FRANCHISE AGREEMENTFranchise Agreement |
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EXHIBIT 10.5
COSI, INC.
FRANCHISE AGREEMENT
TABLE OF CONTENTS
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1. |
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GRANT |
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1 |
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2. |
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TERM
AND RENEWAL |
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3 |
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3. |
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DUTIES
OF FRANCHISOR |
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4 |
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4. |
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FEES |
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5 |
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5. |
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SITE,
CONSTRUCTION AND OPENING OF BUSINESS |
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6 |
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6. |
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TRAINING |
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7 |
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7. |
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TECHNOLOGY |
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8 |
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8. |
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OTHER
DUTIES OF FRANCHISEE |
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10 |
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9. |
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PROPRIETARY
MARKS |
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15 |
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10. |
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MANUALS |
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16 |
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11. |
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CONFIDENTIAL
INFORMATION |
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17 |
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12. |
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ACCOUNTING
AND RECORDS |
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17 |
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13. |
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MARKETING
AND PROMOTION |
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18 |
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14. |
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INSURANCE |
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21 |
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15. |
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TRANSFER
OF INTEREST |
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22 |
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16. |
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DEFAULT
AND TERMINATION |
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25 |
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17. |
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OBLIGATIONS
UPON TERMINATION OR EXPIRATION |
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27 |
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18. |
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COVENANTS |
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28 |
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19. |
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CORPORATE,
LIMITED LIABILITY COMPANY, OR PARTNERSHIP FRANCHISEE |
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29 |
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Section |
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20. |
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TAXES,
PERMITS, AND INDEBTEDNESS |
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30 |
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21. |
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INDEPENDENT
CONTRACTOR AND INDEMNIFICATION |
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30 |
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22. |
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APPROVALS
AND WAIVERS |
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31 |
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23. |
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WARRANTIES
OF OPERATOR |
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24. |
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NOTICES |
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31 |
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25. |
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ENTIRE
AGREEMENT |
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26. |
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SEVERABILITY
AND CONSTRUCTION |
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32 |
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27. |
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APPLICABLE
LAW AND DISPUTE RESOLUTION |
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32 |
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28. |
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ACKNOWLEDGMENTS |
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33 |
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EXHIBIT
A – DATA SHEET |
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EXHIBIT
B – ADA CERTIFICATION |
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EXHIBIT
C – LIST OF FRANCHISEE’S PRINCIPALS |
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EXHIBIT
D – AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS |
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EXHIBIT
E – GUARANTY |
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EXHIBIT
F – CONFIDENTIALITY AND NON-COMPETE AGREEMENTS |
ii
FRANCHISE AGREEMENT
THIS
FRANCHISE AGREEMENT (the “Agreement”) is made and entered
into on this
day of ,
200 (the “Effective Date”),
by and between:
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Cosi, Inc, a
Delaware corporation whose principal place of business is 1751 Lake Cook
Road, 6th Floor, Deerfield, Illinois 60015
(“Franchisor”); and |
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a [resident of] [corporation organized
in] [limited liability company organized in] [select one], having
offices at
(“Franchisee”). |
BACKGROUND:
A.
Franchisor owns a format and system (the “System”) relating
to the establishment and operation of fast casual restaurants, which operate at
retail locations that display Franchisor’s interior and exterior trade
dress and feature and operate under the Proprietary Marks (as defined below) (each
a “Cosi Restaurant”). Cosi Restaurants are designed using
Franchisor’s interior trade dress to be welcoming and comfortable for
customers, and offer menus specializing in Franchisor’s signature
flatbread, sandwiches, soups, salads, gourmet coffee and specialty beverages
and food items using Franchisor’s proprietary recipes, formulae and
techniques (“Proprietary Products”), as well as other
non-proprietary food, beverage, and other compatible items designated by
Franchisor from time to time (collectively, “Products”).
B.
The distinguishing characteristics of the System include distinctive exterior
and interior design, decor, color schemes, fixtures, and furnishings; recipes,
standards and specifications for products, equipment, materials, and supplies;
uniform standards, specifications, and procedures for operations; 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 Franchisor in 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
Cosi Restaurant under the System and using the Proprietary Marks, and wishes to
enter into this agreement with Franchisor for that purpose, and to receive the
training and other assistance provided by Franchisor in connection therewith.
E.
Franchisee understands and acknowledges the importance of the high standards of
Franchisor for quality, cleanliness, appearance, and service and the necessity
of operating the business franchised 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
Franchisee hereby 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 connection
therewith, the Proprietary Marks and the System, as they may be changed,
improved, or further developed from time to time by Franchisor; and
(c) operate the Franchised Restaurant only at the Approved Location (as
defined in Section 1.2 below) in accordance with this Agreement.
Approved
Location. Franchisee shall develop and operate the Franchised
Restaurant only at the site specified in Exhibit A to this Agreement as
the “Approved Location” (which shall have 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 franchise rights for the Franchised Restaurant). Franchisee
shall not relocate the Franchised Restaurant without Franchisor’s prior
written consent and/or otherwise in writing by Franchisor, as provided in
Section 8.19 below.
Limit
on Sales. Franchisee’s rights hereunder shall be limited to
offering and selling Products at the Franchised Restaurant, and only to retail
customers of the Franchised Restaurant for (a) customer consumption on the
premises of
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the Franchised Restaurant
at the Approved Location (the “Premises”);
and (b) for customer carry-out consumption of Products sold at the
Franchised Restaurant; provided that all such activities shall be conducted
only in accordance with the requirements of this Agreement and the procedures
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 or off-Premises catering
activities, and if approved by Franchisor, Franchisee may engage in such
activities pursuant to such programs, policies terms, and conditions as Franchisor
may establish from time to time. Franchisee shall not, without the prior
written approval of Franchisor, engage in any other type of sale of, or offer
to sell, or distribution of Products, including, but not limited to: selling,
distributing or otherwise providing, any Products to third parties at
wholesale, or for resale or distribution by any third party; and selling,
distributing or otherwise providing any Products through catalogs, mail order,
toll free numbers for delivery, or electronic means (e.g., the Internet).
Territory
and Reserved Rights. Except as otherwise provided in this Agreement,
during the term of this Agreement, Franchisor shall not establish or operate,
nor license any other person to establish or operate, a Cosi Restaurant at any
location within the territory specified in Exhibit A (the “Territory”).
Franchisor retains the rights, among others, on any terms and conditions
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 their proximity to the Territory or the Approved
Location or their actual or threatened impact on sales of 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 the Territory.
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 are similar or different from the Franchised
Restaurant, at any location within or outside the Territory notwithstanding
their proximity to the Territory or the Approved Location or their actual or
threatened impact on sales of the Franchised Restaurant;
To
own, acquire, establish, and/or operate and license others to establish and
operate, Cosi Restaurants under the Proprietary Marks at Institutional Accounts
(as defined below) at any location 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 captive
audience facilities (examples include, but are not limited to, parks charging
admission, stadiums, amusement parks and centers, theaters and art centers),
limited purpose facilities (examples include, but are not limited to, airports,
transportation centers, department stores, in-door shopping centers, business
and industrial complexes, museums, educational facilities, hospitals, art
centers, and recreational parks), limited access facilities (examples include,
but are not limited to, military complexes, buyer club businesses, educational
facilities, business and industrial complexes), and other types of
institutional accounts.
To
sell and to distribute, directly or indirectly, or to license others to sell
and to distribute, directly or indirectly, any products (including the
Products) through grocery or convenience 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 Marks
provided that distribution within the Territory shall not be from a Cosi
Restaurant established under the System that is operated from within the
Territory (except from a Cosi Restaurant at an Institutional Account);
To
(i) acquire one or more retail businesses that are the same as, or similar
to, Cosi Restaurants then operating under the System (each an “Acquired
Business”), which may be at any location within or outside the
Territory notwithstanding their proximity to the Territory or the Approved
Location or their actual or threatened impact on sales of the Franchised
Restaurant, and to (ii) operate and/or license others to operate any
Acquired Business under its existing name or as a Cosi Restaurant under the
System, subject to the following conditions that apply to each Acquired
Business located within the Territory:
Except
as provided in Section 1.4.6.2 below, and provided that Franchisee is in
compliance with this Agreement and any other agreement with Franchisor,
Franchisor shall offer to Franchisee the option to purchase and operate, as a
Cosi Restaurant, an Acquired Business that is purchased by Franchisor for
operation by Franchisor or its affiliates. Franchisor shall provide Franchisee
with written notice of Franchisor’s purchase of the Acquired
Business(es), the terms and conditions applicable to the Franchisee’s
option to purchase such Acquired Business(es), and such other information that
Franchisor deems necessary to include in the notice. The terms and conditions
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 such
Acquired Business, and if the Acquired Business was part of an Acquired System
(as defined below in Section 1.4.6.2), then Franchisee’s purchase
price for such Acquired Business shall be determined using a ratio equal to the
sales during the prior year of such Acquired Business as compared to the total
sales in such prior year of all Acquired Businesses purchased by Franchisor in
the same transaction; and (b) the requirement that Franchisee enter into
Franchisor’s then-current form of System franchise agreement for the
Acquired Business. If Franchisee does not elect to purchase, or fails to
complete the purchase of, an Acquired Business, Franchisor shall have the right
to operate itself, or through its affiliates or third party licensees or
franchisees, the Acquired Business under 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 be obligated to offer Franchisee
any option to purchase, any Acquired Business that is operated by a licensee or
franchisee under the Acquired System. Franchisor may license such unit to be
operated under any trade name or trademarks including the Proprietary Marks, and
may also license to the licensee or franchisee additional units of the Acquired
System that the licensee or franchisee has the right to develop and operate
within the Territory.
TERM AND RENEWAL
Initial
Term. This Agreement shall be in effect upon its acceptance and
execution by Franchisor and, except as otherwise provided herein, this
Agreement shall expire ten (10) years from 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 to each renewal:
Franchisee
shall give Franchisor written notice of Franchisee’s election to renew at
least six (6) months, but not more than twelve (12) months, prior to
the end of the term of this Agreement;
Franchisee
shall not have any past due monetary obligations or other outstanding
obligations to Franchisor and its affiliates, the approved suppliers of the
System, or the lessor of the Premises;
Franchisee
shall not be in default of any provision of this Agreement, or successor
hereto, or any other agreement between Franchisee and Franchisor or its
affiliates, the approved suppliers of the System, or the lessor of the
Premises; and Franchisee shall have substantially complied with all the terms
and conditions of such agreements during the terms thereof;
Franchisee
and Franchisor shall execute a mutual general release, in a form prescribed by
Franchisor, of any and all claims against Franchisor and its affiliates, and
their respective officers, 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 the terms of this Agreement including requirements to
pay additional and/or higher fees, except that Franchisee shall not be required
to pay any initial franchise fee;
Franchisee
shall comply with the then-current qualification and training requirements of
Franchisor;
Franchisee
shall make or provide for, in a manner satisfactory to Franchisor, such
renovation and modernization of the Premises as Franchisor may reasonably
require, including installation of new equipment and renovation of signs,
furnishings, fixtures, and decor to reflect the then-current standards and
image of the System;
Franchisee
shall present evidence satisfactory to Franchisor that Franchisee has the right
to remain in possession of the Premises (or such other location acceptable to
Franchisor) for the duration of the renewal term;
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Franchisee
shall not be required to pay an initial franchise fee, and instead shall pay
Franchisor a renewal fee equal to Seven Thousand Five Hundred Dollars ($7,500).
Franchisee,
at the time of renewal, satisfies Franchisor’s standards of financial
responsibility and, if requested by Franchisor, Franchisee demonstrates to
Franchisor that Franchisee has sufficient financial resources and means to
continue to operate the Franchised Restaurant during the renewal term.
DUTIES OF FRANCHISOR
Franchisor’s
Prototype Plans. Franchisor shall make available, at no charge to
Franchisee, prototype design plans and specifications for the construction of a
Cosi Restaurant and for the exterior and interior design and layout, fixtures,
furnishings, equipment, and signs. Franchisee acknowledges that such standard
design plans and specifications shall not contain the requirements of any
federal, state or local law, code or regulation (including without limitation
those concerning the Americans with Disabilities Act (the “ADA”)
or similar rules governing public accommodations or commercial facilities for
persons with disabilities), nor shall such plans contain the requirements of,
or be used for, construction drawings or other documentation necessary to
obtain permits or authorization to build a specific Cosi Restaurant, compliance
with all of which shall be Franchisee’s responsibility and at
Franchisee’s expense. Franchisee understands and acknowledges that
Franchisor has the right to modify the prototype design plans and
specifications, and develop additional prototype design plans and
specifications, as Franchisor deems appropriate from time to time (however
Franchisor will not modify the prototype plans and specifications for the
Franchised Restaurant developed pursuant to this Agreement once those prototype
architectural plans and specifications have been given to Franchisee). Franchisee
shall adapt the standard plans to the Franchised Restaurant’s location,
as provided in Section 5.1 hereof, subject to Franchisor’s approval.
Initial
Training. Franchisor shall provide its initial training for operators
and managers (“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 developed
pursuant to a Cosi Area Development Agreement between Franchisor and Franchisee
(or an affiliate of Franchisee), in which event the terms set forth in
Section 6.1.3 below shall apply with respect to the 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 and at Franchisor’s expense, one (1) or more of
Franchisor’s representatives for the purpose of facilitating the opening
of the Franchised Restaurant. During this training, such representative will
also assist Franchisee in establishing and standardizing procedures and
techniques essential to the operation of a Cosi Restaurant and shall assist in
training personnel; however, Franchisee acknowledges that Franchisor shall not
be responsible for training or offering guidance with respect to compliance
with any laws, ordinances or other legal matters. Prior to the arrival of
Franchisor’s representative(s), Franchisee shall have completed all
training of Franchisee’s initial staff of employees for the Franchised
Restaurant, as shall be necessary for Franchisee to comply with its staffing
obligations under Section 8.4 below. Should Franchisee request additional
assistance from Franchisor in order to facilitate the opening of the Franchised
Restaurant, and should Franchisor deem it necessary and appropriate to comply
with the request, Franchisee shall pay Franchisor’s per diem charges and
Franchisor’s out of pocket expenses in providing such additional
assistance as set forth from time to time in the Manuals.
Loan of Manuals. Franchisor shall provide Franchisee, on loan, copies of the Franchisor’s confidential operations manuals and other manuals, instructional materials, and written policies and correspondence (collectively, th






