair the operation of, or have any other effect upon,such other portions, sections, parts, terms, and/or provisions of this Agreement as may remainotherwise intelligible; and the latter shall continue to be given full force and effect and bindthe parties hereto; and said invalid portions, sections, parts, terms, and/or provisions shall bedeemed not to be a part of this Agreement.**     ***Terms Surviving this Agreement******.*****Any provision or covenant in this Agreement whichexpressly or by its nature imposes obligations beyond the expiration, termination or assignment ofthis Agreement (regardless of cause for termination), or assignment shall survive such expiration,termination.**     ***No Rights on Third Parties******.*****Except as expressly provided to the contrary herein,nothing in this Agreement is intended, nor shall be deemed, to confer upon any person or legalentity other than Franchisee, Franchisor, officers, directors, shareholders, agents, and employeesof Franchisor, and such successors and assigns of Franchisor as may be contemplated by Section 15hereof, any rights or remedies under or by reason of this Agreement.**     ***Full Scope of Terms*****. Franchisee expressly agrees to be bound by any promise orcovenant imposing the maximum duty permitted by law which is subsumed within the terms of anyprovision hereof, as though it were separately articulated in and made a part of this Agreement,that may result from striking from any of the provisions hereof any portion or portions which acourt or agency having valid jurisdiction may hold to be unreasonable and unenforceable in anunappealed final decision to which Franchisor is a party, or from reducing the scope of any promiseor covenant to the extent required to comply with such a court or agency order.**     ***Franchisor’s Application of its Rights******.*****Franchisor shall have the right to operate,develop and change the System in any manner that is not specifically precluded by this Agreement.Whenever Franchisor has reserved in this Agreement a right to take or withhold an action, or aredeemed to have a right and/or discretion to take or withhold an action, or to grant or decline togrant Franchisee a right to take or omit an action, except as otherwise expressly and specificallyprovided in this Agreement, Franchisor may make its decision or exercise its rights, on the basisof the information readily available to Franchisor, and its judgment of what is in its bestinterests and/or in the best interests of the Franchisor’s franchise network, at the time itsdecision is made, without regard to whether: (i) other reasonable or even arguably preferablealternative decisions could have been made by Franchisor; (ii) the decision or action of Franchisorwill promote its financial or other individual interest; (iii) Franchisor’s decision or the actionit take applies differently to Franchisee and one or more other franchisees or Franchisor’scompany-owed operations; or (iv) Franchisor’s decision or the exercise of its right or discretionis adverse to Franchisee’s interests. In the absence of an applicable statute, Franchisor willhave no liability to Franchisee for any such decision or action. Franchisor and Franchisee intendthat the exercise of Franchisor right or discretion will not be subject to limitation or review.If applicable law implies a covenant of good faith and fair dealing in this Agreement, Franchisorand Franchisee agree that such covenant shall not imply any rights or obligations that areinconsistent with a fair construction of the terms of this Agreement and that this Agreement grantsFranchisor the right to make decisions, take actions and/or refrain from taking actions notinconsistent with Franchisee’s rights and obligations hereunder.**     ***Captions Only for Convenience******.*****All captions in this Agreement are intended solely forthe convenience of the parties, and none shall be deemed to affect the meaning or construction ofany provision hereof.****APPLICABLE LAW AND DISPUTE RESOLUTION**     ***Governing Law******.*****This Agreement takes effect upon its acceptance and execution byFranchisor, and shall be interpreted and construed under the laws of the state in which Franchisorhas its headquarters at the time the action is commenced (the “**HQ State**”); provided, however, thatnothing in this Section 27.1 is intended by the parties to subject this Agreement to any franchiseor similar law, rule, or regulation of the HQ State or of any other state to which it would nototherwise be subject. In the event of any conflict of law, the laws of the HQ State shall prevail,without regard to, and without giving effect to, the HQ State’s application of its conflict of lawrules.**     ***Non-Binding Mediation******.*****Before any party may bring an action in court against theother, the parties must first meet to mediate the dispute (except as otherwise provided below).Any such mediation shall be non-binding and shall be conducted by the American ArbitrationAssociation in accordance with its then-current rules for mediation of commercial disputes.Notwithstanding anything to the contrary, this Section 27.2 shall not bar either party fromobtaining injunctive relief against threatened conduct that will cause it loss or damages, underthe usual equity rules, including the applicable rules for obtaining restraining orders andpreliminary injunctions, without having to engage in mediation. Mediation hereunder shall beconcluded within forty five (45) days of Franchisee’s receipt of the notice specifying thedesignated mediator or such longer period as may be agreed upon by the parties in writing. Allaspects of the mediation process shall be treated as confidential, shall not be disclosed toothers, and shall not be offered or admissible in any other proceeding**
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**or legal action whatever. Franchisor and Franchisee shall each bear its own costs ofmediation, and each shall bear one-half the cost of the mediator or mediation service.**     ***Litigation******.*****Any legal action brought by Franchisee against Franchisor in any forum orcourt, whether federal or state, shall be brought only within the HQ State. Any legal actionbrought by Franchisor against Franchisee in any forum or court, whether federal or state, may bebrought within the HQ State or in the state in which Franchisee is located. Franchisee herebywaives all questions of personal jurisdiction or venue for the purpose of carrying out thisprovision.**     ***No Rights Exclusive of Other Rights******.*****No right or remedy conferred upon or reserved toFranchisor or Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive of anyother right or remedy provided herein or permitted by law or equity, but each shall be cumulativeof every other right or remedy.**     ***Waiver of Jury Trial******.*****Franchisor and Franchisee irrevocably waive trial by jury inany action, proceeding, or counterclaim, whether at law or in equity, brought by either of themagainst the other. Any and all claims and actions arising out of or relating to this Agreement,the relationship of Franchisee and Franchisor, or Franchisee’s operation of the FranchisedRestaurant, brought by either party hereto against the other, whether in mediation, or a legalaction, shall be commenced within two (2) years from the occurrence of the facts giving rise tosuch claim or action, or such claim or action shall be barred.**     ***Waiver of Punitive Damages******.*****Franchisor and Franchisee hereby waive to the fullestextent permitted by law any right to or claim of any punitive or exemplary damages against theother.**     ***Injunctive Relief******.*****Nothing herein contained shall bar the right of Franchisor toobtain injunctive relief against threatened conduct that will cause it loss or damages, includingviolations of the terms of Sections 9, 10, 11, 15, and 18 under the usual equity rules, includingthe applicable rules for obtaining restraining orders and preliminary injunctions.****ACKNOWLEDGMENTS**     ***Franchisee’s Investigation of the Business Possibilities******.*****Franchisee acknowledgesthat it has conducted an independent investigation of the business of operating a Cosi Restaurant,and recognizes that the business venture contemplated by this Agreement involves business risks andthat its success will be largely dependent upon the ability of Franchisee (or, if Franchisee is acorporation, partnership or limited liability company, the ability of its principals) as (an)independent businessperson(s). Franchisor expressly disclaims the making of, and Franchiseeacknowledges that it has not received, any warranty or guarantee, express or implied, as to thepotential volume, profits, or success of the business venture contemplated by this Agreement.**     ***Receipt of UFOC and Complete Agreement******.*****Franchisee acknowledges that it received acomplete copy of this Agreement, the attachments hereto, and agreements relating thereto, if any,at least five (5) business days prior to the date on which this Agreement was executed. Franchiseefurther acknowledges that it received the disclosure document required by the Trade Regulation Ruleof the Federal Trade Commission entitled “Disclosure Requirements and Prohibitions ConcerningFranchising and Business Opportunity Ventures” at least ten (10) business days prior to the date onwhich this Agreement was executed or any payment by Franchisee for the franchise rights grantedunder this Agreement.**     ***Franchisee Read the Agreement and Consulted******.*****Franchisee acknowledges that it has readand understood this Agreement, the attachments hereto, and agreements relating thereto, if any, andthat Franchisor has accorded Franchisee ample time and opportunity to consult with advisors ofFranchisee’s own choosing about the potential benefits and risks of entering into this Agreement.**     ***Franchisee’s Responsibility for Operation of Business******.*****Although Franchisor retainsthe right to establish and periodically modify System standards, which Franchisee has agreed tomaintain in the operation of the Franchised Restaurant, Franchisee retains the right and soleresponsibility for the day-to-day management and operation of the Franchised Restaurant and theimplementation and maintenance of system standards at the Franchised Restaurant.**     ***No Conflicting Obligations******.*****Each party represents and warrants to the others thatthere are no other agreements, court orders, or any other legal obligations that would preclude orin any manner restrict such party from: (a) negotiating and entering into this Agreement; (b)exercising its rights under this Agreement; and/or (c) fulfilling its responsibilities under thisAgreement.**     ***Different Franchise Offerings to Others******.*****Franchisee acknowledges and agreesthat Franchisor may modify the offer of its franchises to other franchisees in any manner and atany time, which offers and agreements have or may have terms, conditions, and obligations that maydiffer from the terms, conditions, and obligations in this Agreement.**
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     ***Success Depends on Franchisee******.*****Franchisee acknowledges that the success of thebusiness venture contemplated under this Agreement is speculative and depends, to a large extent,upon Franchisee’s ability as an independent businessperson, his/her active participation in thedaily affairs of the business, market conditions, area competition, availability of product,quality of services provided as well as other factors. Franchisor does not make any representationor warranty express or implied as to the potential success of the business venture contemplatedhereby.**     ***No Guarantees******.*****Franchisor expressly disclaims the making of, and Franchiseeacknowledges that it has not received nor relied upon, any warranty or guaranty, express orimplied, as to the revenues, profits or success of the business venture contemplated by thisAgreement.****IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in duplicate on thedate first above written.**
     **COSI, INC.** Franchisor