EX-10.4 Form of Franchise Agreement






Exhibit 10.4




KIDVILLE FRANCHISE COMPANY, LLC




FRANCHISE AGREEMENT




	 	 	 
	 

	 	Franchisee Name:
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	Agreement Date:
	 
	 	 
	 

	 	 





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	1. PREAMBLES, ACKNOWLEDGMENTS, AND GRANT OF FRANCHISE
	 	 	1	 
	A. PREAMBLES
	 	 	1	 
	B. ACKNOWLEDGMENTS
	 	 	2	 
	C. ENTITY REQUIREMENTS
	 	 	3	 
	D. GRANT OF FRANCHISE
	 	 	5	 
	E. HUB AND ANNEX LOCATIONS, SITE SELECTION, AND LEASES
	 	 	5	 
	F. RIGHTS WE RESERVE
	 	 	8	 
	G. THE EXERCISE OF OUR JUDGMENT
	 	 	9	 
	H. MODIFICATION OF FRANCHISE SYSTEM
	 	 	9	 
	 
	 	 	 	 
	2. DEVELOPMENT AND OPENING OF FACILITY LOCATIONS
	 	 	10	 
	A. FACILITY DEVELOPMENT
	 	 	10	 
	B. OPERATING ASSETS
	 	 	11	 
	C. COMPUTER SYSTEM
	 	 	11	 
	D. FACILITY/LOCATION OPENING
	 	 	12	 
	E. PRESALE OF CLASSES, MEMBERSHIPS, AND BIRTHDAY PARTIES
	 	 	13	 
	 
	 	 	 	 
	3. FEES
	 	 	13	 
	A. INITIAL FRANCHISE FEE
	 	 	13	 
	B. ROYALTY FEE
	 	 	13	 
	C. DEFINITION OF “GROSS SALES”
	 	 	15	 
	D. LATE FEES AND INTEREST
	 	 	15	 
	E. APPLICATION OF PAYMENTS
	 	 	15	 
	F. METHOD OF PAYMENT
	 	 	15	 
	 
	 	 	 	 
	4. TRAINING AND ASSISTANCE
	 	 	16	 
	A. TRAINING
	 	 	16	 
	B. GENERAL GUIDANCE
	 	 	18	 
	C. OPERATIONS MANUAL
	 	 	19	 
	D. DELEGATION OF PERFORMANCE
	 	 	19	 
	 
	 	 	 	 
	5. MARKS
	 	 	20	 
	A. OWNERSHIP AND GOODWILL OF MARKS
	 	 	20	 
	B. LIMITATIONS ON YOUR USE OF MARKS
	 	 	20	 
	C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS
	 	 	20	 
	D. DISCONTINUANCE OF USE OF MARKS
	 	 	21	 
	E. INDEMNIFICATION FOR USE OF MARKS
	 	 	21	 
	 
	 	 	 	 
	6. CONFIDENTIAL INFORMATION
	 	 	21	 
	 
	 	 	 	 
	7. EXCLUSIVE RELATIONSHIP
	 	 	23	 
	 
	 	 	 	 
	8. SYSTEM STANDARDS
	 	 	24	 
	A. COMPLIANCE WITH SYSTEM STANDARDS
	 	 	24	 






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TABLE OF CONTENTS


	 	 	 	 	 
	 	 	Page	 
	B. MODIFICATION OF SYSTEM STANDARDS
	 	 	29	 
	 
	 	 	 	 
	9. MARKETING
	 	 	29	 
	A. MARKET INTRODUCTION
	 	 	29	 
	B. BRAND FUND
	 	 	29	 
	C. YOUR LOCAL MARKETING
	 	 	32	 
	D. AREA BRAND COOPERATIVE
	 	 	33	 
	E. FRANCHISE SYSTEM WEBSITE
	 	 	34	 
	 
	 	 	 	 
	10. RECORDS, REPORTS, AND FINANCIAL STATEMENTS
	 	 	35	 
	 
	 	 	 	 
	11. INSPECTIONS AND AUDITS
	 	 	36	 
	A. OUR RIGHT TO INSPECT THE LOCATIONS
	 	 	36	 
	B. OUR RIGHT TO AUDIT
	 	 	36	 
	 
	 	 	 	 
	12. TRANSFER
	 	 	37	 
	A. BY US
	 	 	37	 
	B. BY YOU
	 	 	37	 
	C. CONDITIONS FOR APPROVAL OF TRANSFER
	 	 	38	 
	D. TRANSFER TO A WHOLLY-OWNED CORPORATION OR LIMITED LIABILITY COMPANY
	 	 	41	 
	E. DEATH OR DISABILITY
	 	 	41	 
	F. EFFECT OF CONSENT TO TRANSFER
	 	 	42	 
	G. OUR RIGHT OF FIRST REFUSAL
	 	 	42	 
	H. PUBLIC OFFERINGS
	 	 	44	 
	 
	 	 	 	 
	13. EXPIRATION OF THIS AGREEMENT
	 	 	44	 
	A. YOUR RIGHT TO ACQUIRE SUCCESSOR FRANCHISES
	 	 	44	 
	B. GRANT OF A SUCCESSOR FRANCHISE
	 	 	45	 
	C. AGREEMENTS/RELEASES
	 	 	47	 
	 
	 	 	 	 
	14. TERMINATION OF AGREEMENT
	 	 	47	 
	A. BY YOU
	 	 	47	 
	B. BY US
	 	 	48	 
	C. ASSUMPTION OF MANAGEMENT
	 	 	50	 
	 
	 	 	 	 
	15. OUR AND YOUR RIGHTS AND OBLIGATIONS UPON TERMINATION OR
EXPIRATION OF THIS AGREEMENT
	 	 	50	 
	A. PAYMENT OF AMOUNTS OWED TO US
	 	 	50	 
	B. MARKS
	 	 	51	 
	C. CONFIDENTIAL INFORMATION
	 	 	52	 
	D. COVENANT NOT TO COMPETE
	 	 	52	 
	E. OUR RIGHT TO PURCHASE FACILITY
	 	 	53	 
	F. CONTINUING OBLIGATIONS
	 	 	55	 






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TABLE OF CONTENTS


	 	 	 	 	 
	 	 	Page	 
	16. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
	 	 	55	 
	A. INDEPENDENT CONTRACTORS
	 	 	55	 
	B. NO LIABILITY FOR ACTS OF OTHER PARTY
	 	 	56	 
	C. TAXES
	 	 	56	 
	D. INDEMNIFICATION
	 	 	56	 
	 
	 	 	 	 
	17. ENFORCEMENT
	 	 	57	 
	A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS
	 	 	57	 
	B. WAIVER OF OBLIGATIONS
	 	 	58	 
	C. COSTS AND ATTORNEYS’ FEES
	 	 	58	 
	D.              YOU MAY NOT WITHHOLD PAYMENTS DUE TO US
	 	 	59	 
	E. RIGHTS OF PARTIES ARE CUMULATIVE
	 	 	59	 
	F. GOVERNING LAW
	 	 	59	 
	G. CONSENT TO JURISDICTION
	 	 	59	 
	H. WAIVER OF EXEMPLARY DAMAGES AND JURY TRIAL
	 	 	59	 
	I. BINDING EFFECT
	 	 	60	 
	J. LIMITATIONS OF CLAIMS
	 	 	60	 
	K.  CONSTRUCTION
	 	 	60	 
	 
	 	 	 	 
	18. NOTICES AND PAYMENTS
	 	 	61	 
	 
	 	 	 	 
	19. COMPLIANCE WITH ANTI-TERRORISM LAWS
	 	 	62	 






EXHIBIT A — LISTING OF OWNERSHIP INTERESTS

EXHIBIT B — TERRITORY

EXHIBIT C — ADDRESSES OF LOCATIONS

EXHIBIT D — CONDITIONAL ASSIGNMENT OF TELEPHONE NUMBER(S)




GUARANTY AND ASSUMPTION OF OBLIGATIONS

NON-MONETARY GUARANTY AND ASSUMPTION OF OBLIGATIONS





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KIDVILLE FRANCHISE COMPANY, LLC

FRANCHISE AGREEMENT




     THIS FRANCHISE AGREEMENT (the “Agreement”) is made and entered into as of the                      day of
                                        , 20                     (the “Effective Date”) (regardless of the dates of the parties’
signatures) by and between KIDVILLE FRANCHISE COMPANY, LLC, a New York limited liability company
with its principal business address at 163 East 84th Street, New York, New York 10028 (“we,” “us,”
or “our”), and                                                             , whose
principal business address is                                                              (“you” or “your”).



1. PREAMBLES, ACKNOWLEDGMENTS, AND GRANT OF FRANCHISE.




     A. PREAMBLES.




     (1) We and our affiliates have developed (and continue to develop and modify) policies
and procedures, confidential information, intellectual property (including software and
website), and a distinctive and comprehensive operating system (collectively, the “Branded
System”) for the operation, identification, and promotion of
facilities under the KIDVILLE®
trademark and other trademarks, service marks, and commercial symbols (collectively,
“Marks”) that provide to newborns through five-year-old children and their families a wide
array of developmental classes such as music, gym, art, and enrichment classes, including
classes under the LITTLE MAESTROS, MY BIG MESSY ART CLASS®, and RUN, WIGGLE, PAINT &
GIGGLE® brands (collectively, “Classes”), as well as indoor playgrounds, birthday and
themed parties, and related services (referred to collectively, with Classes, as
“Services”), and also feature retail boutiques selling various children and family-oriented
products, many of which bear the Marks (collectively, “Products”). Facilities offering and
selling Services and Products, operating completely pursuant to the Branded System, and
using the KIDVILLE® Mark as their primary trade identity are called “KIDVILLE Facilities” in
this Agreement and individually a “Facility.”




     (2) The Marks have gained and will continue to gain public acceptance and goodwill, and
new trademarks, service marks, and commercial symbols periodically may be created, used, and
licensed for KIDVILLE Facilities. The Marks, Confidential Information (defined in Section 6
below), and Branded System (collectively, the “Intellectual Property”) are owned by our
affiliate Kidville, NY, LLC, which has licensed us to use and sublicense the Intellectual
Property for KIDVILLE Facilities. You acknowledge that our right to sublicense the
Intellectual Property to you is subject to our license agreement with Kidville, NY, LLC.




     (3) Other affiliates of ours periodically may own musical compositions and other
non-KIDVILLE brand intellectual property that they license us to use and sublicense others
to use during and as part of Classes and other activities at KIDVILLE Facilities. You
acknowledge that our right to sublicense that non-KIDVILLE brand



 









 







intellectual property to you is subject to our license agreement(s) with such
affiliates and may not continue during the entire Term (as defined in Subsection 1.D.
below).




     (4) We grant to qualified entities a franchise to operate a KIDVILLE Facility offering
and selling the Services and Products we require and authorize and using the Intellectual
Property (the “Franchise System”).




     (5) As a KIDVILLE Facility franchisee, you must comply with this Agreement and all
mandatory specifications, standards, operating procedures, and rules (collectively, “System
Standards”) that we periodically prescribe for KIDVILLE Facilities in order to maintain high
and consistent quality.




     (6) You have applied for a franchise to operate a KIDVILLE Facility.



     B. ACKNOWLEDGMENTS.



     You acknowledge:




     (1) That you have independently investigated the KIDVILLE Facility franchise
opportunity and recognize that, like any other business, the nature of a KIDVILLE Facility
will evolve and change over time.




     (2) That an investment in a KIDVILLE Facility involves business risks that could result
in the loss of a significant portion or all of your investment.




     (3) That the business abilities and efforts of your owners and other principals,
management, and staff are vital to your success.




     (4) That attracting family members for your KIDVILLE Facility will require you to make
consistent marketing and promotional efforts.




     (5) That attracting and retaining customers for your KIDVILLE Facility will require you
to provide quality Services, to sell quality Products, to have a high level of customer
service, and to adhere strictly to our System Standards. You are committed to maintaining
System Standards.




     (6) That you have not received from us, and are not relying upon, any representations
or guarantees, express or implied, as to the potential volume, sales, income, or profits of
a KIDVILLE Facility, that any information you have acquired from other KIDVILLE Facility
franchisees regarding their sales, income, profits, or cash flows was not information
obtained from us, and that we make no representation about that information’s accuracy.




     (7) That we make no representation regarding any particular Service (including LITTLE
MAESTROS Classes) or Product being authorized or made available for KIDVILLE Facilities
during your entire franchise term.



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     (8) That in all of their dealings with you, our officers, directors, employees, and
agents act only in a representative, and not in an individual, capacity and that business
dealings between you and them as a result of this Agreement are deemed to be only between
you and us.




     (9) That you have represented to us, to induce our entry into this Agreement, that all
statements you have made and all information you have given us are accurate and complete and
that you have made no misrepresentations or material omissions in obtaining the Franchise.




     (10) That you have read this Agreement and our Franchise Disclosure Document and
understand and accept that this Agreement’s terms are reasonably necessary for us to
maintain high standards of quality and service, as well as the uniformity of those standards
at each KIDVILLE Facility, and to protect and preserve the goodwill of the Marks.




     (11) That we may restrict the brands and sources of various Services, Products, and
other items and services needed to operate KIDVILLE Facilities, as provided in various
sections of this Agreement.




     (12) That we have not made any representation, warranty, or other claim regarding the
KIDVILLE Facility franchise opportunity, other than those made in this Agreement and our
Franchise Disclosure Document, and that you have independently evaluated the franchise
opportunity, including by using your own business professionals and legal advisors, and have
relied solely upon those evaluations in deciding to sign this Agreement.




     (13) That you have had the opportunity to ask any questions you have, and to review any
appropriate materials of interest to you, concerning the KIDVILLE Facility franchise
opportunity and that we have considered your comments and proposals, if any, on this
Agreement.




     (14) That you have had the opportunity, and have been encouraged by us, to have this
Agreement and all other agreements and materials that we have given or made available to you
reviewed by an attorney and that you have either done so or chosen not to do so.




     (15) That you have a net worth that is sufficient to invest in the KIDVILLE Facility
franchise opportunity represented by this Agreement, and you will have sufficient funds to
meet all of your obligations under this Agreement.



     C. ENTITY REQUIREMENTS.



     As a corporation, limited liability company, or general, limited, or limited liability
partnership (each, an “Entity”), you agree and represent that:




     (1) You have the authority to execute, deliver, and perform your obligations under this
Agreement and all related agreements and are duly organized or formed and



3









 







validly existing in good standing under the laws of the state of your incorporation or
formation;




     (2) Your organizational documents, operating agreement, or partnership agreement, as
applicable, will recite that this Agreement restricts the issuance and transfer of certain
ownership interests in you, and all certificates and other documents representing ownership
interests in you will bear a legend (the wording of which we may prescribe) referring to
this Agreement’s restrictions;




     (3) Exhibit A to this Agreement completely and accurately identifies all of your owners
and their interests in you as of the Effective Date;




     (4) Each owner whose interest in you (alone or with related persons) equals or exceeds
twenty percent (20%) of your total ownership, and any owner who actually has management
control of the operation of your FACILITY (defined in Subsection D below) regardless of the
size of his or her ownership interest (all such owners are called “Principal Owners” and
individually a “Principal Owner”), must execute a Guaranty and Assumption of Obligations, in
the form attached to this Agreement, undertaking personally to be bound, jointly and
severally, by all provisions in this Agreement and any ancillary agreements between you and
us. In addition, each owner who is not a Principal Owner must execute a Non-Monetary
Guaranty and Assumption of Obligations, in the form attached to this Agreement, undertaking
personally to be bound, jointly and severally, by specified non-monetary provisions in this
Agreement. Subject to our rights and your obligations under Section 12, you and your owners
agree to sign and deliver to us revised Exhibits A to reflect any permitted changes in the
information that Exhibit A now contains;




     (5) Throughout this Agreement’s term, one person must be designated as your “Operator,”
responsible overall for supervising and overseeing development and operation of the FACILITY
and to whom we may give, and from whom we may receive, direction. Your Operator need not
have an ownership interest in you but also may be a Principal Owner or a non-Principal
Owner. The Operator as of the Effective Date is identified in Exhibit A. If your Operator
leaves during this Agreement’s term, you must appoint a new Operator within the timeframe we
specify. Your Operator will supervise your managers (sometimes called KIDVILLE Mayors), who
in turn will supervise the FACILITY’s non-managerial employees. Your employees are under
your day-to-day control in implementing and maintaining System Standards at the FACILITY;
and




     (6) The FACILITY (and other KIDVILLE Facilities) will be the only business you operate
so that your financial, operating, and other records, including financial statements, will
reflect only the business represented by KIDVILLE Facilities and your staff will be
committed to the KIDVILLE® brand (although your owners and affiliates may have other,
non-competitive business interests).



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     D. GRANT OF FRANCHISE.



     You have applied for a franchise to operate a KIDVILLE Facility from sites physically located
within the geographic area described in Exhibit B (the “Territory”). Subject to this Agreement’s
terms, we grant you a franchise (the “Franchise”) to operate a KIDVILLE Facility (the “FACILITY”)
within the Territory, and to use the Franchise System in its operation, for a term (the “Term”)
beginning on the Effective Date and expiring ten (10) years from the date on which your Hub
Location (defined below) commences operation. The Term is subject to earlier termination under
Section 14. You agree to operate the FACILITY in compliance with this Agreement for the entire
Term unless this Agreement is terminated under Section 14. You agree at all times faithfully,
honestly, and diligently to perform your obligations under this Agreement and to use your best
efforts to promote the FACILITY.



     The Franchise gives you the right to provide Services and sell Products only at the physical
premises of the Locations (defined below). You are prohibited from (i) providing Services or
selling Products away from the physical premises of the Locations, (ii) selling Services or
Products through other distribution channels, (iii) using the Marks in any other business
activities that we have not expressly authorized, and (iv) advising others who operate Competitive
Businesses (as defined in Section 7 below).



     You may engage in any authorized advertising, promotional, marketing, and related activities
(“Promotional Activities”) to solicit customers located within and outside your Territory.
However, if other KIDVILLE Facilities operate in the areas where, in our reasonable opinion, your
Promotional Activities have significant circulation or coverage, you may not include any price
information in the materials (written, auditory, or otherwise) used in those Promotional
Activities. If there is no KIDVILLE Facility operating in an area where you engage in Promotional
Activities, but we later appoint a franchisee whose franchised territory includes all or a portion
of that area, you agree (at our direction) to send the new franchisee a list identifying (with
applicable contact information) all of your customers who reside in that new franchisee’s
territory. We have the unrestricted right to regulate your Promotional Activities and other
business activities outside your Territory in order to protect, as we deem best, our interests,
other KIDVILLE Facility franchisees, and the Franchise System. Other KIDVILLE Facility franchisees
will have the same rights, and will be subject to the same restrictions, in your Territory.



     E. HUB AND ANNEX LOCATIONS, SITE SELECTION, AND LEASES.




     (1) Hub and Annex Locations Defined. The Franchise to operate the FACILITY
requires you to locate, lease (or purchase), develop, maintain, and operate two (2) types of
sites: One (1) main “hub” location (the “Hub Location”) and at least three (3) “annex”
locations (each an “Annex Location”). The Hub Location is the larger, main operating center
for the Franchise at which you will provide all required Services and sell all required
Products associated with a KIDVILLE Facility and maintain your primary management,
administrative, staffing, and training functions. Each Annex Location is significantly
smaller than the Hub Location, intended for areas within the Territory where a larger Hub
Location would be impractical, and will provide some, but not all, of the Services and sell
some, but not all, of the Products associated



5









 







with KIDVILLE Facilities. The physical sites of the Hub Location and each Annex
Location must be within the Territory.




     Unless it is necessary for us to distinguish in this Agreement between your Hub
Location and your Annex Locations, references in this Agreement to your “Locations” cover
both your Hub Location and your Annex Locations. References in this Agreement to
the “FACILITY” cover your entire business operation under this Agreement, including all
activities at both your Hub Location and your Annex Locations. Your right to
operate at each Annex Location is coterminous with the Term. You may use each Location only
for operating the FACILITY.




     (2) Selecting Hub and Annex Locations. The addresses of your Locations are or
will be identified in Exhibit C. If you have not found sites for the Locations as of the
Effective Date, then we and you will insert their addresses into Exhibit C after you find
them in compliance with the following procedures:




     (i) You agree to find, and sign a lease for, a suitable site within the
Territory for the Hub Location within one hundred twenty (120) days after the
Effective Date.




     (ii) You agree to find, and sign leases for, suitable sites within the
Territory for the first two (2) of your minimum three (3) required Annex Locations
within one hundred eighty (180) days after the Effective Date.




     (iii) You agree to find, and sign a lease for, a suitable site within the
Territory for your third (3rd) required Annex Location within two hundred seventy
(270) days after the Effective Date.




You must obtain our written acceptance of each Location’s proposed site before signing any
lease. You may operate the Locations only at sites we have formally accepted. We will not
conduct site selection activities for you. You are responsible for finding a site for each
Location that satisfies our site selection criteria and meets the requirements of your
business. We will not unreasonably withhold our acceptance of a site that meets our
criteria.




     We will give you site evaluation workbooks to help you assess whether a site satisfies
our criteria. You must obtain all information necessary to complete the workbooks and then
return the completed workbooks to us. If we are satisfied with the workbooks and believe,
based on this preliminary review, that the identified sites might be acceptable for
Locations, we will visit your Territory to inspect the proposed sites. We will not charge
you for this first site visit to your Territory. However, you must pay us a per diem fee
and reimburse all of our out-of-pocket costs and expenses for all subsequent site visits.
To avoid these additional costs, we suggest that you find and prepare workbooks for a number
of sites that you believe are suitable for Locations so that we can inspect them on one site
visit. We will accept or not accept your proposed sites within ten (10) days after
returning from our site visit. After you secure the sites, we will insert their addresses
into Exhibit C.



6









 






     You acknowledge and agree that, if we accept or give you information regarding a
Location’s proposed site, that is not a representation or warranty of any kind, express or
implied, of the site’s suitability for a KIDVILLE Facility or any other purpose. Our
acceptance indicates only that we believe the site meets our then acceptable criteria.
Applying criteria that have appeared effective with other sites might not accurately reflect
the potential for all sites, and demographic and/or other factors included in or excluded
from our criteria could change, altering a site’s potential. The uncertainty and
instability of these criteria are beyond our control, and we are not responsible if a site
we accepted fails to meet your expectations. You acknowledge and agree that your acceptance
of the Franchise was or will be based on your own independent investigation of a site’s
suitability for each Location. We are relying on your knowledge of the real estate market
in your area and your ability to locate a suitable site.




     (3) Leasing Locations. We have the right to accept or reject the terms of a
Location’s proposed lease or sublease (the “Lease”) before you sign it. We may require that
the Lease contain certain provisions (although we will not directly negotiate your Lease),
including those:




     (a) reserving to us the right to receive an assignment of the Lease upon
termination or expiration of this Agreement;




     (b) requiring the landlord to give us all sales and other information we
request relating to the FACILITY’s operation at the Location;




     (c) requiring the landlord concurrently to send us a copy of any written notice
of Lease default sent to you and granting us the right (but without any obligation)
to cure any Lease default within fifteen (15) business days after expiration of your
cure period (if you fail to do so);




     (d) confirming your right to display the Marks at each Location according to
specifications in the Operations Manual (subject only to applicable law);




     (e) specifying that the Location may be used only for a KIDVILLE Facility; and




     (f) allowing us to enter the Location upon expiration or termination of this
Agreement in order to remove signage and other items bearing our Marks and otherwise
to de-identify the Location.




We may require that the types of provisions referenced above be reflected in a Lease Rider,
Collateral Assignment of Lease, or other document. You agree to sign, and have the landlord
sign, any documents we deem necessary to record our interest in the Location in public real
estate indices and elsewhere to protect our interests. You acknowledge that our acceptance
of the Lease is not a guarantee or warranty, express or implied, of the success or
profitability of a KIDVILLE Facility operated at the Location. Our acceptance indicates
only that we believe that the Location and the Lease’s terms meet our then acceptable
criteria. We have the right to receive a final signed copy of



7









 







each Lease. You may not modify the Lease if any proposed modification would impact the
rights reserved by subparagraphs (a) through (f) above.




     If the Lease expires or is terminated without your fault, or if the Location’s site is
destroyed, condemned, or otherwise rendered unusable, we will allow you to relocate to a new
site in the Territory acceptable to us. Relocation will be at your sole expense, and we may
charge you our then current relocation fee plus our out-of-pocket expenses in connection
with any relocation.



     F. RIGHTS WE RESERVE.



     Except as provided in subparagraph (6) below, we (and any affiliates that we have from time to
time) may not during the Term establish and operate, or grant to others the right to establish and
operate, another KIDVILLE Facility the Hub Location for which is physically located within the
Territory. Except for this Hub Location restriction (but with the carve-out in subparagraph (6)
below), your rights under this Agreement are non-exclusive, and we (and any affiliates that we have
from time to time) retain the right during the Term to engage in any and all activities that we
(and they) desire, at any time or place, and whether or not these activities compete with your
FACILITY, including, without limitation, the right:




     (1) To establish and operate, and grant to others the right to establish and operate,
KIDVILLE Facilities the Hub Locations for which are located outside the Territory on any
terms and conditions we deem appropriate.




     (2) To establish and operate, and grant to others the right to establish and operate,
one or more Annex Locations that are located within or outside the Territory on any terms
and conditions we deem appropriate (and to require your Hub Location to provide services to
such Annex Locations located within the Territory on terms we specify), provided, however,
that (a) we will not establish and operate, or grant to others the right to establish and
operate, Annex Locations within the Territory for at least two (2) years following the date
by which your third (3rd) Annex Location must have opened for business, as provided in
Subsection 2.D. below, and (b) we will give you at least six (6) months’ prior written
notice of our intent to establish and operate, or grant to others the right to establish and
operate, the Annex Location in your Territory. However, if you fail to open your third
(3rd) Annex Location for business by the date specified in Subsection 2.D. below, there are
no timing or other restrictions whatsoever on (and no notice that we must give with respect
to) our right to establish and operate, or grant to others the right to establish and
operate, an Annex Location in your Territory. In addition, your failure to open your third
(3rd) Annex Location for business by the date specified in Subsection 2.D. below may give
rise to your obligation to pay the Assumed Royalty and Assumed Fund Contribution, as defined
in Subsections 3.B. and 9.B. below.




     (3) To license to any business that is not a KIDVILLE Facility, wherever that business
is located or operating (including within the Territory), the right to offer and sell to its
own customers any of the Services (including LITTLE MAESTROS Classes and other LITTLE
MAESTROS branded items), whether under the Marks or any other trademarks or service marks.



8









 






     (4) To offer and sell Products and other items identified by the Marks or any other
trademarks or service marks to any customers, wherever located or operating (including
within the Territory), and through any distribution channels (including, but not limited to,
the Internet, specialty and other retail stores branded exclusively or primarily under the
KIDVILLE® Mark that do not also provide Classes, specialty and other retail stores branded
exclusively or primarily under trademarks other than the KIDVILLE® Mark, and other points of
distribution), wherever located or operating (including within the Territory).




     (5) To create and conduct, and grant to others the right to create and conduct, plays,
stage shows, and musicals, and create, transmit, display, and broadcast television, radio,
Internet, and other productions, using (on a featured or non-featured basis) any of the
Intellectual Property and non-KIDVILLE brand intellectual property used in or licensed to
KIDVILLE Facilities (including LITTLE MAESTROS) and whether associated with the Marks or
other trademarks and commercial symbols.




     (6) To establish and operate, and grant to others the right to establish and operate,
KIDVILLE Facility Hub Locations at mass gathering locations within the Territory and
otherwise to provide, and grant to others the right to provide, Services at mass gathering
locations within the Territory. “Mass gathering” locations include casinos, hotels,
resorts, cruiseships, military bases, mass transportation facilities (like train stations
and airports), sports arenas and other sports facilities, and similar venues.




     (7) To engage in all other activities that this Agreement does not expressly prohibit.



     G. THE EXERCISE OF OUR JUDGMENT.



     We have the right to develop, operate, and change the Branded System and the Franchise System
in any manner not specifically prohibited by this Agreement. Whenever we have reserved in this
Agreement the right to take or to withhold an action, or to grant or decline to grant you the right
to take or omit an action, we may, except as otherwise specifically provided in this Agreement,
make our decision or exercise our rights based on information then available to us and our judgment
of what is best for us, KIDVILLE Facility franchisees generally, or the Franchise System at the
time our decision is made, regardless of whether we could have made other reasonable or even
arguably preferable alternative decisions or whether our decision promotes our financial or other
individual interest.



     H. MODIFICATION OF FRANCHISE SYSTEM.



     Because complete and detailed uniformity under many varying conditions might not be possible
or practical, you acknowledge that we specifically reserve the right and privilege, as we deem
best, to vary System Standards for, and to provide different levels of service to, any franchisee
based upon the peculiarities of any condition or factors that we consider important to that
franchisee’s successful operation. You have no right to require us to grant you a similar
variation or accommodation or to provide the same level of service.



9









 





2. DEVELOPMENT AND OPENING OF FACILITY LOCATIONS.




     A. FACILITY DEVELOPMENT.



     You are responsible for developing each Location for the FACILITY. We will give you mandatory
and suggested specifications and layouts for Locations, including requirements for dimensions,
design, image, interior layout, decor, fixtures, equipment, signs, furnishings, and color scheme.
These plans might not reflect the requirements of any federal, state, or local law, code, or
regulation, including those arising under the Americans with Disabilities Act (the “ADA”) or
similar rules governing public accommodations for persons with disabilities. You are responsible
for preparing a site survey and all required construction plans and specifications to suit the
Location and making sure that these plans and specifications comply with our requirements, the ADA
and similar rules, other applicable ordinances, building codes, permit requirements, and Lease
requirements and restrictions. You (and not we) are responsible for the performance of the
architects, contractors, and subcontractors you hire to develop and maintain each Location for the
FACILITY and for ensuring that sufficient insurance coverage is in place during the construction
process.



     You agree to send us construction plans and specifications for review before you begin
constructing each Location and all revised or “as built” plans and specifications during
construction. Our designated architect will review your architect’s proposed plans and
specifications to ensure they are acceptable. You must pay our architect for that review. Because
our review is limited to ensuring your compliance with our design and layout requirements, our
review might not assess compliance with federal, state, or local laws and regulations, including
the ADA. We may inspect each Location during the development process.



     You must do the following, at your own expense, to develop and commence operation of the
FACILITY at each Location:




     (1) secure all financing required to develop and operate the FACILITY;




     (2) obtain all required building, utility, sign, health, sanitation, business, and
other permits and licenses;




     (3) construct all required improvements to the Location and decorate the Location
according to approved plans and specifications;




     (4) obtain all customary contractors’ sworn statements and partial and final waivers of
lien for construction, remodeling, decorating, and installation services;




     (5) purchase or lease, and install, all required fixtures, furniture, furnishings,
signs, and equipment (including music systems, required computer, point-of-sale, and other
electronic information systems, and all equipment components and software necessary for you
to accept and process KIDVILLE® membership cards and participate in our other customer
loyalty, affinity, and similar programs) (collectively, “Operating Assets”); and



10









 






     (6) purchase an opening inventory of required, authorized, and approved Products from
us, our affiliates, or other designated sources and other products, materials, and supplies
from approved and designated sources.



     B. OPERATING ASSETS.



     You must use in operating the FACILITY only those Operating Assets that we designate or
approve for KIDVILLE Facilities as meeting our standards and specifications for quality, design,
appearance, function, and performance. You may not install or use any unauthorized Operating
Assets at a Location. You agree to place or display at each Location (interior and exterior) only
the signs, emblems, lettering, logos, and display materials that we approve from time to time. You
must purchase or lease approved brands, types, and models of Operating Assets only from suppliers
we designate or approve (which may include and/or be limited to us and/or our affiliates).



     C. COMPUTER SYSTEM.



     You agree to obtain and use the computer hardware and/or software we specify, including
required computer, point-of-sale, and other electronic information systems and all equipment
components and software (including KIDVILLE®  customer relationship manager software (“KIDVILLE
Software”)) necessary for you to process memberships and class registrations on-line, to accept and
process KIDVILLE® membership cards, and to participate in our other customer loyalty, affinity, and
similar programs (the “Computer System”). We may modify specifications for and components of the
Computer System. You also agree to use our designated e-mail system for all business related to
the Franchise. We have the right to monitor and review your e-mail communications. Our
modification of specifications for the Computer System, and/or other technological developments or
events, might require you to purchase, lease, and/or license new or modified computer hardware
and/or software and to obtain service and support for the Computer System. Although we cannot
estimate the future costs of the Computer System or required service or support, and although these
costs might not be fully amortizable over the Term, you agree to incur the costs of obtaining the
computer hardware and software comprising the Computer System (and additions and modifications) and
required service or support. Within sixty (60) days after we deliver notice to you, you must
obtain the Computer System components that we designate and to ensure that your Computer System, as
modified, is functioning properly. We have no obligation to reimburse you for any Computer System
costs. You may not use any unapproved computer software or security access codes. We have the
right to know all security access codes.



     You agree that we and our affiliates may condition any license of required or recommended
proprietary software to you, and/or your use of technology developed or maintained by or for us, on
your signing the software license agreement or similar document, or otherwise agreeing to the terms
(for example, by acknowledging your consent to and accepting the terms of a click-through or other
shrink-wrapped license agreement), we and our affiliates prescribe to regulate your use of, and our
and your respective rights and responsibilities with respect to, the software or technology. We
and our affiliates may charge you up-front and ongoing weekly or monthly fees for any required or
recommended proprietary software or technology that we and our affiliates license to you and for
other maintenance, support, and



11









 







access services provided during the Term, including access to and use of KIDVILLE Software, if
that is obtained directly from us or an affiliate rather than from designated or approved third
party vendors.



     Despite the fact that you must buy, use, and maintain the Computer System according to our
standards and specifications, you have sole and complete responsibility for: (1) the acquisition,
operation, maintenance, and upgrading of the Computer System; (2) the manner in which your Computer
System interfaces with our and any third party’s computer system; and (3) any and all consequences
if the Computer System is not properly operated, maintained, and upgraded. The Computer System
shall permit twenty-four (24) hours per day, seven (7) days per week electronic communications
between you and us, including access to the Internet and our then current Franchise System Website,
intranet or extranet.



     D. FACILITY/LOCATION OPENING.



     You agree not to begin operating the FACILITY at a Location (except for the approved pre-sale
activities specified in Subsection 2.E. below) until:




     (1) We notify you in writing that the Location meets our standards and specifications
(although our acceptance is not a representation or warranty, express or implied, that a
Location complies with any engineering, licensing, environmental, labor, health, building,
fire, sanitation, occupational, landlord’s, insurance, safety, tax, governmental, or other
statutes, rules, regulations, requirements, or recommendations nor a waiver of our right to
require continuing compliance with our requirements, standards, and policies);




     (2) required training (described in Subsection 4.A. below) is satisfactorily completed
by all attendees;




     (3) you pay the initial franchise fee and other amounts then due to us and key
suppliers;




     (4) you obtain all required licenses and permits and send us copies of the licenses and
permits we request; and




     (5) you give us certificates for all required insurance policies.


You agree to comply with these conditions and to begin operating (i) your Hub Location within two
hundred seventy (270) days after the Effective Date or on or before the date specified in any
Development Rights Rider to which you are a party, (ii) your first two (2) required Annex Locations
within two hundred seventy (270) days after the Effective Date, and (iii) your third required Annex
Location within three hundred sixty (360) days after the Effective Date. We may terminate this
Agreement if you fail to comply with the deadlines specified in subparagraphs (i) or (ii) above.
If you fail to comply with the deadline specified in subparagraph (iii) above, we have the rights
specified in Subsections 1.F.(2) above and 3.B. and 9.B. below.




     If you begin operating any Location (except for the approved pre-sale activities specified in
Subsection 2.E. below) before we notify you in writing that it meets our standards and



12









 







specifications (as required in subparagraph (1) above), you must pay us Five Thousand Dollars
($5,000) for each day the Location operates without our approval. In that event, we also may elect
to terminate this Agreement under Section 14.B.



     E. PRESALE OF CLASSES, MEMBERSHIPS, AND BIRTHDAY PARTIES.



     You may not begin offering and pre-selling (that is, before the FACILITY is ready to open for
business and begin conducting Classes) FACILITY memberships, Class registrations, and birthday
parties until we give you written approval. We may require you to sign and deliver to us a Request
for Presale form (which we prepare) in which you certify that you have, among other things,
obtained all necessary bonds and/or otherwise have complied, and will comply, with all applicable
laws relating to your presale activities. If you fail to complete and return the Request for
Presale form as required, you are not authorized to begin offering or pre-selling FACILITY
memberships, Class registrations, and birthday parties. You alone are responsible for ensuring
that your presale activities comply with all applicable laws. We may require you to deposit with
us, or that your customers pay directly to us, all revenue from your presale activities with
respect to each Location until we approve the Location for opening, as provided in
Subsection 2.D. above. After the particular Location begins operating Classes, we will immediately
remit all presale revenue for that Location to you, less our applicable Royalty and Fund
contributions, as provided in Subsections 3.B. and 9.B., respectively, of this Agreement. We will
not remit any Location’s presale revenue to you until after the Location begins operating Classes.
(In other words, we may control the revenue from a Location’s presale activities even if one or
more of the FACILITY’s other Locations already have begun operating Classes.)



3. FEES.




     A. INITIAL FRANCHISE FEE.



     You agree to pay us a one-time and, except as provided in Subsection 4.A.(1), nonrefundable
initial franchise fee equal to One Hundred Eighty Thousand Dollars ($180,000), which consists of
Seventy-Five Thousand Dollars ($75,000) for the Hub Location and Thirty-Five Thousand Dollars
($35,000) for each Annex Location you have agreed to develop within the Territory (a minimum of
three (3)). This initial franchise fee must be paid, and is fully earned by us, when you sign this
Agreement. The initial franchise fee is not in exchange for any particular products, services, or
assistance but instead is solely in consideration of our signing this Agreement. We will credit
toward the initial franchise fee any deposits you previously paid under a Development Rights Rider.



     B. ROYALTY FEE.



     You agree to pay us, on or before the fifth (5th) day of each calendar month, and in the
manner provided below, a Royalty Fee (the “Royalty”) equal to the following percentages of the
FACILITY’s Gross Sales (defined in Subsection C below) at the Hub Location and each Annex Location
during the preceding calendar month:



13









 





         (1) Hub Location.




          (a) Seven percent (7%) of the Hub Location’s Gross Sales on that portion of the
Hub Location’s Gross Sales during a calendar year that do not exceed Two Million
Dollars ($2,000,000);




          (b) Six and one-half percent (6.5%) of the Hub Location’s Gross Sales on that
portion of the Hub Location’s Gross Sales during a calendar year that exceed Two

Million Dollars ($2,000,000) but have not exceeded Four Million Dollars
($4,000,000); and




          (c) Six percent (6%) of the Hub Location’s Gross Sales on that portion of the
Hub Location’s Gross Sales during a calendar year that exceed Four Million Dollars
($4,000,000).



         (2) Annex Location.




          (a) Seven percent (7%) of each Annex Location’s Gross Sales on that portion of
the Annex Location’s Gross Sales during a calendar year that do not exceed Three
Hundred Fifty Thousand Dollars ($350,000);




          (b) Six and one-half percent (6.5%) of each Annex Location’s Gross Sales on
that portion of the Annex Location’s Gross Sales during a calendar year that exceed
Three Hundred Fifty Thousand Dollars ($350,000) but have not exceeded Seven Hundred
Thousand Dollars ($700,000); and




          (c) Six percent (6%) of each Annex Location’s Gross Sales on that portion of
the Annex Location’s Gross Sales during a calendar year that exceed Seven Hundred
Thousand Dollars ($700,000).


The Gross Sales thresholds specified above are not a representation or guarantee of any kind of the
volume, sales, income, or profits you might generate from operating the FACILITY. The thresholds
are simply the levels of Gross Sales at which we are willing to reduce the Royalty percentages due
under this Agreement. The Royalty is not in exchange for any particular products, service, or
assistance but instead is solely in consideration of our granting you the Franchise conferred by
this Agreement.




     If you fail to open for business your third (3rd) Annex Location within the Territory by the
date specified in Subsection 2.D. above or at all, you nevertheless must pay us a Royalty on the
Gross Sales that we assume you would have generated from that Annex Location had you opened and
operated that Annex Location in compliance with this Agreement (the “Assumed Royalty”). The
Assumed Royalty will be equal to the average Royalty that you pay us on account of the operations
of your other Annex Locations. The Assumed Royalty is due and payable at the same time and in the
same manner as the non-Assumed Royalty described in this Subsection 3.B. Your obligation to pay us
the Assumed Royalty shall continue unless and until you commence operating your third (3rd) Annex
Location within the Territory or we (or our affiliates) exercise our rights under Subsection
1.F.(2) above and commence operating, or other parties we approve commence operating, a third (3rd)
Annex Location within the Territory.



14









 




Your failure to pay the Assumed Royalty monthly is a breach of this Agreement for which we may
terminate this Agreement under Subsection 14.B.(14) below.




     C. DEFINITION OF “GROSS SALES”.



     As used in this Agreement, the term “Gross Sales” means all revenue that you derive from
selling Services and Products and otherwise operating the FACILITY, whether from cash, check,
credit and debit card, barter exchange, trade credit, or other credit transactions, including
revenue generated from presales, revenue from selling Services and Products to customers who use
gift, loyalty, and affinity cards for payment, and your proceeds from business interruption
insurance, but (1) excludes all federal, state, and municipal sales, use, or service taxes
collected from customers and paid to the appropriate taxing authority, and (2) is reduced by the
amount of any documented refunds and credits the FACILITY in good faith gives to customers (if
those amounts originally were included in calculating Gross Sales).



     D. LATE FEES AND INTEREST.



     You agree to pay us a late fee for each required payment not made on or before its original
due date and for each payment not honored by your financial institution. (You also must reimburse
our bank charges arising from your dishonored payments.) The late fee, which is equal to ten
percent (10%) of the overdue payment, is not interest or a penalty but compensates us for increased
administrative and management costs due to your late payment. In addition, all amounts that you
owe us that are more than seven (7) days late will bear interest, accruing as of their original due
date, at one and one-half percent (1.5%) per month or the highest commercial contract interest rate
the law allows, whichever is less. We may debit your EFTA (defined below) automatically for late
fees and interest. You acknowledge that this Subsection is not our agreement to accept any
payments after they are due or our commitment to extend credit to, or otherwise finance your
operation of, the FACILITY.



     E. APPLICATION OF PAYMENTS.



     Despite any designation you make, we may apply any of your payments to any of your past due
indebtedness to us and our affiliates. We may set off any amounts you or your owners owe us or our
affiliates against any amounts that we or our affiliates owe you or your owners. You may not
withhold payment of any amounts you owe us or our affiliates due to our alleged nonperformance of
any of our obligations under this Agreement.



     F. METHOD OF PAYMENT.



     Before your FACILITY commences operation, you agree to sign and deliver to us the documents we
require to authorize us to debit your business checking or other account automatically for the
Royalty, Fund contributions (defined in Subsection 9.B. below), and other amounts due under this
Agreement or in connection with your operation of the FACILITY, including amounts due for your
purchases of Products, other items, and services from us, our affiliates and/or unaffiliated
vendors (the “Electronic Funds Transfer Account” or “EFTA”). We will debit your EFTA for the
Royalty and Fund contributions on or before the fifth (5th) day of each calendar month on account
of the previous calendar month’s Gross Sales. We will debit



15









 







the EFTA for other amounts you owe us, our affiliates and/or unaffiliated vendors on the day
we specify. With respect to Product and other purchases, we may require you to submit payment
electronically (and to initiate the electronic payment process) before we prepare for
shipment and send you the items you have ordered. You agree to deposit funds into the EFTA to
cover our withdrawals and to report your Gross Sales as we require.



     If you fail to report the FACILITY’s Gross Sales, we may debit your EFTA for one hundred
twenty percent (120%) of the last Royalty and Fund contribution that we debited (together with the
late fee and interest noted in Subsection 3.D. above). If the amounts we debit from your EFTA are
less than the amounts you actually owe us (once we have determined the FACILITY’s actual Gross
Sales), we will debit your EFTA for the balance on the day we specify. If the amounts we debit
exceed the amounts you actually owe us, we will credit the excess against the amounts due during
the following calendar month.



     Despite the preceding language in this Subsection F, we reserve the right at any time during
the Term to debit your required Royalty and Fund contribution, on a transaction-by-transaction
basis, directly from customer payments for Classes and other Services to be provided by the
FACILITY where we or our designee administers the on-line registration process through KIDVILLE
Software, the Franchise System Website, or other Electronic Media and accepts and processes
customer payments.



     We may require you to pay any amounts due to us and our affiliates under this Agreement (or
otherwise) other than by automatic debit (e.g., by check or wire transfer) whenever we deem
appropriate, and you must comply with our payment instructions. While we may, as noted above,
debit the EFTA for amounts you owe unaffiliated vendors, we generally intend to do so only if you
fail to pay those vendors as and when required.



4. TRAINING AND ASSISTANCE.




     A. TRAINING.




     (1) Initial Training. If this is your first KIDVILLE Facility, an owner of
yours who actually has management control of the operation of your FACILITY must, before you
commence pre-sales, attend an initial orientation and training session for approximately two
(2) weeks at our principal business address or another designated location. (We refer to
this owner with management control who attends training as the “Trained Owner.”)




     Before your FACILITY commences operation, we will provide our training program (which
is scheduled to run for approximately four (4) weeks) for your Trained Owner (who also may
be your Operator) at no additional charge. (Training may be longer or shorter depending on
our opinion of the Trained Owner’s experience and needs.) This training, which focuses on
our philosophy, System Standards, and the material aspects of operating a KIDVILLE Facility,
will take place at a designated training facility of our choice (at our corporate
headquarters and/or at an operating KIDVILLE Facility). If your Trained Owner is not also
your Operator, your Operator must attend approximately two (2) weeks of training at no
additional charge at a



16









 







designated training facility of our choice (at our corporate headquarters and/or at an
operating KIDVILLE Facility). We also will provide up to four (4) days of training at no
additional charge for your Early Childhood Development Director and your Director of
Birthday Parties. Your Trained Owner, Operator, and directors must satisfactorily complete
their respective training regimen and pass applicable operations and proficiency tests. You
agree to pay all travel and living expenses, wages, and workers’ compensation insurance that
your Trained Owner, Operator, directors, and other employees incur during training. You
agree to replace your Operator (if he or she is not also your Trained Owner) and directors
if we believe they are not qualified or suitable to hold their positions and to pay our then
current fee to train their replacements. Our training program will include a “train the
trainer” module so that your senior-level personnel can learn how to train your other
employees.




     If we determine that your Trained Owner (whether or not he or she also is your
Operator) cannot satisfactorily complete initial training (and he or she, or a replacement,
cannot satisfactorily complete a repeat training program), we may terminate this Agreement.
Under those circumstances, we will keep one-half (1/2) of the initial franchise fee. We will
return the remaining portion of the initial franchise fee if you sign our required form of
release of claims.




     Your Trained Owner and Operator may request additional or repeat training at the end of
the initial training and orientation programs if they do not feel sufficiently trained in
the operation of a KIDVILLE Facility. We and you will jointly determine the duration of any
additional training, which is subject to the availability of our personnel. You must pay
our then current charges for this additional or repeat training. However, if your Trained
Owner and Operator satisfactorily complete our initial training and orientation programs,
and have not expressly informed us at the end of those programs that they do not feel
sufficiently trained in the operation of a KIDVILLE Facility, then your Trained Owner and
Operator will be deemed to have been trained sufficiently to operate a KIDVILLE Facility.




     If this is your first or second KIDVILLE Facility franchise, we will send one or more
of our representatives to your Hub Location at our cost for up to one (1) week to assist in
the initial stages of the FACILITY’s operation and to help train your employees on-site. We
will send our representative(s) to your Hub Location before you begin conducting Classes or
during your first semester (i.e., four months) of operation (at our option). We need not
send representatives to your Annex Locations (even if this is your first KIDVILLE Facility
franchise) or to a third or subsequent Hub Location you develop. If you request, and we
agree to provide, additional or special guidance, assistance, or training before you begin
conducting Classes or during the first semester, you agree to pay our then applicable
charges, including our personnel’s per diem charges (including wages) and travel, hotel, and
living expenses.




     Approximately ninety (90) days after the FACILITY commences operation, your Trained
Owner and Operator must attend three (3) days of advanced training at a designated training
facility of our choice (at our corporate headquarters and/or at an



17









 







operating KIDVILLE Facility). You must arrange for this advanced training before the
ninety (90) day period ends.




     All FACILITY personnel in customer contact positions must be able to speak, read,
write, and understand the English language fluently. We have the right to decide whether a
person has the required English fluency.




     (2) Ongoing Training. We may require your Trained Owner, Operator, and other
employees to attend and complete satisfactorily supplemental training courses that we
periodically choose to provide during the Term at the times and locations we designate. We
may charge reasonable registration or similar fees for these courses. Besides attending
these courses, at least one of your representatives (whom we approve) must attend an annual
convention of all KIDVILLE Facility franchisees at a location we designate. We may charge
you a convention fee of up to Two Thousand Five Hundred Dollars ($2,500) per person. You
also must pay all other costs to attend.




     If you choose to designate a new Operator or to hire new FACILITY directors during the
Term, each must satisfactorily complete, within the timeframe we specify, our then current
training program. Your trained personnel may provide this training if we previously have
certified them to do so. Otherwise, training must be completed at our designated training
facility. We may charge reasonable fees for this training. You must pay all travel and
living expenses incurred during all training courses and programs. You understand and agree
that any specific ongoing training or advice we provide does not create an obligation
(whether by course of dealing or otherwise) to continue providing that specific training or
advice, all of which we may discontinue and modify from time to time. We may decertify any
of your personnel who we reasonably believe do not satisfy our minimum qualifications for
the positions they hold, in which case you must hire replacement personnel and arrange for
their training.



     B. GENERAL GUIDANCE.



     We may advise you from time to time regarding the FACILITY’s operation based on your reports
or our evaluations and inspections and may guide you with respect to:




     (1) standards, specifications, and operating procedures and methods that KIDVILLE
Facilities use;




     (2) purchasing required and authorized Operating Assets, Products, and other items and
arranging for their distribution to you;




     (3) advertising and marketing materials and programs;




     (4) employee training; and




     (5) administrative, bookkeeping, accounting, and inventory control procedures.



18









 




We may guide you in our operations manual (“Operations Manual”); in bulletins or other written
materials; by Electronic Media, intranets, and extranets; by telephone consultation; and/or at our
office or the FACILITY. If you request, and we agree to provide, additional or special guidance,
assistance, or training during the Term, you agree to pay our then applicable charges, including
our personnel’s per diem charges (including wages) and travel, hotel, and living expenses.
“Electronic Media” means the Internet, the World Wide Web, or any other similar proprietary or
common carrier electronic delivery system as well as materials (such as CD ROMs and USB data
storage devices) that facilitate the electronic communication of information.




     C. OPERATIONS MANUAL.



     We will provide you single-user access during the Term to our on-line Operations Manual, which
may include audio, video, computer software, other Electronic Media, and/or written materials. The
Operations Manual contains our System Standards, information on your other obligations under this
Agreement, and various recommendations. We may modify the Operations Manual periodically to
reflect changes in System Standards. You agree to keep access codes to and other information for
the Operations Manual current and in a secure location. No one besides your Trained Owner and
Operator may know the access code(s) to the Operations Manual (unless we agree otherwise in
writing). We must know the identities of all people with access to the Operations Manual. If
there is a dispute over the Operation Manual’s contents, our master version controls. You agree
that the Operations Manual’s contents are confidential and that you will not disclose the
Operations Manual to any person other than FACILITY employees who need to know its contents to
perform their duties. You may not at any time copy, duplicate, record, or otherwise reproduce any
part of the Operations Manual (except as we allow for training and operating purposes). If we
choose to give you a printed copy of the Operations Manual (although we have no obligation to do so
because we currently intend to maintain only an on-line version of the Operations Manual), we may
charge you a reasonable fee if you lose the printed copy.



     You must monitor and access the website, intranet, or extranet for any updates to the
Operations Manual and System Standards. Any passwords or other digital identifications necessary
to access the Operations Manual on a website, intranet, or extranet will be deemed to be a part of
Confidential Information (defined in Section 6 below).



     D. DELEGATION OF PERFORMANCE.



     You agree that we have the right to delegate the performance of any portion or all of our
obligations under this Agreement to third-party designees, whether these designees are our
affiliates, agents, or independent contractors with whom we contract to perform these obligations.
If we do so, such third-party designees will be obligated to perform the delegated functions for
you in compliance with this Agreement, and we will be responsible if they fail to do so.



19









 





5. MARKS.




     A. OWNERSHIP AND GOODWILL OF MARKS.



     Kidville, NY, LLC has licensed the Marks to us to use in franchising, developing, and
operating KIDVILLE Facilities. Your right to use the Marks is derived only from this Agreement and
is limited to your operating the FACILITY in compliance with this Agreement and all System
Standards we prescribe during the Term. Your unauthorized use of the Marks is a breach of this
Agreement and infringes our and Kidville, NY, LLC’s rights in the Marks. You acknowledge and agree
that your use of the Marks and any goodwill established by that use are exclusively for our and
Kidville, NY, LLC’s benefit and that this Agreement does not confer any goodwill or other interests
in the Marks upon you (other than the right to operate the FACILITY in compliance with this
Agreement). All provisions of this Agreement relating to the Marks apply to any additional
proprietary trade and service marks we authorize you to use. You may not at any time during or
after the Term contest or assist any other person in contesting the validity, or our and Kidville,
NY, LLC’s ownership, of the Marks.



     B. LIMITATIONS ON YOUR USE OF MARKS.



     You agree to use the Marks as the FACILITY’s sole identification, except that you must
identify yourself as its independent owner and operator at all Locations in the manner we
prescribe. You may not use any Mark (1) as part of any corporate or legal business name, (2) with
any prefix, suffix, or other modifying words, terms, designs, or symbols (other than logos we
license to you), (3) in offering or selling any unauthorized services or products, (4) as part of
any domain name, homepage, electronic address, or otherwise in connection with Electronic Media
(except as provided in Subsection 9.E. of this Agreement), or (5) in any other manner we have not
expressly authorized in writing. If we discover your unauthorized use of the Marks, we may require
you to destroy all offending items reflecting the unauthorized use (with no reimbursement from us).



     You may not use any Mark in advertising the transfer, sale, or other disposition of the
FACILITY or an ownership interest in you without our prior written consent, which we will not
unreasonably withhold. You agree to display the Marks prominently as we prescribe at the Locations
and on apparel, forms, advertising and marketing, supplies, and other materials we designate. You
agree to give the notices of trade and service mark registrations that we specify and to obtain any
fictitious or assumed name registrations required under applicable law.



     C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.



     You agree to notify us immediately of any apparent infringement or challenge to your use of
any Mark, or of any person’s claim of any rights in any Mark or any confusingly similar trademark,
and not to communicate with any person other than us, Kidville, NY, LLC, and our attorneys, and
your attorneys, regarding any infringement, challenge, or claim. We and Kidville, NY, LLC may take
the action we deem appropriate (including no action) and control exclusively any litigation, U.S.
Patent and Trademark Office proceeding, or other administrative proceeding arising from any
infringement, challenge, or claim or otherwise concerning any Mark. You agree to sign any
documents and take any other reasonable action that, in the opinion of our and



20









 







Kidville, NY, LLC’s attorneys, are necessary or advisable to protect and maintain our and
Kidville, NY, LLC’s interests in any litigation or Patent and Trademark Office or other proceeding
or otherwise to protect and maintain our and Kidville, NY, LLC’s interests in the Marks. We or
Kidville, NY, LLC will reimburse your costs for taking any requested action.



     D. DISCONTINUANCE OF USE OF MARKS.



     If it becomes advisable at any time in our opinion for us and/or you to modify, discontinue
using, and/or replace any Mark and/or to use one or more additional, substitute, or replacement
trade or service marks together with or instead of any previously designated Mark, you agree to
comply with our directions within a reasonable time after we deliver notice to you. We and
Kidville, NY, LLC need not reimburse your direct expenses for changing a Location’s signs, for your
lost revenue due to any modified or discontinued Mark, or for your expenses in promoting a modified
or substitute trademark or service mark.



     Our rights in this Subsection D apply to any and all of the Marks (and any portion of any
Mark) that this Agreement authorizes you to use. We may exercise these rights at any time and for
any reason, business or otherwise, we think best. You acknowledge both our right to take this
action and your obligation to comply with our directions.



     E. INDEMNIFICATION FOR USE OF MARKS.



     We agree to reimburse you for all damages, claims, and expenses that you incur or for which
you are liable in any proceeding challenging your right to use any Mark or other Intellectual
Property under this Agreement, provided your use has been consistent with this Agreement, the
Operations Manual, and System Standards communicated to you and you have timely notified us of, and
comply with our directions in responding to, the proceeding. At our option, we and/or Kidville,
NY, LLC may defend and control the defense of any proceeding arising from your use of any Mark or
other Intellectual Property under this Agreement.



6. CONFIDENTIAL INFORMATION.




     We and Kidville, NY, LLC possess (and will continue to develop and acquire) certain
confidential information, some of which constitutes trade secrets under applicable law (the
“Confidential Information”), relating to developing and operating KIDVILLE Facilities, including
(without limitation):




     (1) site selection criteria for hub and annex locations;




     (2) curriculum and copyrighted Intellectual Property for Classes and other Services;




     (3) training and operations materials and manuals;




     (4) methods, formats, specifications, standards, systems, procedures, sales and
marketing techniques, knowledge, and experience used in developing and operating KIDVILLE
Facilities;



21









 






     (5) marketing and advertising programs and materials for KIDVILLE Facilities;




     (6) knowledge of specifications for and suppliers of Operating Assets, Products, and
other items;




     (7) any on-line reservation and processing systems and other computer software or
similar technology that is proprietary to us, our affiliates, or the Franchise System,
including, without limitation, digital passwords and identifications and any source code of,
and data, reports, and other printed materials generated by, the software or similar
technology;




     (8) knowledge of the operating results and financial performance of KIDVILLE Facilities
other than the FACILITY;




     (9) customer communication and retention programs and data used or generated in
connection with those programs;




     (10) the identification and listing of customers of KIDVILLE Facilities, which
information we are deemed to own; and




     (11) graphic designs and related intellectual property.



     You acknowledge and agree that you will not acquire any interest in Confidential Information,
other than the right to use it as we specify while operating the FACILITY during the Term, and that
Confidential Information is proprietary, includes our and Kidville, NY, LLC’s (and, if applicable,
our other affiliates’) trade secrets, and is disclosed to you only on the condition that you agree,
and you hereby do agree, that you:




     (a) will not use Confidential Information in any other business or capacity;




     (b) will keep confidential each item deemed to be a part of Confidential
Information, both during and after the Term (afterward for as long as the item is
not generally known in the early childhood development and children’s
media/entertainment industries);




     (c) will not make unauthorized copies of any Confidential Information disclosed
via Electronic Media or in written or other tangible form;




     (d) will adopt and implement reasonable procedures to prevent unauthorized use
or disclosure of Confidential Information, including, without limitation,
restricting its disclosure to FACILITY personnel and others and using non-disclosure
and non-competition agreements with those having access to Confidential Information.
We have the right to regulate the forms of agreements that you use and to be a
third party beneficiary of those agreements with independent enforcement rights.
You must keep copies of those agreements and send them to us upon request; and



22









 






     (e) will not sell, trade, or otherwise profit in any way from the Confidential
Information, including customer/membership lists, except as authorized by this
Agreement.



     Confidential Information does not include information, knowledge, or know-how that you can
demonstrate lawfully came to your attention before we provided it to you directly or indirectly;
that, at the time we disclosed it to you, already had lawfully become generally known in the early
childhood development and children’s media/entertainment industries through publication or
communication by others (without violating an obligation to us or Kidville, NY, LLC); that, after
we disclose it to you, lawfully becomes generally known in the early childhood development and
children’s media/entertainment industries through publication or communication by others (without
violating an obligation to us or Kidville, NY, LLC); or that you independently develop without
access to or reliance on our Confidential Information. However, if we include any matter in
Confidential Information, anyone who claims that it is not Confidential Information must prove that
one of the exclusions provided in this paragraph is satisfied.



     All ideas, concepts, techniques, or materials relating to a KIDVILLE Facility, whether or not
protectable intellectual property and whether created by or for you or your owners or employees,
must be promptly disclosed to us and will be deemed to be our and Kidville, NY, LLC’s sole and
exclusive property, part of the Franchise System, and works made-for-hire for us and Kidville, NY,
LLC. To the extent any item does not qualify as a “work made-for-hire” for us and Kidville, NY,
LLC, by this paragraph you assign ownership of that item, and all related rights to that item, to
us and Kidville, NY, LLC and agree to take whatever action (including signing assignment or other
documents) we request to evidence our and Kidville, NY, LLC’s ownership or to help us and Kidville,
NY, LLC obtain intellectual property rights in the item.



7. EXCLUSIVE RELATIONSHIP.




     You acknowledge that we have granted you the Franchise in consideration of and reliance upon
your agreement to deal exclusively with us in the early childhood development and children’s
media/entertainment industries. You therefore agree that, during the Term, neither you, any of
your direct or indirect owners, nor any of such owners’ spouses will:




     (a) have any direct or indirect controlling interest as an owner — whether of record,
beneficially, or otherwise — in a Competitive Business, wherever located or operating;




     (b) have any direct or indirect non-controlling interest as an owner — whether of
record, beneficially, or otherwise — in a Competitive Business, wherever located or
operating (except that less than a two percent (2%) equity ownership interest in a
Competitive Business whose stock or other forms of ownership interest are publicly traded on
a recognized United States stock exchange will not violate this subparagraph);




     (c) perform services as a director, officer, manager, employee, consultant,
representative, or agent for a Competitive Business, wherever located or operating;



23









 






     (d) recruit or hire any person then employed, or who was employed within the
immediately preceding six (6) months, as a director or manager-level employee by us, any of
our affiliates, or another KIDVILLE Facility without obtaining the existing or former
employer’s prior written permission. If one of our affiliates or franchisees is the
affected employer under this subparagraph due to your actions, that affiliate or franchisee
will be a third party beneficiary of and may independently enforce this provision. You
agree to restrict your own employees, as a condition of their employment with you, from
working for another KIDVILLE Facility for at least six (6) months after they leave your
employment and to advise them that we contractually prohibit other KIDVILLE Facilities from
hiring them for at least six (6) months after they leave your employment (regardless of the
reason for their departure). If you engage in these prohibited activities, we also may
elect to terminate this Agreement under Section 14.B.;




     (e) divert or attempt to divert any actual or potential business or customer of the
FACILITY to a Competitive Business; or




     (f) engage in any other activity that might injure the goodwill of the Marks and
Franchise System.


The term “Competitive Business” means (i) any business providing day-care, developmental classes,
birthday parties, or creative activities and services for young children; (ii) any business
producing music, television programming, motion pictures, merchandising, gaming, or other audio or
audiovisual works in the entertainment and/or merchandising industries directly marketed to a baby
and/or children audience; or (iii) any business granting franchises or licenses to others to
operate the type of business specified in subparagraphs (i) or (ii) (other than a KIDVILLE Facility
operated under a franchise agreement with us).




     You agree to obtain similar covenants from the personnel we specify, including officers,
directors, and other employees attending our training program or having access to Confidential
Information. We have the right to regulate the forms of agreements that you use and to be a third
party beneficiary of those agreements with independent enforcement rights. You must keep copies of
those agreements and send them to us upon request. In order to give effect to your obligations in
this Section 7, you acknowledge and agree that neither you, any of your direct or indirect owners,
nor any of such owners’ spouses will seek to violate this Section 7 directly or through any other
person (as defined in Subsection 17.K.) with whom you or any of the other restricted parties are
acting in concert or participating in connection with the prohibited activities and that we may
enforce the restrictions in this Section 7 by taking action against you, the other restricted
parties, and all other persons with whom you are acting in concert or participating in connection
with the prohibited activities.



8. SYSTEM STANDARDS.




     A. COMPLIANCE WITH SYSTEM STANDARDS.



     You acknowledge and agree that operating and maintaining the FACILITY in compliance with
System Standards are essential to preserve the goodwill of the Marks and all KIDVILLE Facilities.
Therefore, you agree at all times to operate and maintain the FACILITY



24









 







in compliance with all System Standards, as we periodically issue, modify, and supplement
them, even if you believe that a System Standard, as originally issued or subsequently modified, is
not in the Franchise System’s or the FACILITY’s best interests. Although we retain the right to
establish and periodically modify System Standards that you have agreed to maintain, you retain the
right to control, and responsibility for, the FACILITY’s day-to-day management and operation and
implementing and maintaining System Standards at the FACILITY.



     System Standards may regulate any one or more of the following:




     (1) design, layout, decor, appearance, and lighting of the Locations; periodic
maintenance, cleaning, and sanitation; periodic remodeling, painting, and decorating;
replacing obsolete or worn-out leasehold improvements and Operating Assets; and using
interior and exterior signs, emblems, lettering, and logos.




     (If at any time the appearance or condition of any Location or the Operating Assets
does not meet our standards, we will notify you and identify the action that you must take
to correct the deficiency. If you fail to correct the deficiency within thirty (30) days
after we deliver notice, we may enter the Location and take the required action for you, in
which case you must immediately reimburse all of our costs.);




     (2) types, models, and brands of required Operating Assets, Products, and other items
and minimum standards and specifications that you must satisfy;




     (3) required and/or authorized Services and Products and unauthorized and prohibited
services and products. We always have the right to approve or disapprove in advance all
Services and Products offered, provided, and sold by the FACILITY and may add various
Classes to and/or remove various Classes from the scope of authorized Services. We may
withdraw our approval of previously authorized Services and Products;




     (4) designated and approved suppliers of Operating Assets, source material for certain
Classes, Products, and other items and services. In the case of Products bearing the Marks,
source material for certain Classes, certain marketing and public relations services, and
KIDVILLE Software, suppliers will be limited to us, our affiliates, and/or other specified
exclusive sources, and you must acquire such Products, source material, marketing and public
relations services, and KIDVILLE Software during the Term only from us, our affiliates,
and/or the other specified exclusive sources at the prices that we or they decide to charge.
(We restrict your sources of these items and services in order to protect trade secrets and
other intellectual property rights, assure quality, assure a reliable supply of Products
that meet our standards, achieve better terms of purchase and delivery service, control
usage of the Marks by third parties, and monitor the manufacture, packaging, processing, and
sale of such items.)




     In the case of Operating Assets, services other than certain marketing and public
relations services, and items other than KIDVILLE® branded Products, KIDVILLE Software, and
source material for certain Classes, suppliers may at our option be limited to us, our
affiliates, and/or other specified exclusive sources, in which case you must (at



25









 







our direction) acquire such Operating Assets, other items, and services (including
KIDVILLE® membership card services, loyalty and affinity program services, “mystery” and
“secret” shopper services, and consumer satisfaction survey processes) during the Term only
from us, our affiliates, and/or the other specified exclusive sources at the prices that we
or they decide to charge. We have the absolute right to limit the suppliers with whom you
may deal;




     (5) supply and supplier approval procedures and criteria for items and services that
you need to operate your FACILITY but that we allow you to obtain from sources other than
us, our affiliates, and/or other specified exclusive sources. If you want to buy for use in
operating the FACILITY any product brand, supply, or service that we have not yet approved
as meeting our minimum specifications and standards, or to purchase any item or service from
a supplier that we have not yet approved or designated, you first must notify us and, at our
request, submit samples and any other information we require to determine whether the item,
service, or supplier meets our standards and specifications. We may charge you or the
supplier a reasonable fee for the inspection and evaluation. We need not approve your
request and do not intend to do so if we already have designated specific items, services,
and/or suppliers or otherwise have imposed restrictions on the supply system. We also have
the right to re-inspect any supplier’s products, services, and facilities and to revoke our
approval of any item, service, or supplier;




     (6) terms and conditions of the sale and delivery of, and terms and methods of payment
for, Products and other items and services that you obtain from us and affiliated and
unaffiliated suppliers. This includes our and our affiliates’ right to establish an
electronic product ordering system and to require your payment via electronic means before
we prepare for shipment and send you Products and other items you have ordered. We and our
affiliates have the right not to sell you any Products or other items and not to provide you
with services, or to do so (if we have not established or are not then operating an advanced
electronic payment system) only on a “cash-on-delivery” or other basis, if you are in
default under any agreement with us or our affiliates (and have been notified of that
default in writing but have failed to cure that default within the required timeframe, if
applicable). You may not use any unapproved products as replacements;




     (7) our and our affiliates’ right (without liability) to consult with your suppliers
about the status of your account with them and to advise those suppliers and others with
whom you, we, our affiliates, and other franchisees deal that you are in default under any
agreement with us or our affiliates (but only if we have notified you of that default in
writing and you have failed to cure that default within the required timeframe, if
applicable);




     (8) our and our affiliates’ right to receive payments from suppliers on account of
their actual or prospective dealings with us, you, and other franchisees and to use all
amounts we and our affiliates receive without restriction for any purposes we and our
affiliates deem appropriate (unless we and our affiliates agree otherwise with the
supplier);



26









 






     (9) your obligation to advise us of (and update) the sales tax rates in your Territory
so that we (or a designated vendor) can ensure that the proper sales tax is added to the
price for Services paid by customers through the KIDVILLE Software, the Franchise System
Website, or other Electronic Media, and your obligation to pay sales taxes directly, or to
reimburse us for sales taxes and penalties that we (or the designated vendor) may choose or
be obligated to pay, if you fail to advise us of the proper rates;




     (10) the FACILITY’s use of photo-identification membership check-in and other
security-related systems to maximize the protection of families using the FACILITY;




     (11) sales, marketing, advertising, and promotional programs and materials and media
used in these programs. You must participate in, and comply with the requirements of, any
special promotional programs we implement;




     (12) use and display of the Marks at the Locations and on apparel, forms, and other
materials;




     (13) honoring KIDVILLE® membership, loyalty, and affinity cards that we or our
designee(s) issue and administering loyalty, affinity, and similar programs. You must
participate in, and comply with the requirements of, our membership, loyalty, affinity, and
similar programs (including our issuing and honoring procedures and giving us all
customer-specific information that you receive or generate from operating the FACILITY,
which customer-specific information we will be deemed to own);




     (14) staffing levels for the FACILITY and at each Location, including personnel
responsible for inspecting all Locations to ensure that they operate in compliance with
System Standards; identifying the FACILITY’s personnel; and employee qualifications,
training, dress, and appearance (although you have sole responsibility and authority for,
among other things, employee selection and promotion, hours worked, rates of pay and other
benefits, work assigned, and working conditions);




     (15) days and hours of operation (including your obligation to operate the FACILITY
every day of the week except as we otherwise allow);




     (16) use of proprietary software and the Franchise System Website, intranets, and
extranets;




     (17) participation at your own expense in our market research and testing and product
and service development programs;




     (18) complying with our customer complaint resolution procedures, refund policies, and
commitment to a 100% customer satisfaction policy and reimbursing us promptly if we choose
to resolve a customer complaint because you fail to do so as or when we require;



27









 






     (19) participating as we require (including by paying any required dues and expenses)
in any franchisee advisory or other councils we establish for the Franchise System;




     (20) accepting credit and debit cards, other payment systems, and check verification
services;




     (21) paying public performance rights fees, publishing royalties, and ASCAP and similar
license fees, in the manner and to the parties we designate (including us, our affiliates,
and unaffiliated third parties), for copyrighted music or other intellectual property used
in Classes or otherwise while operating the FACILITY;




     (22) bookkeeping, accounting, data processing, and recordkeeping systems and forms;
formats, content, and frequency of reports to us of sales, revenue, financial performance,
and condition; and giving us copies of tax returns and other operating and financial
information for the FACILITY;




     (23) types, amounts, terms, and conditions of insurance coverage required for the
FACILITY; our and our affiliates’ protection and rights under insurance policies as
additional named insureds; required and impermissible insurance contract provisions;
assignment of policy rights to us; periodic verification of insurance coverage; our right to
obtain insurance coverage for the FACILITY at your expense if you fail to do so; our right
to defend claims; and similar matters relating to insured and uninsured claims;




     (24) to the extent allowed by applicable law, the prices for Products and Services sold
by the FACILITY, including your required participation in Franchise System-wide discount
programs;




     (25) complying with applicable laws, including those regulating presales and relating
to the obligation of parents/caregivers to remain at the FACILITY while their children are
attending Classes; obtaining required licenses, permits, and certifications; adhering to
good business practices; observing high standards of honesty, integrity, fair dealing, and
ethical business conduct in all dealings with customers, government officials, suppliers,
and us; and notifying us if any action, suit, or proceeding is commenced against you or the
FACILITY or if you receive any report, citation, or notice regarding the FACILITY’s failure
to comply with any licensing, health, cleanliness, or safety standard; and




     (26) any other aspects of operating and maintaining the FACILITY that we determine to
be useful to preserve or enhance the efficient operation, image, or goodwill of the Marks
and KIDVILLE Facilities.



     You agree that System Standards we prescribe in the Operations Manual, or otherwise
communicate to you in writing or another tangible form (for example, via Franchise System Website,
intranet, or extranet), are part of this Agreement as if fully set forth within its text. All
references to this Agreement include all System Standards as periodically modified.



28









 





     B. MODIFICATION OF SYSTEM STANDARDS.



     We periodically may modify System Standards, which may accommodate regional or local
variations, and these modifications may obligate you to invest additional capital in the FACILITY
and/or incur higher operating costs. You agree to implement any changes in System Standards within
the time period we request, whether they involve refurbishing or remodeling the Locations or any
other aspect of the FACILITY, buying new Operating Assets, adding new Services and Products, or
otherwise modifying the nature of your operations, as if they were part of this Agreement as of the
Effective Date. However, (1) except for changes in the Computer System, signage, and logo (the
amounts for which are not limited), (2) except for expenditures required by your Leases or
applicable law, and (3) except with respect to capital modifications in connection with your
acquisition of a successor franchise (as provided in Subsection 13.A.(1) below), we will not
obligate you to make any capital modifications more than two (2) times during the Term and you will
have up to six (6) months to make capital modifications that cost over Fifty Thousand Dollars
($50,000).



9. MARKETING.




     A. MARKET INTRODUCTION.



     You must conduct a market introduction program for each Location in compliance with our
guidelines beginning one (1) month before and continuing until four (4) months after each Location
commences operation. You must spend Thirty-Five Thousand Dollars ($35,000) to promote the Hub
Location and Two Thousand Five Hundred Dollars ($2,500) to promote each Annex Location. We will
help you develop the market introduction program for each Location.



     B. BRAND FUND.



     Recognizing the value of advertising and marketing to the goodwill and public image of
KIDVILLE Facilities, we have established a brand fund (the “Fund”) for the advertising, marketing,
customer relationship management (“CRM”), and public relations programs and materials and brand
building and protection activities we deem appropriate to protect and enhance the KIDVILLE® brand.
You agree to contribute to the Fund the monthly amounts that we prescribe from time to time,
payable at the same time and in the same manner as the Royalty. KIDVILLE Facilities that we and
our affiliates own and operate will contribute to the Fund on the same percentage basis as
franchisees with respect to the same Services and Products as those on which franchisees base their
Fund contributions. (In other words, we and our affiliates have no obligation to make Fund
contributions on revenue generated from our other business activities, including, but not limited
to, television and other productions and music licensing.) Your Fund contributions will be as
follows as of the Effective Date:




     (1) Up to three and one-half percent (3.5%) of the Hub Location’s Gross Sales during
the preceding calendar month; and




     (2) Up to three percent (3%) of each Annex Location’s Gross Sales during the preceding
calendar month.



29









 




However, we may increase your Fund contribution if a simple majority (i.e., in excess of 50%) of
the combination of all KIDVILLE Facility franchisees and we and our affiliates vote to increase the
contribution above the levels specified in subparagraphs (1) and (2) above. Each franchisee, and
we and our affiliates, will have one vote for each hub location operated.




     We will direct all activities that the Fund finances, with sole control over the creative
concepts, graphics, materials, communication media, and endorsements used and their geographic,
market, and media placement and allocation. The Fund may pay for preparing and producing video,
audio, and written materials and Electronic Media, including designing and developing Program
Guides (which we may print and mail at your cost); developing, implementing, operating, and
maintaining a Franchise System Website, intranet, extranet and/or related strategies; administering
national, regional, multi-regional, and local marketing and advertising programs, including,
without limitation, purchasing media advertising, conducting direct mail and other direct marketing
campaigns, doing on-line Internet advertising and marketing, conducting research and other
marketing tactics as appropriate, and using advertising, promotion, CRM, marketing, and research
agencies and other advisors to provide assistance; supporting public relations, market research,
customer satisfaction surveys, and other advertising, promotion, CRM, marketing, and research
activities, including hiring affiliated public relations and other agencies to provide all public
relations and similar services for the Franchise System and your FACILITY; paying dues for
membership and participation in franchising and industry associations; paying celebrities and other
public figures for endorsing and supporting KIDVILLE Facilities; hiring vendors of “mystery shop”
services; paying third party vendors to customize advertising, promotion, CRM, and marketing
materials for local use by franchisees; and engaging in other brand and design enhancement
activities. The Fund periodically will give you samples of advertising, marketing, CRM, and
promotional formats and materials at no cost. We or the Fund will sell you multiple copies of
these materials at the direct cost of producing them, plus any related shipping, handling, and
storage charges.



     We will account for the Fund separately from our other monies and not use the Fund for any of
our general operating expenses. However, we may use the Fund to pay the reasonable salaries and
benefits of personnel who manage and administer the Fund; the Fund’s other administrative costs;
travel expenses of personnel while they are on Fund business; meeting costs; overhead relating to
Fund business; and other expenses that we incur in activities reasonably related to administering
and directing the Fund and its programs, including, without limitation, conducting market research,
public relations, preparing advertising, promotion, CRM, and marketing materials, and collecting
and accounting for Fund contributions.



     The Fund will not be our asset. Although the Fund is not a trust, we will hold all Fund
contributions for the benefit of the contributors and use contributions for the purposes described
in this Subsection. We do not owe any fiduciary obligation to you for administering the Fund or
any other reason. The Fund may spend in any fiscal year more or less than the total Fund
contributions in that year, borrow from us or others (paying reasonable interest) to cover
deficits, or invest any surplus for future use. We will use all interest earned on Fund
contributions to pay costs before using the Fund’s other assets.



     We will prepare an annual, unaudited statement of Fund collections and expenses and give you a
copy of the statement upon written request. We may have the Fund audited annually,



30









 







at the Fund’s expense, by an independent certified public accountant we select. We may
incorporate the Fund or operate it through a separate entity whenever we deem appropriate. The
successor entity will have all of the rights and duties specified in this Subsection.



     We intend the Fund to maximize recognition of the Marks, enhance system protection of the
Marks, and increase patronage of KIDVILLE Facilities. Although we will try to use the Fund to
develop advertising, CRM, and marketing materials and programs, and to execute advertising, CRM,
marketing, and research activities, that will benefit all KIDVILLE Facilities, we need not ensure
that Fund expenditures in or affecting any geographic area are proportionate or equivalent to Fund
contributions by KIDVILLE Facilities operating in that geographic area or that any KIDVILLE
Facility benefits directly or in proportion to its Fund contributions from the development of
advertising, CRM, and marketing materials or the execution of advertising, CRM, marketing, and
research activities. The Fund will not be used principally to develop materials and programs to
solicit franchisees. However, media, materials, and programs, including the Franchise System
Website, prepared using Fund contributions may describe our franchise program, reference the
availability of franchises and related information, and process franchise leads.



     We have the right, but no obligation, to use collection agents and institute legal proceedings
at the Fund’s expense to collect Fund contributions. We also may forgive, waive, settle, and
compromise all claims by or against the Fund. Except as expressly provided in this Subsection, we
assume no direct or indirect liability or obligation to you for collecting amounts due to,
maintaining, directing, or administering the Fund.



     We may at any time defer or reduce contributions of a KIDVILLE Facility franchisee and, upon
thirty (30) days’ prior written notice to you, reduce or suspend Fund contributions and operations
for one or more periods of any length and terminate (and, if terminated, reinstate) the Fund. If
we terminate the Fund, we will at our option expend all remaining Fund monies on permitted
activities or distribute all unspent monies to our franchisees, and to us and our affiliates, in
proportion to their, and our, respective Fund contributions during the preceding twelve (12) month
period.



     If you fail to open for business your third (3rd) Annex Location within the Territory by the
date specified in Subsection 2.D. above or at all, you nevertheless must pay us a Fund contribution
on the Gross Sales that we assume you would have generated from that Annex Location had you opened
and operated that Annex Location in compliance with this Agreement (the “Assumed Fund
Contribution”). The Assumed Fund Contribution will be equal to the average Fund contribution that
you pay us on account of the operations of your other Annex Locations. The Assumed Fund
Contribution is due and payable at the same time and in the same manner as the non-Assumed Fund
Contribution described in this Subsection 9.B. Your obligation to pay us the Assumed Fund
Contribution shall continue unless and until you commence operating your third (3rd) Annex Location
within the Territory or we (or our affiliates) exercise our rights under Subsection 1.F.(2) above
and commence operating, or other parties we approve commence operating, a third (3rd) Annex
Location within the Territory. Your failure to pay the Assumed Fund Contribution monthly is a
breach of this Agreement for which we may terminate this Agreement under Subsection 14.B.(14)
below.



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     C. YOUR LOCAL MARKETING.



     In addition to your Fund contribution obligation under Subsection 9.B. above, you must spend
each year during the Term, in the manner we approve, at least two percent (2%) of the Hub
Location’s Gross Sales, and at least two and one-half percent (2.5%) of each Annex Location’s Gross
Sales, during the previous year to market and promote your FACILITY locally. You agree to consult
with us each year, as often as we deem reasonably necessary, to devise and implement a local
marketing plan for your FACILITY for that year and subsequent years of the Term. (We and you will
devise and implement a separate local marketing plan for your FACILITY’s first year of operation
because there will not yet have been any Gross Sales.) At our request, you must send us, in the
manner we prescribe (including with receipts), an accounting of your expenditures for advertising,
marketing, and promotion for the period we specify. We may require you to purchase from us, our
affiliates and/or unaffiliated vendors advertising, marketing, and CRM materials, catalogs,
brochures, and flyers. We may require you to access third party websites for such approved
materials and to customize those materials for the FACILITY. During the Term, we may designate
which expenditures will, or will not, count toward your required advertising expenditures under
this Subsection 9.C. For example, your costs of purchasing and mailing (through our designated
mailing house) KIDVILLE® Program Guides to circulate within and outside the Territory, and your
costs of acquiring mailing lists (which we may require you to obtain from or through us) are
excluded from the minimum percentages specified above.



     Your local advertising, marketing, and promotion must follow our guidelines. All advertising,
marketing and promotional materials that you develop for your FACILITY must contain notices of the
Franchise System Website’s domain name in the manner we designate. Except as described below in
connection with the Franchise System Website, you may not develop, maintain, provide mutual links
to, or authorize any website that mentions or describes you or the FACILITY or displays any of the
Marks. You agree that your advertising, promotion, CRM, research, and marketing will be completely
clear, factual, and not misleading and conform to both the highest standards of ethical advertising
and marketing and the advertising and marketing policies that we prescribe from time to time.



     Before you use them, you must send us or our designated agency for approval samples of all
advertising, promotional, and marketing materials, and copies of all mailing lists, that we have
not prepared or approved within the previous one (1) year period or, in the case of mailing lists,
have not acquired for you. If you do not receive written approval within ten (10) days after we or
our designated agency receives the materials and mailing lists, they are deemed to be disapproved.
You may not use any advertising, promotional, CRM, research, or marketing materials, or mailing
lists, that we have not approved or have disapproved and must cease using any materials that we
previously approved within thirty (30) days after our delivery of notice that those materials no
longer may be used. We have the right to control all of your public relations activities.



     We have the right to audit any local marketing and advertising you conduct for the FACILITY to
confirm your compliance with this Subsection. If you fail to comply with these obligations, we may
require you to pay the required percentage of the FACILITY’s Gross Sales



32









 







to us. We may determine how best to spend that amount, including, but not limited to,
depositing it into the Fund.



     D. AREA BRAND COOPERATIVE.



     If your Territory is part of a larger geographic area encompassing other franchised
territories (and/or KIDVILLE Facilities owned by us and our affiliates) and we believe that
collaborative brand building activities among all franchisees (and us and our affiliates) in that
area would be appropriate to promote KIDVILLE Facilities, you agree at our request and with our
advice and reasonable assistance to form a cooperative or collaborative brand building association
(an “Area Cooperative”) with other franchisees and us and/or our affiliates for the purpose of
collectively advertising, marketing, and promoting KIDVILLE Facilities in that geographic area.
Each Area Cooperative will be organized and governed in a form and manner that we determine,
operate pursuant to the agreements, bylaws, and other documents that we may prepare, and begin
operating on a date that we specify. The Area Cooperative’s members will include all KIDVILLE
Facilities operating in that area. If an Area Cooperative has been established as of this
Agreement’s Effective Date for the geographic area in which the Territory is encompassed, you
automatically will become a member of that Area Cooperative when you sign this Agreement (although
the contributions below will not begin until you commence operation).



     If an Area Cooperative is or has been established, you agree (a) to join, participate in, and
actively support the Area Cooperative in compliance with its governing documents, and (b) to
contribute a specified percentage of your monthly Gross Sales to the Area Cooperative. We may
require you to contribute to the Area Cooperative the full amount we require you to spend under
Subsection 9.C. above. That contribution will be credited toward your required marketing
expenditures under Subsection 9.C. above (but not toward any required Fund contribution under
Subsection 9.B. above).



     In addition to this Area Cooperative contribution, if a simple majority (i.e., in excess of
50%) of the combination of all KIDVILLE Facility franchisees, and us and our affiliates, operating
Locations within the Area Cooperative’s particular geographic area vote to spend additional monies
for special advertising, marketing, and/or promotion activities in the Area Cooperative’s area, you
must contribute the amount specified for your FACILITY. Each franchisee, and we and our
affiliates, will have one (1) vote for each hub location operated. You may not be obligated to
contribute to more than two (2) special programs during a calendar year.



     If the Area Cooperative’s members cannot agree on any aspect of the Area Cooperative’s
formation, administration, or operation, and the disagreement continues for twenty (20) days after
written notice to us that a disagreement exists, we have the authority to resolve the matter. Our
decision will be final and binding on all members of the Area Cooperative. In any event, we may,
whenever we deem best, control the formation, organization, operation, expenditures, and all other
aspects of the Area Cooperative.



     You agree to send us and the Area Cooperative any reports that we require, including, but not
limited to, information to confirm your compliance with your minimum contribution obligations. The
Area Cooperative will operate only for the purpose of advertising, marketing,



33









 







and promoting KIDVILLE Facilities in the Area Cooperative’s area. The Area Cooperative and
its members may not use any advertising, marketing, CRM, research, or promotional plans or
materials without our prior written consent, and all activities must comply with our guidelines.



     E. FRANCHISE SYSTEM WEBSITE.



     We and our affiliates may establish one or more websites (1) to advertise, market, and promote
KIDVILLE Facilities, Services and Products and/or the KIDVILLE Facility franchise opportunity,
(2) to create, maintain, update, and administer on-line KIDVILLE® membership/customer lists, (3) to
schedule and reserve participation in KIDVILLE Classes, (4) through which to operate on-line
Product ordering and other fulfillment systems, (5) to process payments for Services and Products
(from which we may immediately debit the Royalty and Fund contribution), and (6) for any other
purposes we determine are appropriate or necessary for the Franchise System (each a “Franchise
System Website”). If we establish a Franchise System Website, we may provide you with a separate
webpage that references the FACILITY and/or otherwise allow you to participate in the Franchise
System Website. You must give us the information and materials we request to develop, update, and
modify your webpage or otherwise necessary to enable you to participate in the Franchise System
Website. By providing the information and materials to us, you represent that they are accurate
and not misleading and do not infringe any third party’s rights. We will own all intellectual
property and other rights in the Franchise System Website, your webpage (if any), and all
information they contain (including, without limitation, the log of “hits” by visitors and any
personal or business data that customers supply).



     We will maintain, and may use the Fund’s assets to develop, maintain, operate, update, and
market, the Franchise System Website, including your webpage (if any). We will update the
information on your webpage, if any, or add information that we approve as frequently as we deem
appropriate. You must notify us whenever any information on your webpage changes or is not
accurate. We have final approval rights over all information on the Franchise System Website,
including your webpage (if any). We may implement and periodically modify System Standards
relating to the Franchise System Website.



     We will maintain your webpage, if any, on the Franchise System Website and/or otherwise allow
you to participate in the Franchise System Website only while you are in substantial compliance
with this Agreement and all System Standards (including, without limitation, those relating to the
Franchise System Website). If you are in material default of any obligation under this Agreement
or System Standards, then we may, in addition to our other remedies, temporarily suspend your
participation in the Franchise System Website until you fully cure the default. We will
permanently terminate your access to and participation in the Franchise System Website upon this
Agreement’s expiration or termination.



     All advertising, marketing, and promotional materials that you develop for the FACILITY must
contain notices of the Franchise System Website’s domain name(s) in the manner we designate. You
may not develop, maintain, link to, or authorize any other website that mentions or describes you
or the FACILITY or displays any of the Marks.



34









 





10. RECORDS, REPORTS, AND FINANCIAL STATEMENTS.




     You agree to establish and maintain at your own expense a bookkeeping, accounting, and
recordkeeping system conforming to the requirements and formats we prescribe from time to time.
You must use a Computer System to maintain sales data and other information and to generate the
reports we require. You agree to give us in the manner and format we prescribe from time to time:




     (a) on or before the fifth (5th) day of each calendar month, a report on the FACILITY’s
Gross Sales during the preceding calendar month, broken down by Hub Location and Annex
Locations;




     (b) within twenty (20) days after the end of each calendar month, the operating
statements, unaudited financial statements, statistical reports, customer lists, and other
information we request regarding you and the FACILITY covering the previous calendar month
and the calendar year-to-date. This includes any customer-specific information that you
receive or generate from operating the FACILITY. We may use that customer-specific
information for any business purposes we desire and will be deemed to own all such
customer-specific information;




     (c) within sixty (60) days after the end of the FACILITY’s fiscal year, annual profit
and loss and source and use of funds statements and a balance sheet for the FACILITY as of
the end of that fiscal year (all unaudited); and




     (d) within fifteen (15) days after our request, exact copies of federal and state
income tax returns, sales tax returns, purchase records, and any other forms, records,
books, and other information we periodically require relating to the FACILITY and the
Franchise.


You agree to verify and sign each report and financial statement in the manner we prescribe. We
may disclose data derived from these reports. We also may, as often as we deem appropriate
(including on a daily, continuous basis), access the Computer System and retrieve all information
relating to the FACILITY’s operation.




     You agree to preserve and maintain all records in a secure location at the Hub Location during
the Term and for at least five (5) years after their preparation (or longer if required by law),
including, but not limited to, purchase orders, invoices, payroll records, check stubs, sales tax
records and returns, cash receipts and disbursement journals, and general ledgers. We may require
you to have audited financial statements prepared annually during the remaining portion of the Term
if (i) we ever send you formal notice of default regarding your failure to comply with your
reporting or payment obligations, (ii) you understate the FACILITY’s Gross Sales three (3) times or
more over an eighteen (18) month period by more than two percent (2%) on each occasion (whether or
not we send you formal notice of default), or (iii) you understate the FACILITY’s Gross Sales by
more than five percent (5%) on any one occasion (whether or not we send you formal notice of
default).



35









 





11. INSPECTIONS AND AUDITS.




     A. OUR RIGHT TO INSPECT THE LOCATIONS.



     To determine whether you and the FACILITY are complying with this Agreement and all System
Standards, we and our designated agents and representatives (including “mystery” or “secret”
shoppers) may at all times and without prior notice to you:




     (1) inspect the Locations;




     (2) photograph the Locations and observe and videotape each Location’s operation for
consecutive or intermittent periods we deem necessary;




     (3) remove samples of any Products and supplies;




     (4) interview the FACILITY’s personnel and customers; and




     (5) inspect and copy any books, records, and documents relating to the FACILITY’s
operation.


You agree to cooperate fully with us and our agents and representatives in any such activities. If
we exercise any of these rights, we will not interfere unreasonably with the FACILITY’s operation.
You agree to present to your members and customers the evaluation forms that we periodically
prescribe and to participate and/or request that your members and customers participate in any
surveys performed by or for us. We agree to provide you with the results of such surveys.




     B. OUR RIGHT TO AUDIT.



     We may at any time during your business hours, and without prior notice to you, examine your
and the FACILITY’s business, bookkeeping, and accounting records, sales and income tax records and
returns, and other records. You agree to cooperate fully with our representatives and independent
accountants in any examination. We may require you to send records off-site for our review away
from your Locations. If any examination discloses an understatement of the FACILITY’s Gross Sales,
you agree to pay us, within fifteen (15) days after receiving the examination report, the Royalty
and Fund contributions due on the amount of the understatement, our late fee, and interest on the
understated amounts from the date originally due until the date of payment. Furthermore, if an
examination is necessary due to your failure to furnish reports, supporting records, or other
information as required, or to furnish these items on a timely basis, or if our examination reveals
a Royalty or Fund contribution understatement exceeding two percent (2%) of the amount that you
actually reported to us for the period examined, you agree to reimburse our costs for the
examination, including, without limitation, the charges of attorneys and independent accountants
and the travel expenses, room and board, and compensation of our employees. These remedies are in
addition to our other remedies and rights under this Agreement and applicable law.



36









 





12. TRANSFER.




     A. BY US.



     You acknowledge that we maintain a staff to manage and operate the Franchise System and that
staff members can change as employees come and go. You represent that you have not signed this
Agreement in reliance on any particular owner, director, officer, or employee remaining with us in
that capacity. We may change our ownership or form and/or assign this Agreement and any other
agreement to a third party without restriction. After our assignment of this Agreement to a third
party who expressly assumes the obligations under this Agreement, we no longer will have any
performance or other obligations under this Agreement. Such an assignment shall constitute a
release and novation with respect to this Agreement, and the new owner-assignee shall be liable to
you as if it had been an original party to this Agreement.



     B. BY YOU.



     You understand and acknowledge that the rights and duties this Agreement creates are personal
to you (and your owners) and that we have granted you the Franchise in reliance upon our
perceptions of your (and your owners’) collective character, skill, aptitude, attitude, business
ability, and financial capacity. Accordingly, neither this Agreement (or any interest in this
Agreement), the FACILITY or substantially all of its assets, a controlling ownership interest in
you, a controlling ownership interest in an Entity that owns a controlling ownership interest in
you, nor actual management control of the FACILITY’s operation may be transferred without our prior
written approval, which we will not unreasonably withhold if the transfer conditions contained in
this Section 12 are satisfied. A transfer of the FACILITY’s ownership, possession, or management
control, or substantially all of its assets, may be made only with a transfer of this Agreement.
Because the FACILITY, as a definitional matter, encompasses both the Hub Location and all Annex
Locations, you may not separately transfer the Hub Location or Annex Locations. Any transfer of
the FACILITY must include all assets of the Hub Location and all Annex Locations. Any transfer
without our required approval is a breach of this Agreement and has no effect, meaning that you
(and your owners) will continue to be obligated to us for all of your obligations under this
Agreement.



     In this Agreement, the term “transfer” includes a voluntary, involuntary, direct, or indirect
assignment, sale, gift, or other disposition of any interest in:




     (1) this Agreement;




     (2) you;




     (3) the FACILITY or substantially all of its assets or its management control; or




     (4) your owners (if they are Entities).


An assignment, sale, gift, or other disposition includes the following events:




37









 









     (a) transfer of ownership of capital stock, a partnership or membership
interest, or another form of ownership interest;




     (b) merger or consolidation or issuance of additional securities or other forms
of ownership interest;




     (c) any sale of a security convertible to an ownership interest;




     (d) transfer of an interest in you, this Agreement, the FACILITY or
substantially all of its assets, or your owners in a divorce, insolvency, or Entity
dissolution proceeding or otherwise by operation of law;




     (e) if one of your owners, or an owner of one of your owners, dies, a transfer
of an interest in you, this Agreement, the FACILITY or substantially all of its
assets, or your owner by will, declaration of or transfer in trust, or under the
laws of intestate succession; or




     (f) pledge of this Agreement (to someone other than us) or of an ownership
interest in you or your owners as security, foreclosure upon the FACILITY, or your
transfer, surrender, or loss of the FACILITY’s possession, control, or management.
You may grant a security interest (including a purchase money security interest) in
the FACILITY’s assets (not including this Agreement) to a lender that finances your
acquisition, development, and/or operation of the FACILITY without having to obtain
our prior written approval. You may not pledge this Agreement (to someone other
than us) or a controlling ownership interest in you or your owners as security
unless, as a condition of that pledge, the pledgee agrees that it will not exercise
its secured party rights without first satisfying any conditions we reasonably
impose at that time to ensure the continued operation of the FACILITY in compliance
with this Agreement and all System Standards and that there will be no violation of
any material provision of this Agreement, including, but not limited to, Section 7
above.



     C. CONDITIONS FOR APPROVAL OF TRANSFER.



     If you (and your owners) are in substantial compliance with this Agreement, then, subject to
the other provisions of this Section 12, we will approve a transfer that meets all of the
requirements in this Subsection. Except as provided in Subsection 12.H. below, you need not obtain
our approval of a transfer of a non-controlling ownership interest in you or your owners
(determined as of the date on which the proposed transfer will occur), unless the owner of the
non-controlling ownership interest proposed to be transferred possesses actual management control
of the FACILITY’s operation (in which case the conditions specified below will apply). However,
any new owner of the non-controlling ownership interest must sign our form of Non-Monetary Guaranty
and Assumption of Obligations, committing to comply with certain specified non-monetary obligations
in this Agreement. If the new owner of the non-controlling ownership interest (i) fails for any
reason to sign the Non-Monetary Guaranty and Assumption of Obligations, or (ii) would be deemed to
be in violation of the Non-Monetary Guaranty and Assumption of Obligations immediately upon its
signing because of certain activities in which



38









 







the new owner then engages or has engaged, or (iii) has engaged in any dishonest, unethical,
immoral, or similar conduct as a result of which his or her association with you and the FACILITY
could, in our reasonable opinion, have a material adverse effect on the goodwill associated with
the Marks, the proposed transfer to the new owner may not be completed despite anything to the
contrary contained in this Section 12.



     If the proposed transfer is of this Agreement or a controlling ownership interest in you or in
an Entity that owns a controlling ownership interest in you, or is one of a series of transfers
(regardless of the time period over which these transfers take place) that in the aggregate
transfer this Agreement or a controlling ownership interest in you or in an Entity that owns a
controlling ownership interest in you, then all of the following conditions must be met before or
concurrently with the proposed transfer’s effective date:




     (1) the transferee has the necessary business experience, aptitude, and financial
resources to operate the FACILITY;




     (2) you have paid all Royalties, Fund contributions, and other amounts owed to us, our
affiliates, and third party vendors; have submitted all required reports and statements; and
have not violated any material provision of this Agreement, the Leases, or any other
agreement with us during both the sixty (60) day period before you requested our consent to
the transfer and the period between your request and the transfer’s proposed effective date;




     (3) neither the transferee nor its owners or affiliates have an ownership interest
(direct or indirect) in or perform services for a Competitive Business, wherever located or
operating;




     (4) the transferee’s trained owner and operator (if different from your Trained Owner
and Operator) satisfactorily complete required training within the timeframe we specify;




     (5) your landlord allows you to transfer the Leases or sublease each Location to the
transferee for the expected franchise term;




     (6) the transferee shall (if the transfer is of this Agreement), or you shall (if the
transfer is of a controlling ownership interest in you or in an Entity that owns a
controlling ownership interest in you), sign our then current form of franchise agreement
and related documents (“related documents” include the Guaranty and Assumption of
Obligations and Non-Monetary Guaranty and Assumption of Obligations that the transferee’s
principal and other owners must sign), any and all of the provisions of which, including the
Territory definition and the Royalty and Fund contributions, may differ materially from any
and all of those contained in this Agreement, provided, however, the term of the new
franchise agreement signed will be equal to the initial term of KIDVILLE Facility franchises
we then are granting;




     (7) you or the transferee pays us a transfer fee, one-half (1/2) of which is due when you
request approval of the transfer and is nonrefundable, whether or not the transfer actually
occurs. The transfer fee depends on the nature of the transferee and the



39









 







circumstances surrounding the transfer. The transfer fee is Five Thousand Dollars
($5,000) for each Location covered by this Agreement (in other words, Five Thousand Dollars
($5,000) for the Hub Location and a separate Five Thousand Dollars ($5,000) for each
Annex Location) if the transferee (a) has been a KIDVILLE Facility franchisee for at least
five (5) years as of the transfer’s effective date, (b) has successfully held a managerial
position at another KIDVILLE Facility, or (c) has obtained the interest proposed to be
transferred due to the transferring owner’s death or disability. The transfer fee for all
other transfers covered by this Subsection 12.C. (whether of this Agreement or a controlling
ownership interest) shall be Forty-Five Thousand Dollars ($45,000);




     (8) you (and, if applicable, your transferring owners) sign a general release, in a
form satisfactory to us, of any and all claims against us and our owners, affiliates,
officers, directors, employees, and agents (except for our indemnification obligations under
Subsection 16.D. below);




     (9) we have determined that the purchase price and payment terms will not adversely
affect the transferee’s operation of the FACILITY;




     (10) if you or your owners finance any part of the purchase price, you and/or your
owners agree that all of the transferee’s obligations under promissory notes, agreements, or
security interests reserved in the FACILITY are subordinate to the transferee’s obligation
to pay Royalties, Fund contributions, and other amounts due to us, our affiliates, and third
party vendors and otherwise to comply with this Agreement;




     (11) (a) you have corrected any existing FACILITY deficiencies of which we have
notified you on a punch-list or in other communications, and/or (b) the transferee agrees
(if the transfer is of this Agreement) to upgrade, remodel, and refurbish the FACILITY
according to our then current requirements and specifications for KIDVILLE Facilities within
the time period we specify (consistent with Subsection 8.B. above) following the transfer’s
effective date (we will advise the transferee, before the transfer’s effective date, of the
specific actions that it must take and the time period within which it must do so);




     (12) you and your transferring owners (and your owners’ spouses) will not, for two (2)
years beginning on the transfer’s effective date, engage in any of the activities proscribed
in Subsection 15.D. below; and




     (13) you and your transferring owners will not directly or indirectly at any time or in
any manner (except with respect to other KIDVILLE Facilities you lawfully own and operate)
identify yourself or themselves in any business as a current or former KIDVILLE Facility or
as one of our franchisees; use any Mark, any colorable imitation of a Mark, or other indicia
of a KIDVILLE Facility in any manner or for any purpose; or utilize for any purpose any
trade name, trade or service mark, or other commercial symbol that suggests or indicates a
connection or association with us.



40









 




You acknowledge that we have legitimate reasons to evaluate the qualifications of potential
transferees and to analyze and critique the terms of their purchase contracts with you and that our
contact with potential transferees to protect our business interests will not constitute improper
or unlawful conduct. You expressly authorize us to investigate any potential transferee’s
qualifications, to analyze and critique the proposed purchase terms, to communicate candidly and
truthfully with the transferee regarding the nature of your operation of the FACILITY, and to
withhold consent to economically questionable transactions. You waive any claim that the action we
take in good faith to protect our business interests in connection with a proposed transfer
constitutes tortious interference with contractual or business relationships. Similarly, we may
review all information regarding the FACILITY that you give the proposed transferee, correct any
information that we believe is inaccurate, and give the transferee copies of any reports you have
given us or we have made regarding the FACILITY.




     D. TRANSFER TO A WHOLLY-OWNED CORPORATION OR LIMITED LIABILITY COMPANY.



     Despite Subsection C above, if you are in substantial compliance with this Agreement, you may
transfer this Agreement to another Entity that conducts no business other than the FACILITY and, if
applicable, other KIDVILLE Facilities, in which your owners maintain management control, and of
which you and/or your current owners own and control one hundred percent (100%) of the equity and
voting power of all issued and outstanding ownership interests, provided that all of the FACILITY’s
assets are owned, and the FACILITY’s business is conducted, only by that single Entity. The Entity
must expressly assume all of your obligations under this Agreement. Transfers of ownership
interests in the Entity are subject to Subsections B and C above. You will remain liable under
this Agreement as if the transfer to the Entity did not occur.



     E. DEATH OR DISABILITY.




     (1) Transfer Upon Death or Disability. Upon your Trained Owner’s or Operator’s
(if your Operator also is one of your owners) death or disability, the Trained Owner’s or
Operator’s executor, administrator, conservator, guardian, or other personal representative
must transfer the Trained Owner’s or Operator’s ownership interest in you to a third party
(which may be the Trained Owner’s or Operator’s heirs, beneficiaries, or devisees). That
transfer must be completed within a reasonable time, not to exceed nine (9) months from the
date of death or disability, and is subject to all of the terms and conditions in this
Section 12. Failure to transfer the Trained Owner’s or Operator’s ownership interest in you
within this time period is a breach of this Agreement. The term “disability” means a mental
or physical disability, impairment, or condition that is reasonably expected to prevent or
actually does prevent the Trained Owner or Operator from supervising and overseeing the
FACILITY’s development and operation.




     (2) Operation Upon Death or Disability. Upon the Trained Owner’s or Operator’s
death or disability, a new Trained Owner or Operator must be appointed within thirty (30)
days and complete our required training program within the timeframe we specify. If, in our
judgment, the FACILITY is not being managed properly any time after the Trained Owner’s or
Operator’s death or disability, we may, but need not, assume



41









 







the FACILITY’s management (or appoint a third party to assume its management). All
funds from the FACILITY’s operation while it is under our (or the third party’s) management
will be kept in a separate account, and all expenses will be charged to this account. We
may charge you (in addition to the Royalty, Fund contributions, and other amounts due under
this Agreement) five percent (5%) of the FACILITY’s Gross Sales while it is under our (or
the third party’s) management. We (or a third party) have a duty to utilize only reasonable
efforts and, provided we are not grossly negligent and do not commit an act of willful
misconduct, will not be liable to you or your owners for any debts, losses, or obligations
the FACILITY incurs, or to any of your creditors for any products, other assets, or services
the FACILITY purchases, while we (or a third party) manage it.



     F. EFFECT OF CONSENT TO TRANSFER.



     Our consent to a transfer of this Agreement and the FACILITY, or any interest in you or your
owners, is not a representation of the fairness of the terms of any contract between you and the
transferee, a guarantee of the FACILITY’s or transferee’s prospects of success, or a waiver of any
claims we have against you (or your owners) or of our right to demand the transferee’s full
compliance with this Agreement.



     G. OUR RIGHT OF FIRST REFUSAL.



     If you, an owner with actual management control of the FACILITY’s operation, or the owner of a
controlling ownership interest in you or in an Entity that owns a controlling ownership interest in
you at any time determines to sell or transfer for consideration an interest in this Agreement and
the FACILITY, or a controlling ownership interest in you or in the Entity that owns a controlling
ownership interest in you (except to or among your current owners or between a current owner and
his or her immediate family member, which are not subject to this Subsection), in a transaction
that otherwise would be allowed under Subsections 12.B. and C above, you (or your owners) agree to
obtain from a responsible and fully disclosed buyer, and send us, a true and complete copy of a
bona fide, executed written offer (which may include a letter of intent) relating exclusively to an
interest in you (or in the Entity that owns a controlling ownership interest in you) or in this
Agreement and the FACILITY. The offer must include details of the proposed sale’s payment terms
and the sources and terms of any financing for the proposed purchase price. To be a valid, bona
fide offer, the proposed purchase price must be in a dollar amount, and the proposed buyer must
submit with its offer an earnest money deposit equal to five percent (5%) or more of the offering
price.



     The right of first refusal process will not be triggered by a proposed transfer that would not
be allowed under Subsections B and C above and therefore may not proceed. We may require you (or
your owners) to send us copies of any materials or information sent to the proposed buyer or
transferee regarding the possible transaction. We have the unrestricted right to assign this right
of first refusal to a third party, who then will have the rights described in this Subsection.



     We may, by written notice delivered to you or your selling owner(s) within thirty (30) days
after we receive both an exact copy of the offer and all other information we request, elect



42









 







to purchase the interest offered for the price and on the terms and conditions contained in
the offer, provided that:




     (1) we may substitute cash for any form of payment proposed in the offer (such as
ownership interests in a privately-held Entity);




     (2) our (or our designee’s) credit will be deemed equal to the credit of any proposed
buyer (meaning that, if the proposed consideration includes promissory notes, we or our
designee may provide promissory notes with the same terms as those offered by the proposed
buyer);




     (3) we will have sixty (60) additional days to close the transaction after notifying
you of our election to purchase;




     (4) we must receive, and you and your owners agree to make, all customary
representations and warranties given by the seller of the assets of a business or the
ownership interests in an Entity, as applicable, including, without limitation,
representations and warranties regarding:




(a) ownership and condition of and title to ownership interests and/or assets;




(b) liens and encumbrances relating to ownership interests and/or assets; and




     (c) validity of contracts and the liabilities, contingent or otherwise, of the
Entity whose assets or ownership interests are being purchased; and




     (5) if the price offered to you or your selling owner(s) for the interest proposed to
be transferred includes all or a portion of the transfer fee referenced in Subsection
12.C.(7) above, we or our designee may reduce the purchase price we must pay (if we exercise
the right of first refusal) by the amount of that transfer fee (or portion of the transfer
fee).


Once you or your selling owner(s) submits the offer and related information to us triggering the
start of the thirty (30) day decision-period referenced above, the offer is irrevocable for that
thirty (30) day period. This means that we have the full thirty (30) day period to decide whether
to exercise the right of first refusal and may choose to do so even if you or your selling owner(s)
changes your, his, her, or its mind during that period and prefers after all not to sell the
particular interest that is the subject of the offer. You and your selling owner(s) may not
withdraw or revoke your offer for any reason during the thirty (30) day period, and we (or our
designee) may exercise the right to purchase the particular interest in accordance with the terms
of this Subsection.




     If we exercise our right of first refusal, you and your selling owner(s) agree that, for two
(2) years beginning on the closing date, you and they will be bound by the non-competition covenant
contained in Subsection 15.D. below.



43









 





     If we do not exercise our right of first refusal, you or your owners may complete the sale to
the proposed buyer on the original offer’s terms, but only if we otherwise approve the transfer in
accordance with, and you (and your owners) and the transferee comply with the conditions in,
Subsections B and C above. This means that, even if we do not exercise our right of first refusal
(whether or not it is properly triggered as provided above), if the proposed transfer otherwise
would not be allowed under Subsections B and C above, you (or your owners) may not move forward
with the transfer at all.



     If you do not complete the sale to the proposed buyer within sixty (60) days after we notify
you that we do not intend to exercise our right of first refusal, or if there is a material change
in the terms of the sale (which you agree to tell us promptly), we or our designee will have an
additional right of first refusal during the thirty (30) day period following either the expiration
of the sixty (60) day period or our receipt of notice of the material change(s) in the sale’s
terms, either on the terms originally offered or the modified terms, at our or our designee’s
option.



     H. PUBLIC OFFERINGS.



     Despite any other provisions in this Agreement, you (and your owners) may not, without our
prior written consent, which we may grant or withhold for any or no reason, attempt to raise or
secure funds by selling or offering to sell any ownership interest in you (including, without
limitation, common or preferred stock, bonds, debentures, membership interests, or general or
limited partnership interests), regardless of its size, in a public offering for which a
registration statement must be filed with the Securities Exchange Commission or with any similar
state regulatory authority having jurisdiction over the sale of securities where registration is
required as a condition of the sale of securities in that state. If we choose to consent to such a
transaction, then, in addition to all other conditions that we may require you to satisfy (as
provided in this Section 12 and elsewhere in this Agreement), we may require you to pay us at least
Ten Thousand Dollars ($10,000), or any greater amount of which we advise you, plus our
out-of-pocket expenses, to review the offering materials that you prepare for the transaction.
However, our review shall be only to ensure your appropriate use of the Marks and your accurate
description of our and your relationship and your rights under this Agreement. Our review will not
be for the purposes of opining on the substantive aspects of the transaction or the legal adequacy
of the offering materials.



13. EXPIRATION OF THIS AGREEMENT.




     A. YOUR RIGHT TO ACQUIRE SUCCESSOR FRANCHISES.



     When this Agreement expires:




     (1) if you (and each of your owners) have substantially complied with this Agreement
during the Term; and




     (2) if you (and each of your owners) are, both on the date you give us written notice
of your election to acquire a successor franchise (as provided in Subsection 13.B. below)
and on the date on which the term of the successor franchise commences, in material
compliance with this Agreement and all System Standards; and



44









 






     (3) provided that (a) you maintain possession of and agree (regardless of cost) to
remodel and/or expand each Location, add or replace improvements and Operating Assets, and
otherwise modify each Location as we require to comply with System Standards then applicable
for new Hub Locations and Annex Locations for KIDVILLE Facilities, or (b) at your option,
you secure substitute premises that we approve and develop those premises according to
System Standards then applicable for new Hub Locations and Annex Locations for KIDVILLE
Facilities;


you may acquire a first successor franchise to operate the FACILITY as a KIDVILLE Facility for a
term commencing immediately upon the expiration of this Agreement and expiring five (5) years from
that date. You must sign the franchise agreement we then use to grant franchises for KIDVILLE
Facilities (modified as necessary to reflect the fact that it is for a successor franchise), any
and all of the provisions of which, including the Territory definition and the Royalty and Fund
contributions, may differ materially from any and all of those contained in this Agreement. You
must pay us a successor franchise fee equal to Fifteen Thousand Dollars ($15,000) (which covers all
Locations).




     You will have the right to acquire a second successor franchise to operate the FACILITY as a
KIDVILLE Facility, the term of which will commence immediately upon the expiration of the first
successor franchise term and expire five (5) years from that date if you have complied as of the
end of the first successor franchise term with the same conditions for the grant of a successor
franchise as those described in this Section 13 with respect to the grant of the first successor
franchise. Otherwise, you will have no right to acquire a second successor franchise. In
connection with your acquisition of a second successor franchise, you must sign the franchise
agreement we then use to grant franchises for KIDVILLE Facilities (modified as necessary to reflect
the fact that it is for a second successor franchise, including that no further successor
franchises will be granted), any and all of the provisions of which, including the Territory
definition and the Royalty and Fund contributions, may differ materially from any and all of those
contained in this Agreement and the franchise agreement you sign in connection with your
acquisition of the first successor franchise.



     If you (and each of your owners) are not, both on the date you give us written notice of your
election to acquire a successor franchise and on the date on which the term of the successor
franchise is scheduled to commence, in material compliance with this Agreement and all System
Standards, you acknowledge that we need not grant you a successor franchise, whether or not we had,
or chose to exercise, the right to terminate this Agreement during the Term under Subsection 14.B.



     B. GRANT OF A SUCCESSOR FRANCHISE.



     You agree to give us written notice of your election to acquire a successor franchise no more
than one (1) year and no less than two hundred eighty (270) days before this Agreement is scheduled
to expire. We agree to give you written notice (“Our Notice”), not more than ninety (90) days
after we receive your notice, of our decision:




     (1) to grant you a successor franchise;



45









 






     (2) to grant you a successor franchise on the condition that you correct existing
deficiencies of the FACILITY or in your operation of the FACILITY; or




     (3) not to grant you a successor franchise based on our determination that you and your
owners have not substantially complied with this Agreement during the Term or were not in
material compliance with this Agreement and all System Standards on the date you gave us
written notice of your election to acquire a successor franchise.


We will not unreasonably withhold our consent to a successor franchise if the conditions specified
in this Section 13 have been satisfied. If applicable, Our Notice will:





     (a) describe the remodeling, expansion, improvements, and/or modifications
required to bring each Location into compliance with then applicable System
Standards for new KIDVILLE Facilities; and




     (b) state the actions you must take to correct operating deficiencies and the
time period in which you must correct these deficiencies.


If we elect not to grant you a successor franchise, Our Notice will describe the reasons for our
decision. If we elect to grant you a successor franchise, your right to acquire a successor
franchise is subject to your material compliance with all of the terms and conditions of this
Agreement through the date of its expiration, in addition to your compliance with the obligations
described in Our Notice.




     If Our Notice states that you must cure certain deficiencies of the FACILITY or its operation
as a condition to our granting you a successor franchise, we will give you written notice of our
decision not to grant you a successor franchise, based upon your failure to cure those
deficiencies, at least ninety (90) days before this Agreement expires. However, we need not give
you this ninety (90) days’ notice if we decide not to grant you a successor franchise due to your
breach of this Agreement during the ninety (90) day period before it expires. If we fail to give
you:




          (i) notice of deficiencies in the FACILITY, or in your operation of the
FACILITY, within ninety (90) days after we receive your timely election to
acquire a successor franchise (if we elect to grant you a successor
franchise under subparagraphs (2) and (b) above); or




          (ii) notice of our decision not to grant you a successor franchise at
least ninety (90) days before this Agreement expires, if this notice is
required,


we may unilaterally extend the Term for the time period necessary to give you, as applicable,
either reasonable time to correct deficiencies or the ninety (90) days’ notice of our refusal to
grant a successor franchise. If you fail to notify us of your election to acquire a successor
franchise within the prescribed time period, we need not grant you a successor franchise.




46









 








     C. AGREEMENTS/RELEASES.



     If you satisfy all of the other conditions for a successor franchise (whether this relates to
the first or second successor franchise), you and your owners must execute the form of franchise
agreement and any ancillary agreements we then customarily use in granting franchises for KIDVILLE
Facilities (modified as necessary to reflect the fact that it is for a successor franchise), any
and all of the provisions of which, including the Territory definition and the Royalty and Fund
contributions, may differ materially from any and all of those contained in this Agreement and the
franchise agreement you sign in connection with your acquisition of the first successor franchise.



     You and your owners further agree to sign general releases, in a form satisfactory to us, of
any and all claims against us and our owners, affiliates, officers, directors, employees, agents,
successors, and assigns (except for our indemnification obligations under Subsection 16.D. below).
We will consider your or your owners’ failure to sign these agreements and releases and to deliver
them to us for acceptance and execution (together with the successor franchise fee) within the
timeframe we specify after their delivery to you to be an election not to acquire a successor
franchise.



14. TERMINATION OF AGREEMENT.




     A. BY YOU.



     If you and your owners are fully complying with this Agreement and we materially fail to
comply with this Agreement and do not correct the failure within thirty (30) days after you deliver
written notice of the material failure to us or, if we cannot correct the failure within thirty
(30) days, do not give you within thirty (30) days after your notice reasonable evidence of our
effort to correct the failure within a reasonable time (which may extend beyond that thirty (30)
days), you may terminate this Agreement effective an additional thirty (30) days after you deliver
to us written notice of termination. (The time period during which we may cure any material
failure to comply with this Agreement after your delivery of notice is called the “Cure Period.”)
However, if we send you written notice during the Cure Period indicating either that (1) we do not
agree that we have materially failed to comply with this Agreement or (2) we have fully corrected
the failure, then you may not terminate this Agreement. Instead, if you disagree with our position
and still wish to terminate this Agreement, you must commence a legal proceeding seeking a
declaration of your right to terminate this Agreement.



     This Agreement will remain in full force and effect during the legal proceeding (unless we
terminate it under Subsection B below). If the court determines that we are materially failing to
comply with this Agreement, or that we did not fully correct a material failure to comply, then we
will have an additional thirty (30) days following the court’s ruling to correct the failure. If
we fail to do so, then you may terminate this Agreement immediately upon delivery of notice.



     Your termination of this Agreement other than according to this Subsection 14.A. will be
deemed a termination without cause and a breach of this Agreement.



47









 





     B. BY US.



     We may terminate this Agreement, effective upon delivery of written notice of termination to
you, if:




     (1) you (or any of your owners) have made or make any material misrepresentation or
omission in acquiring the Franchise or operating the FACILITY;




     (2) (a) you do not locate and secure sites for the Hub Location and your first two (2)
Annex Locations within the time periods specified in Subsection 1.E.(2) above, (b) you do
not commence operating the Hub Location and your first two (2) Annex Locations within the
time periods specified in Subsection 2.D. above, or (c) you commence operating a Location
before we notify you that the Location meets our standards and specifications;




     (3) you abandon or fail actively to operate the Hub Location, or fail actively to
operate at least two (2) Annex Locations, for five (5) or more consecutive business days,
unless you close the Location(s) for a purpose we approve or because of casualty or
government order;




     (4) you surrender or transfer control of any Location’s operation without our prior
written consent;




     (5) you (or any of your owners) are or have been convicted by a trial court of, or
plead or have pleaded no contest to, a felony;




     (6) you fail to maintain the required insurance coverage and do not correct the failure
within ten (10) days after we deliver written notice of that failure to you;




     (7) you fail to maintain any licenses or permits required to operate the FACILITY, as a
result of which you would be legally obligated to cease operations, and you fail to secure
such licenses and permits within the timeframe mandated by law;




     (8) you (or any of your owners) engage in any dishonest, unethical, immoral, or similar
conduct as a result of which your (or his or her) association with the FACILITY (or the
owner’s association with you) could, in our reasonable opinion, have a material adverse
effect on the goodwill associated with the Marks;




     (9) you (or any of your owners or the owner of a controlling ownership interest in an
Entity that has a controlling ownership interest in you) make or attempt to make an
unauthorized assignment of this Agreement, the FACILITY, or a controlling ownership interest
in you (or in an Entity that has a controlling ownership interest in you);




     (10) you lose the right to occupy the Hub Location due to your Lease default;




     (11) you lose the right to occupy the Hub Location or (if you operate three (3) or more
Annex Locations) more than one (1) of your Annex Locations (but not because



48









 







of your Lease default), or the Hub Location or such Annex Locations are damaged to such
an extent that you no longer can operate the FACILITY at the Location over a thirty (30) day
period, and you fail to relocate to a substitute site (or sites) within the Territory and to
begin operating from that substitute site (or those substitute sites) within one hundred
twenty (120) days from the date you could not occupy the Location (in the case of the Hub
Location) or within sixty (60) days from the date you could not occupy the Location (in the
case of an Annex Location);




     (12) you (or any of your owners) knowingly make any unauthorized use or disclosure of
any part of the Operations Manual or any other Confidential Information;




     (13) you violate any health, safety, or sanitation law, ordinance, or regulation, or
operate the FACILITY in an unsafe manner, and do not begin to cure the violation immediately
after delivery of notice from us or any government agency and to correct the violation
within the timeframe mandated by law;




     (14) you fail to pay us (or our affiliates) any amounts due under this Agreement or
otherwise (including the Assumed Royalty and Assumed Fund Contribution) and do not correct
the failure within ten (10) days after we deliver written notice of that failure to you;




     (15) you fail to pay any vendors to the Franchise System (other than us and our
affiliates) any amounts due for your purchases from them and do not correct the failure
within thirty (30) days after the vendor delivers written notice of that failure to you,
unless you are in good faith contesting your liability for those amounts, you notify us in
writing of the reason for your non-payment, and we agree that you have a legitimate reason
for the non-payment (although we may, but have no obligation to, pay the vendor by debiting
your EFTA);




     (16) you fail to pay when due any federal or state income, service, sales, or other
taxes due on the FACILITY’s operation, unless you are in good faith contesting your
liability for those taxes or you have received an extension from the applicable government
agency of the time within which to make payments;




     (17) you understate the FACILITY’s Gross Sales (a) three (3) times or more over a
three (3) year period by more than two percent (2%) on each occasion or (b) by more than ten
percent (10%) on any one occasion;




     (18) you (or any of your owners) (a) fail on three (3) or more separate occasions
within any three (3) year period to comply with this Agreement, whether or not you correct
the failures after our delivery of notice to you; or (b) fail on two (2) or more separate
occasions within any eighteen (18) consecutive month period to comply with the same
obligation under this Agreement, whether or not you correct the failures after our delivery
of notice to you;




     (19) you make an assignment for the benefit of creditors or admit in writing your
insolvency or inability to pay your debts generally as they become due; you consent to the
appointment of a receiver, trustee, or liquidator of all or the substantial part of your



49









 







property; the FACILITY is attached, seized, subjected to a writ or distress warrant, or
levied upon, unless the attachment, seizure, writ, warrant, or levy is vacated within thirty
(30) days; or any order appointing a receiver, trustee, or liquidator of you or the FACILITY
is not vacated within thirty (30) days following the order’s entry;




     (20) your or any of your owners’ assets, property, or interests are blocked under any
law, ordinance, or regulation relating to terrorist activities, or you or any of your owners
otherwise violate any such law, ordinance, or regulation; or




     (21) you (or any of your owners) fail to comply with any other provision of this
Agreement or any System Standard and do not correct the failure within thirty (30) days
after we deliver written notice of the failure to you.



     C. ASSUMPTION OF MANAGEMENT.



     We have the right (but not the obligation), under the circumstances described below, to enter
a Location and assume its management (or to appoint a third party to assume its management) for any
period of time we deem appropriate. If we (or a third party) assume a Location’s management under
subparagraphs (1) and (2) below, you agree to pay us (in addition to the Royalty, Fund
contributions, and other amounts due under this Agreement) five percent (5%) of the FACILITY’s
Gross Sales for up to sixty (60) days after we assume management.



     If we (or a third party) assume a Location’s management, you acknowledge that we (or the third
party) will have a duty to utilize only reasonable efforts and, provided we are not grossly
negligent and do not commit an act of willful misconduct, will not be liable to you or your owners
for any debts, losses, or obligations the Location incurs, or to any of your creditors for any
supplies, products, or other assets or services the Location purchases, while we (or the third
party) manage it.



     We (or a third party) may assume a Location’s management under the following circumstances:
(1) if you abandon or fail actively to operate the Location; (2) if you fail to comply with any
provision of this Agreement or any System Standard and do not cure the failure within the time
period we specify in our notice to you, but only for as long as it takes us, using reasonable
commercial efforts, to correct the failure that you failed to cure; or (3) if this Agreement
expires or is terminated and we are deciding whether to exercise our option to purchase the
FACILITY under Subsection 15.E. below. Exercise of our management rights will not affect our right
to terminate this Agreement under Subsection 14.B. above.



15. OUR AND YOUR RIGHTS AND OBLIGATIONS UPON TERMINATION OR EXPIRATION OF THIS AGREEMENT.




     A. PAYMENT OF AMOUNTS OWED TO US.



     You agree to pay us within fifteen (15) days after this Agreement expires or is terminated, or
on any later date we determine the amounts due to us, the Royalties, Fund contributions, late fees
and interest, and other amounts owed to us (and our affiliates) that then are unpaid.



50









 





     B. MARKS.



     When this Agreement expires or is terminated:




     (1) you may not directly or indirectly at any time or in any manner (except with other
KIDVILLE Facilities you lawfully own and operate) identify yourself in any business as a
current or former KIDVILLE Facility or as one of our current or former franchisees; use any
Mark, any colorable imitation of a Mark, or other indicia of a KIDVILLE Facility in any
manner or for any purpose; or use for any purpose any trade name, trade or service mark, or
other commercial symbol that indicates or suggests a connection or association with us;




     (2) you agree, within fifteen (15) days, to take the action required to cancel all
fictitious or assumed name or equivalent registrations relating to your use of any Mark;




     (3) we have the right (but no obligation) to purchase from you any or all
KIDVILLE®-branded Products we specify at their original purchase price, less a twenty-five
percent (25%) re-stocking fee and less the costs of shipping the Products to us or at our
direction;




     (4) if we do not have or do not exercise an option to purchase the FACILITY under
Subsection E below, you agree, at your own cost and without any payment from us for such
items, to deliver to us, to make available for pick-up by us, or to destroy (at our option),
all within thirty (30) days, all signs, sign-faces, sign-cabinets, marketing materials,
forms, and other materials (other than KIDVILLE® -branded Products, which are addressed in
subparagraph (3) above) we request containing any Mark or otherwise identifying or relating
to a KIDVILLE Facility. If you fail to do so voluntarily when we require, we and our
representatives may enter each Location at our convenience and remove these items without
liability to you, the landlord, or any other third party for trespass or any other claim.
You must reimburse our costs of doing so;




     (5) if we do not have or do not exercise an option to purchase the FACILITY under
Subsection E below, you agree, within the timeframe we specify and at your own expense, to
take the closing steps and make the alterations we specify in our Operations Manual (or
otherwise communicate to you at that time) to distinguish each Location clearly from its
former appearance and from other KIDVILLE Facility Hub and Annex Locations in order to
prevent public confusion. If you fail to do so voluntarily when we require, we and our
representatives may enter the Location at our convenience and take this action without
liability to you, your landlord, or any other third party for trespass or any other claim.
We need not compensate you or the landlord for any such alterations. You must reimburse our
costs of de-identifying the Locations; and




     (6) you agree, within fifteen (15) days, to notify the telephone company and all
telephone directory publishers of the termination or expiration of your right to use any
telephone, facsimile, or other numbers and telephone directory listings associated with any
Mark; to authorize and not to interfere with the transfer of these numbers and directory
listings to us or at our direction (including pursuant to a Conditional



51









 







Assignment of Telephone Number(s), in the form attached as Exhibit D, previously
executed by you); and/or to instruct the telephone company to forward all calls made to your
numbers to numbers we specify. If you fail to do so, we may take whatever action and sign
whatever documents we deem appropriate on your behalf to effect these events.



     C. CONFIDENTIAL INFORMATION.



     You agree that, when this Agreement expires or is terminated, you will immediately cease using
any of our Confidential Information (including computer software or similar technology and digital
passwords and identifications that we have licensed to you or that otherwise are proprietary to us
or the Franchise System) in any business or otherwise and return to us all copies of the Operations
Manual and any other confidential materials to which we have provided you access. You may not
sell, trade, or otherwise profit in any way from any Confidential Information, including customer
lists, at any time after the expiration or termination of this Agreement.



     D. COVENANT NOT TO COMPETE.



     Upon




     (1) our termination of this Agreement according to its terms and conditions,




     (2) your termination of this Agreement without cause, or




     (3) expiration of this Agreement (if we offer, but you elect not to acquire, a
successor franchise, or if we do not offer you a successor franchise due to your failure to
satisfy the conditions for a successor franchise set forth in Section 13),


you and your owners agree that, for two (2) years beginning on the effective date of termination or
expiration or, in the case of any particular person restricted by this Subsection, beginning on the
date on which that restricted person begins to comply with this Subsection, whichever is later,
neither you nor any of your owners, as the restricted persons, will have any direct or indirect
(e.g., through a spouse, sibling, child, or parent) interest as an owner (whether of record,
beneficially, or otherwise), investor, partner, director, officer, employee, consultant,
representative, or agent in any Competitive Business (as defined in Section 7 above) located or
operating:





     (a) at any Location;




     (b) within the Territory;




     (c) within the territories of any other KIDVILLE Facility franchises in
operation or under construction on the Effective Date;




     (d) within the territories of any other KIDVILLE Facility franchises in
operation or under construction on the later of the effective date of the
termination or expiration of this Agreement or the date on which the restricted
person begins to comply with this Subsection; or



52









 






     (e) within five (5) miles of any KIDVILLE Facility location then operated by us
or our affiliates.



     These restrictions also apply after transfers, as provided in Section 12.C.(12) above. If any
person restricted by this Subsection refuses voluntarily to comply with these obligations, the two
(2) year period for that person will commence with the entry of a court order enforcing this
provision. The two (2) year period will be tolled, if applicable, for the period during which a
restricted person is in breach of this Subsection and will resume when that person resumes
compliance. You and your owners expressly acknowledge that you possess skills and abilities of a
general nature and have other opportunities for exploiting these skills. Consequently, our
enforcing the covenants made in this Subsection will not deprive you or your owners of your
personal goodwill or ability to earn a living.



     In order to give effect to the obligations in this Subsection 15.D., you and your owners
acknowledge and agree that neither you nor they will seek to violate this Subsection 15.D. through
any other person with whom you or your owners are acting in concert or participating in connection
with the prohibited activities and that we may enforce the restrictions in this Subsection 15.D. by
taking action against you, your owners, and all other persons with whom you or your owners are
acting in concert or participating in connection with the prohibited activities.



     E. OUR RIGHT TO PURCHASE FACILITY.



     During the Term, if there is to be a transfer of the FACILITY and this Agreement,
substantially all of the FACILITY’s assets, or a controlling ownership interest in you or in an
Entity that has a controlling ownership interest in you, the provisions of Section 12 will apply to
the proposed transfer. However, under the circumstances listed below, we have the right to acquire
the FACILITY’s assets (which by definition include the assets of all Locations) upon the
termination or expiration of this Agreement.




     (1) Exercise of Option.



     Upon




     (a) our termination of this Agreement according to its terms and conditions,




     (b) your termination of this Agreement without cause, or




     (c) expiration of this Agreement (if we offer, but you elect not to acquire, a
successor franchise, or if we do not offer you a successor franchise due to your
failure to satisfy the conditions for a successor franchise set forth in
Section 13),


we have the option, exercisable by giving you written notice before or within thirty (30) days
after the date of termination or expiration, (i) to purchase the FACILITY’s assets and the
ownership interest in one or more of the Locations and the underlying real estate (if you or one of
your affiliates owns the Location(s) and the underlying real estate) or, if you (or one of your


53









 






affiliates) do not own the Location(s) and the underlying real estate or we choose not to purchase
your (or your affiliate’s) ownership interest in the Location(s) and the underlying real estate,
(ii) to purchase the FACILITY’s assets and exercise the rights under subparagraph (2) below. We
have the unrestricted right to assign this option to purchase to another party.




     We are entitled to all customary warranties and representations in our asset purchase,
including, without limitation, representations and warranties as to ownership and condition of and
title to assets; liens and encumbrances on assets; validity of contracts and agreements; and
liabilities affecting the assets, contingent or otherwise.




     (2) Right to Locations.



     If you lease the Locations (and, if applicable, the underlying real estate) from an
unaffiliated landlord, or if we choose not to purchase your (or your affiliate’s) ownership
interest in the Locations (and, if applicable, the underlying real estate), you agree (as
applicable) at our election:




     (a) to assign your leasehold interest in the Locations (and, if applicable, the
underlying real estate) to us;




     (b) to enter into a sublease for the remainder of each Lease term on the same
terms (including renewal options) as the Lease; or




     (c) to lease the Locations to us for an initial ten (10) year term, with two
five (5) year renewal terms (at our option), on commercially reasonable terms.




     (3) Purchase Price.



     The purchase price for the FACILITY’s assets and, if applicable, the ownership interest in the
Locations and the underlying real estate will be their fair market value, provided that these items
will not include any value for:




     (a) the Franchise or any rights granted by this Agreement;




     (b) goodwill attributable to our Marks, brand image, and other Intellectual
Property; or




     (c) participation in the network of KIDVILLE Facilities.


We may exclude from the assets purchased any Operating Assets or other items that are not
reasonably necessary (in function or quality) to the FACILITY’s operation or that we have not
approved as meeting System Standards, and the purchase price will reflect these exclusions.





     (4) Appraisal.



     If we and you cannot agree on fair market value, fair market value will be determined by
one (1) independent accredited appraiser upon whom we and you agree, who will conduct an



54









 







appraisal and, in doing so, be bound by the criteria specified in subparagraph (3). You and
we agree to select the appraiser within fifteen (15) days after we notify you that we wish to
exercise our purchase option (if we and you have not agreed on fair market value before then). You
and we will share equally the appraiser’s fees and expenses. The appraiser must complete his or
her appraisal within twenty-one (21) days after his or her appointment. The purchase price will be
the appraised value. If we and you cannot agree on the appraiser, he or she will be chosen by the
American Arbitration Association.




     (5) Closing.



     We (or our assignee) will pay the purchase price at the closing, which will take place not
later than sixty (60) days after the purchase price is determined, although we (or our assignee)
may decide after the purchase price is determined not to purchase the FACILITY’s assets and/or the
ownership interest in the Locations. We may set off against the purchase price, and reduce the
purchase price by, any and all amounts that you and your owners owe us and our affiliates. At the
closing, you agree to deliver instruments transferring to us (or our assignee):




     (a) good and merchantable title to the assets purchased, free and clear of all
liens and encumbrances (other than liens and security interests acceptable to us),
with all sales and other transfer taxes paid by you;




     (b) all of the FACILITY’s licenses and permits that may be assigned or
transferred; and




     (c) the ownership or leasehold interest in the Locations and improvements (and,
if applicable, the underlying real estate) or Lease assignments or leases or
subleases, as applicable.


If you cannot deliver clear title to all of the purchased assets, or if there are other unresolved
issues, we (or our assignee) and you will close the sale through an escrow. You and your owners
further agree to execute general releases, in a form satisfactory to us, of any and all claims
against us and our owners, affiliates, officers, directors, employees, agents, successors, and
assigns. If we exercise our rights under this Subsection 15.E., you and your owners agree that,
for two (2) years beginning on the closing date, you and they will be bound by the non-competition
covenant contained in Subsection 15.D. above.




     F. CONTINUING OBLIGATIONS.



     All of our and your (and your owners’) obligations that expressly survive this Agreement’s
expiration or termination will continue in full force and effect subsequent to and notwithstanding
its expiration or termination and until they are satisfied in full.



16. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.




     A. INDEPENDENT CONTRACTORS.



     You and we understand and agree that this Agreement does not create a fiduciary relationship
between you and us, that you and we are and will be independent contractors, and



55









 







that nothing in this Agreement is intended to make either you or us a general or special
agent, joint venturer, partner, or employee of the other for any purpose. You agree to identify
yourself conspicuously in all dealings with customers, suppliers, public officials, FACILITY
personnel, and others as the FACILITY’s independent owner and operator under a franchise we have
granted and to place notices of independent ownership on the forms, business cards, stationery,
advertising and marketing, and other materials we require from time to time.



     B. NO LIABILITY FOR ACTS OF OTHER PARTY.



     We and you may not make any express or implied agreements, warranties, guarantees, or
representations, or incur any debt, in the name or on behalf of the other or represent that our
respective relationship is other than franchisor and franchisee. We will not be obligated for any
damages to any person or property directly or indirectly arising out of the FACILITY’s operation or
the business you conduct under this Agreement.



     C. TAXES.



     We will have no liability for any sales, use, service, occupation, excise, gross receipts,
income, property, or other taxes, whether levied upon you or the FACILITY, due to the business you
conduct (except for our income taxes). You are responsible for paying these taxes and must
reimburse us for any taxes that we must pay to any state taxing authority on account of either your
operation or payments that you make to us (except for our income taxes).



     D. INDEMNIFICATION.




     (1) You agree to indemnify, defend, and hold harmless us, our affiliates, and our and
their respective owners, directors, officers, employees, agents, successors, and assignees
(the “Indemnified Parties”) against, and to reimburse any one or more of the Indemnified
Parties for, all claims, obligations, and damages directly or indirectly arising out of the
FACILITY’s operation, the business you conduct under this Agreement, or your breach of this
Agreement, including, without limitation, those alleged to be caused by the Indemnified
Party’s negligence or willful misconduct, unless (and then only to the extent that) the
claims, obligations, or damages are determined to have been caused by the Indemnified
Party’s negligence or willful misconduct in a final, unappealable ruling issued by a court
or arbitrator with competent jurisdiction.




     For purposes of this indemnification, “claims” include all obligations, damages
(actual, consequential, or otherwise), and costs that any Indemnified Party reasonably
incurs in defending any claim against it, including, without limitation, reasonable
accountants’, arbitrators’, attorneys’, and expert witness fees, costs of investigation and
proof of facts, court costs, travel and living expenses, and other expenses of litigation,
arbitration, or alternative dispute resolution, regardless of whether litigation,
arbitration, or alternative dispute resolution is commenced. Each Indemnified Party may
defend any claim against it at your expense and agree to settlements or take any other
reasonable remedial, corrective, or other actions.




     This indemnity will continue in full force and effect subsequent to and notwithstanding
this Agreement’s expiration or termination. An Indemnified Party need



56









 







not seek recovery from any insurer or other third party, or otherwise mitigate its
losses and expenses, in order to maintain and recover fully a claim against you under this
subparagraph. You agree that a failure to pursue a recovery or mitigate a loss will not
reduce or alter the amounts that an Indemnified Party may recover from you under this
subparagraph.




     (2) We agree to indemnify, defend, and hold harmless you, your affiliates, and your and
their respective owners, directors, officers, employees, agents, successors, and assignees
(the “Franchisee Indemnified Parties”) against, and to reimburse any one or more of the
Franchisee Indemnified Parties for, all claims (as defined in subparagraph (1) above) that
the Franchisee Indemnified Party incurs in an action or proceeding asserted by a third party
as a result of our contract defaults with or intentional misconduct or negligence toward
that third party. This indemnity will continue in full force and effect subsequent to and
notwithstanding this Agreement’s expiration or termination. A Franchisee Indemnified Party
need not seek recovery from any insurer or other third party, or otherwise mitigate its
losses and expenses, in order to maintain and recover fully a claim against us under this
subparagraph. We agree that a failure to pursue a recovery or mitigate a loss will not
reduce or alter the amounts that a Franchisee Indemnified Party may recover from us under
this subparagraph.



17. ENFORCEMENT.




     A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.



     Except as expressly provided to the contrary in this Agreement, each section, paragraph, term,
and provision of this Agreement is severable, and if, for any reason, any part is held to be
invalid or contrary to or in conflict with any applicable present or future law or regulation in a
final, unappealable ruling issued by any court, agency, or tribunal with competent jurisdiction,
that ruling will not impair the operation of, or otherwise affect, any other portions of this
Agreement, which will continue to have full force and effect and bind the parties. If any covenant
that restricts competitive activity is deemed unenforceable by virtue of its scope in terms of
area, business activity prohibited, and/or length of time, but would be enforceable if modified,
you and we agree that the covenant will be enforced to the fullest extent permissible under the
laws and public policies applied in the jurisdiction whose law determines the covenant’s validity.
If any applicable and binding law or rule of any jurisdiction requires more notice than this
Agreement requires of this Agreement’s termination or of our refusal to enter into a successor
franchise agreement, or some other action that this Agreement does not require, or if, under any
applicable and binding law or rule of any jurisdiction, any provision of this Agreement or any
System Standard is invalid, unenforceable, or unlawful, the notice and/or other action required by
the law or rule will be substituted for the comparable provisions of this Agreement, and we may
modify the invalid or unenforceable provision or System Standard to the extent required to be valid
and enforceable or delete the unlawful provision in its entirety. You agree to be bound by any
promise or covenant imposing the maximum duty the law permits that is subsumed within any provision
of this Agreement, as though it were separately articulated in and made a part of this Agreement.



57









 





     B. WAIVER OF OBLIGATIONS.



     We and you may by written instrument unilaterally waive or reduce any obligation of or
restriction upon the other under this Agreement, effective upon delivery of written notice to the
other or another effective date stated in the notice of waiver. Any waiver granted will be without
prejudice to any other rights we or you have, will be subject to continuing review, and may be
revoked at any time and for any reason effective upon delivery of ten (10) days’ prior written
notice.



     We and you will not waive or impair any right, power, or option this Agreement reserves
(including, without limitation, our right to demand compliance with every term, condition, and
covenant or to declare any breach to be a default and to terminate this Agreement before the Term
expires) because of any custom or practice that varies from this Agreement’s terms; our or your
failure, refusal, or neglect to exercise any right under this Agreement or to insist upon the
other’s compliance with this Agreement, including, without limitation, any System Standard; our
waiver of or failure to exercise any right, power, or option, whether of the same, similar, or
different nature, with other KIDVILLE Facilities; the existence of franchise agreements for other
KIDVILLE Facilities that contain provisions differing from those contained in this Agreement; or
our acceptance of any payments due from you after any breach of this Agreement. No special or
restrictive legend or endorsement on any check or similar item given to us will be a waiver,
compromise, settlement, or accord and satisfaction. We are authorized to remove any legend or
endorsement, which then will have no effect.



     Neither we nor you will be liable for loss or damage or be in breach of this Agreement if our
or your failure to perform our or your obligations results from: (1) compliance with the orders,
requests, regulations, or recommendations of any federal, state, or municipal government; (2) acts
of God; (3) fires, strikes, embargoes, war, acts of terrorism or similar events, or riot; or
(4) any other similar event or cause. Any delay resulting from any of these causes will extend
performance accordingly or excuse performance, in whole or in part, as may be reasonable, except
that these causes will not excuse payments of amounts owed at the time of the occurrence or payment
of Royalties, Fund contributions, and other amounts due afterward.



     C. COSTS AND ATTORNEYS’ FEES.



     If we or you commence a legal proceeding against the other to enforce any term or provision of
this Agreement, the prevailing party in the legal proceeding will be entitled to recover from the
non-prevailing party the costs and expenses that the prevailing party incurred in the proceeding,
including, without limitation, reasonable accounting, attorneys’, arbitrators’, and related fees.
In addition, if we incur costs and expenses due to your failure to pay when due amounts owed to us,
to submit when due any reports, information, or supporting records, or otherwise to comply with
this Agreement, you agree, even if we do not initiate a formal legal proceeding, to reimburse us
for all of the costs and expenses that we incur, including, without limitation, reasonable
accounting, attorneys’, and related fees.



58









 





     D. YOU MAY NOT WITHHOLD PAYMENTS DUE TO US.



     You agree that you will not withhold payment of any amounts owed to us or our affiliates on
the grounds of our alleged nonperformance of any of our obligations under this Agreement or for any
other reason, and you specifically waive any right you may have at law or in equity to offset any
funds you may owe us or our affiliates or to fail or refuse to perform any of your obligations
under this Agreement.



     E. RIGHTS OF PARTIES ARE CUMULATIVE.



     Our and your rights under this Agreement are cumulative, and our or your exercise or
enforcement of any right or remedy under this Agreement will not preclude our or your exercise or
enforcement of any other right or remedy that we or you are entitled by law to enforce.



     F. GOVERNING LAW.



     EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15
U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW, THIS AGREEMENT, THE FRANCHISE,
AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU WILL BE GOVERNED BY THE LAWS OF THE
STATE IN WHICH THE HUB LOCATION IS LOCATED, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES, EXCEPT
THAT ANY LAW OF THAT STATE REGULATING THE SALE OF FRANCHISES OR GOVERNING THE RELATIONSHIP OF A
FRANCHISOR AND ITS FRANCHISEE WILL NOT APPLY UNLESS ITS JURISDICTIONAL REQUIREMENTS ARE MET
INDEPENDENTLY WITHOUT REFERENCE TO THIS SUBSECTION.



     G. CONSENT TO JURISDICTION.



     SUBJECT TO THE PROVISIONS BELOW, YOU AND YOUR OWNERS AGREE THAT ALL ACTIONS ARISING UNDER THIS
AGREEMENT OR OTHERWISE AS A RESULT OF THE RELATIONSHIP BETWEEN YOU AND US MUST BE COMMENCED IN THE
STATE OR FEDERAL COURT OF GENERAL JURISDICTION LOCATED CLOSEST TO OUR THEN CURRENT PRINCIPAL
BUSINESS ADDRESS, AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF THOSE COURTS
AND WAIVE ANY OBJECTION YOU (OR THE OWNER) MIGHT HAVE TO EITHER THE JURISDICTION OF OR VENUE IN
THOSE COURTS. NONETHELESS, YOU AND YOUR OWNERS AGREE THAT WE MAY ENFORCE THIS AGREEMENT IN THE
COURTS OF THE STATE OR STATES IN WHICH YOU ARE DOMICILED OR THE FACILITY IS LOCATED.



     H. WAIVER OF EXEMPLARY DAMAGES AND JURY TRIAL.



     EXCEPT FOR OUR AND YOUR OBLIGATIONS TO INDEMNIFY THE OTHER FOR THIRD PARTY CLAIMS UNDER
SUBSECTION 16.D., AND EXCEPT FOR PUNITIVE DAMAGES AVAILABLE TO EITHER PARTY UNDER FEDERAL LAW, WE
AND YOU (AND YOUR OWNERS) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO OR CLAIM FOR
ANY EXEMPLARY,



59









 







PUNITIVE, TREBLE, AND OTHER FORMS OF MULTIPLE DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE
EVENT OF A DISPUTE BETWEEN US AND YOU, THE PARTY MAKING A CLAIM WILL BE LIMITED TO EQUITABLE RELIEF
AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.



     WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM, WHETHER
AT LAW OR IN EQUITY, BROUGHT BY EITHER OF US.



     I. BINDING EFFECT.



     This Agreement is binding upon us and you and our and your respective executors,
administrators, heirs, beneficiaries, permitted assigns, and successors in interest. Subject to
our right to modify the Operations Manual and System Standards, this Agreement may not be modified
except by a written agreement signed by both our and your duly-authorized officers.



     J. LIMITATIONS OF CLAIMS.



     Except for the parties’ indemnification obligations under Subsection 16.D. and except for
claims arising from your non-payment or underpayment of amounts you owe us, any and all claims
arising out of or relating to this Agreement or our relationship with you will be barred unless a
legal proceeding (in the required or permitted forum) is commenced within eighteen (18) months from
the date on which the party asserting the claim knew or should have known of the facts giving rise
to the claims.



     K. CONSTRUCTION.



     The preambles and exhibits are a part of this Agreement which, together with the System
Standards contained in the Operations Manual (which may be periodically modified, as provided in
this Agreement), constitutes our and your entire agreement, and, except for any Development Rights
Rider to which we are parties, there are no other oral or written understandings or agreements
between us and you, and, except as provided in our Franchise Disclosure Document, no oral or
written representations by us, relating to the subject matter of this Agreement, the franchise
relationship, or the FACILITY (any understandings or agreements reached by you and us, or any
representations made by us, before this Agreement are superseded by this Agreement). You may not
rely on any alleged oral or written understandings, agreements, or representations not contained in
this Agreement (except for representations contained in our Franchise Disclosure Document). We may
rely on the representations you made in your franchise application materials and any
representations document or similar questionnaire you and/or your owners signed before signing this
Agreement to confirm and acknowledge your understanding of the risks of entering into this
Agreement and the absence of any improper or misleading statements made by us.



     Any policies that we adopt and implement from time to time to guide us in our decision-making
are subject to change, are not a part of this Agreement, and are not binding on us. Except as
expressly provided in this Agreement, nothing in this Agreement is intended or deemed to confer any
rights or remedies upon any person or legal entity not a party to this Agreement.



60









 





     Except where this Agreement expressly obligates us reasonably to approve or not unreasonably
to withhold our approval of any of your actions or requests, we have the absolute right to refuse
any request you make or to withhold our approval of any of your proposed, initiated, or completed
actions that require our approval. The headings of the sections and paragraphs are for convenience
only and do not define, limit, or construe the contents of these sections or paragraphs.



     References in this Agreement to “we,” “us,” and “our,” with respect to all of our rights and
all of your obligations to us under this Agreement, include any of our affiliates with whom you
deal. The term “affiliate” means any person or entity directly or indirectly owned or controlled
by, under common control with, or owning or controlling you or us. “Control” means the power to
direct or cause the direction of management and policies. If two or more Entities are at any time
the owners of the Franchise and the FACILITY, their obligations and liabilities to us will be joint
and several. References to “owner” mean any person holding a direct or indirect ownership interest
(whether of record, beneficially, or otherwise) or voting rights in you (or a transferee of this
Agreement and the FACILITY or an ownership interest in you), including, without limitation, any
person who has a direct or indirect interest in you (or a transferee), this Agreement, the
Franchise, or the FACILITY and any person who has any other legal or equitable interest, or the
power to vest in himself or herself any legal or equitable interest, in their revenue, profits,
rights, or assets.



     References to a “controlling ownership interest” in you or one of your owners (if an Entity)
mean the percent of the voting shares or other voting rights that results from dividing one hundred
percent (100%) of the ownership interests by the number of owners. In the case of a proposed
transfer of an ownership interest in you or one of your owners, the determination of whether a
“controlling ownership interest” is involved must be made as of both immediately before and
immediately after the proposed transfer to see if a “controlling ownership interest” will be
transferred (because of the number of owners before the proposed transfer) or will be deemed to
have been transferred (because of the number of owners after the proposed transfer).



     “Person” means any natural person, corporation, limited liability company, general or limited
partnership, unincorporated association, cooperative, or other legal or functional entity.
“Immediate family member” means a spouse, parent, child (natural and adopted), or sibling (but not
including any in-laws). Unless otherwise specified, all references to a number of days shall mean
calendar days and not business days. The term “FACILITY” includes all of the assets of the
KIDVILLE Facility you operate under this Agreement at the Locations, including its revenue and the
Leases. The words “include” and “including” are meant to be illustrative and not exhaustive and
are deemed to be read in all cases as “including, without limitation” and/or “including but not
limited to.” The words “customer(s)” and “member(s)” in this Agreement are purposefully used as
synonyms and intended to mean the same thing regardless of the context, so references to
“customer(s)” are meant to include “member(s)” and vice versa. This Agreement may be executed in
multiple copies, each of which will be deemed an original.



18. NOTICES AND PAYMENTS.




     All written notices, reports, and payments permitted or required to be delivered by this
Agreement or the Operations Manual will be deemed to be delivered:



61









 






     (a) at the time delivered by hand;




     (b) in the case of the Royalty, Fund contributions, and other amounts due, at the time
we actually receive payment via the EFTA;




     (c) one (1) business day after transmission by facsimile or electronic mail if the
sender has confirmation of successful transmission;




     (d) one (1) business day after being placed in the hands of a nationally recognized
commercial courier service for next business day delivery; or




     (e) three (3) business days after placement in the United States Mail by Registered or
Certified Mail, Return Receipt Requested, postage prepaid.


Any notice to us must be sent to the address specified on the first page of this Agreement,
although we may change this address for notice by giving you fifteen (15) days’ prior notice by any
of the means specified in subparagraphs (a) through (e) above. Any notice that we send to you may
be sent to the one (1) person identified on Exhibit A at the email or postal address specified on
Exhibit A. You may change the person and/or address for notice only by giving us fifteen (15)
days’ prior notice by any of the means specified in subparagraphs (a) through (e) above.




     Any required report that we do not actually receive during regular business hours on the date
due (or postmarked by postal authorities at least two (2) days before then for reports unrelated to
payments due under this Agreement) will be deemed delinquent.



19. COMPLIANCE WITH ANTI-TERRORISM LAWS.




     You and your owners agree to comply, and to assist us to the fullest extent possible in our
efforts to comply, with Anti-Terrorism Laws (defined below). In connection with that compliance,
you and your owners certify, represent, and warrant that none of your property or interests is
subject to being blocked under, and that you and your owners otherwise are not in violation of, any
of the Anti-Terrorism Laws. “Anti-Terrorism Laws” mean Executive Order 13224 issued by the
President of the United States, the USA PATRIOT Act, and all other present and future federal,
state, and local laws, ordinances, regulations, policies, lists, and other requirements of any
governmental authority addressing or in any way relating to terrorist acts and acts of war. Any
violation of the Anti-Terrorism Laws by you or your owners, or any blocking of your or your owners’
assets under the Anti-Terrorism Laws, shall constitute good cause for immediate termination of this
Agreement, as provided in Subsection 14.B.(20) above.



62









 





     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the dates noted
below, to be effective as of the Effective Date.



	 	 	 	 	 	 	 	 	 
	KIDVILLE FRANCHISE COMPANY, LLC, a New York	 	 	 	FRANCHISEE
	limited liability company	 	 	 	
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	[Name of Franchisee]

	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Signature]
	 	 	 	 	 	[Signature]
	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Print Name]
	 	 	 	 	 	[Print Name]
	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 








					 	 	 	 	 
	DATED:

	 	 	 	 	DATED:	 
	 

	 	 
	 	 	 	 	 	 






63









 








EXHIBIT A




TO THE FRANCHISE AGREEMENT

BETWEEN KIDVILLE FRANCHISE COMPANY, LLC

AND                
            
                       

DATED                     , 20                    




Effective Date: This Exhibit A is current and complete

as of                     , 20                    




You and Your Owners




     1. Formation and Principals. You were incorporated or formed on 
, under the laws of the State of                     . You have not conducted business under any name
other than your corporate, limited liability company, or partnership name and
                                        . The following is a list of your managing members,
directors, and officers, as applicable, as of the effective date shown above:



	 	 	 
	Name of Each Managing Member/Director/Officer	 	Position(s) Held
	 
	 	 
	 	 	 
	 
	 	 
	 	 	 
	 
	 	 
	 	 	 
	 
	 	 
	 	 	 
	 
	 	 
	 	 	 
	 
	 	 





     2. Owners. The following list includes the full name of each person who is one of
your owners (as defined in the Franchise Agreement), or an owner of one of your owners, and fully
describes the nature of each owner’s interest (attach additional pages if necessary).



	 	 	 	 	 	 	 
	Owner’s Name	 	 	 	Percentage/Description of Interest
	(a)
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	(b)
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	(c)
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	(d)
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 





Exhibit A-1









 






     3. Name and Address of Person to Receive Notices for Franchisee.


(a) Name:                                                    
                                                                                                                                                     



(b) Postal Address:                                          
               
                 
                                                                  
                                          



                                         
               
                 
                                                                  
                                                           
          




(c) E-mail Address:                                          
               
                 
                                                                                                     
 





     4. Identification of Trained Owner and Operator. Your Trained Owner as of the
Effective Date is                                          (must be one of the individuals listed in paragraph 2 above), and your Operator
as of the Effective Date is                                         . You may not change the Trained Owner or Operator without our prior
written approval.



	 	 	 	 	 	 	 	 	 
	KIDVILLE FRANCHISE COMPANY, LLC, a New York	 	 	 	FRANCHISEE
	limited liability company	 	 	 	
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	[Name of Franchisee]
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Signature]
	 	 	 	 	 	[Signature]
	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Print Name]
	 	 	 	 	 	[Print Name]
	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DATED:

	 	 	 	 	 	DATED:	 	 
	 

	 	 
	 	 	 	 	 	 






Exhibit A-2









 








EXHIBIT B




TO THE FRANCHISE AGREEMENT

BETWEEN KIDVILLE FRANCHISE COMPANY, LLC

AND                                         

DATED                     , 20                    




TERRITORY




	 	 	 
	     The Territory referred to in Subsection 1.D. of the Franchise Agreement is described as
follows:  	 
	 
	 
	 
	 	.






     If the Territory is identified by counties, cities, or other political subdivisions, political
boundaries shall be considered fixed as of the Effective Date and shall not change, notwithstanding
a political reorganization or change to such boundaries. If the Territory is identified
specifically by zip codes, the Territory shall include all geographic areas covered by such zip
codes as of the Effective Date.



	 	 	 	 	 	 	 	 	 
	KIDVILLE FRANCHISE COMPANY, LLC, a New York	 	 	 	FRANCHISEE
	limited liability company	 	 	 	
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	[Name of Franchisee]
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Signature]
	 	 	 	 	 	[Signature]
	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Print Name]
	 	 	 	 	 	[Print Name]
	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DATED:

	 	 	 	 	 	DATED:	 	 
	 

	 	 
	 	 	 	 	 	 






Exhibit B-1









 








EXHIBIT C




TO THE FRANCHISE AGREEMENT

BETWEEN KIDVILLE FRANCHISE COMPANY, LLC

AND                                         

DATED                     , 20                    




ADDRESSES OF LOCATIONS




     The addresses of your Locations referred to in Subsection 1.E. of the Franchise Agreement are
as follows:




	 	 	 
	Hub Location Address:
	 

	Annex
Location #1 Address:	 
	 

	Annex
Location #2 Address: 	 
	 

	Annex
Location #3 Address: 	 
	 

	Annex
Location #4 Address (if applicable):  	 








	 	 	 	 	 	 	 	 	 
	KIDVILLE FRANCHISE COMPANY, LLC, a New York	 	 	 	FRANCHISEE
	limited liability company	 	 	 	 
	 	 	 	 	[Name of Franchisee]
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Signature]
	 	 	 	 	 	[Signature]
	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	[Print Name]
	 	 	 	 	 	[Print Name]
	 
	 	 	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DATED:

	 	 	 	 	 	DATED:	 	 
	 

	 	 
	 	 	 	 	 	 






Exhibit C-1









 








EXHIBIT D




TO THE FRANCHISE AGREEMENT BETWEEN KIDVILLE FRANCHISE 

COMPANY, LLC AND                                         

DATED                                         , 20                    




CONDITIONAL ASSIGNMENT OF TELEPHONE NUMBER(S)






	 	 	 
	This Assignment relates to [name of Franchisee]:  	 






	 	 	 
	Location Addresses: 	 
	 






	 	 	 
	Telephone and Facsimile Number(s) [all numbers to be inserted after Franchisee obtains phone
service]:  	 
	 
	 








For valuable consideration, the Franchisee identified above (“Franchisee”) assigns and transfers to
KIDVILLE FRANCHISE COMPANY, LLC, a New York limited liability company (“Company”), all of
Franchisee’s rights and interests in each and all of the telephone numbers that Franchisee has
obtained and/or will obtain for its KIDVILLE Facility (the “Numbers”). Franchisee authorizes
Company to file this Assignment with the telephone company that issued the Numbers for the purposes
of establishing Company’s claim to and right to designate the user of the Numbers. Franchisee
acknowledges that Company may insert the Numbers into the space above as soon as they have been
identified and that Franchisee need not re-sign or initial this Assignment after the Numbers have
been inserted in order for this Assignment to be in full force and effect. By signing below,
Franchisee intends that this Assignment be fully enforceable immediately according to its terms.



Franchisee irrevocably constitutes and appoints Company as Franchisee’s agent and attorney-in-fact
for the purposes of (i) signing and delivering any Transfer of Service Agreement or comparable
document the telephone company requires to transfer the rights in the Numbers from Franchisee to
Company or its designee, and (ii) canceling and revoking any call-forwarding or similar
instructions Franchisee has issued to the telephone company with respect to any of the Numbers,
with full power to sign Franchisee’s name and otherwise to act in Franchisee’s name, place and
stead. Franchisee agrees to reimburse Company the full amount of any local service and long
distance charges the telephone company requires that Company pay to obtain the Numbers, together
with interest as provided in the Franchise Agreement for Franchisee’s Business. Franchisee
represents and warrants to Company that Franchisee will obtain the Numbers in his or her own name,
and that Franchisee will be the person of record the telephone company will recognize as registered
user or “owner” of the Numbers until Company exercises its right under this Assignment.




	 	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	FRANCHISEE NAME
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Signature
	 
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	 	 	Name
	 
	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 






Exhibit D-1









 








GUARANTY AND ASSUMPTION OF OBLIGATIONS





	 	 	 
	     THIS GUARANTY AND ASSUMPTION OF OBLIGATIONS is given this  	 






	 	 	 
	day of , 20            
        , by  	 	.






     In consideration of, and as an inducement to, the execution of that certain Franchise
Agreement (the “Agreement”) on this date by KIDVILLE FRANCHISE COMPANY, LLC (“us,” “we,” or “our”),
each of the undersigned personally and unconditionally (a) guarantees to us and our successors and
assigns, for the term of the Agreement (including extensions) and afterward as provided in the
Agreement, that                                          (“Franchisee”) will punctually pay and perform each
and every undertaking, agreement, and covenant set forth in the Agreement (including any amendments
or modifications of the Agreement) and (b) agrees to be personally bound by, and personally liable
for the breach of, each and every provision in the Agreement (including any amendments or
modifications of the Agreement), including (i) monetary obligations, (ii) obligations to take or
refrain from taking specific actions and to engage or refrain from engaging in specific activities,
including, but not limited to, the non-competition, confidentiality, and transfer requirements, and
(iii) the enforcement and other provisions in Sections 17, 18, and 19 of the Agreement.



     Each of the undersigned consents and agrees that: (1) his or her direct and immediate
liability under this Guaranty will be joint and several, both with Franchisee and among other
guarantors; (2) he or she will render any payment or performance required under the Agreement upon
demand if Franchisee fails or refuses punctually to do so; (3) this liability will not be
contingent or conditioned upon our pursuit of any remedies against Franchisee or any other person;
(4) this liability will not be diminished, relieved, or otherwise affected by any extension of
time, credit, or other indulgence that we may from time to time grant to Franchisee or to any other
person, including, without limitation, the acceptance of any partial payment or performance or the
compromise or release of any claims (including the release of other guarantors), none of which will
in any way modify or amend this Guaranty, which will be continuing and irrevocable during and after
the term of the Agreement (including extensions) for so long as any performance is or might be owed
under the Agreement by Franchisee or its owners and for so long as we have any cause of action
against Franchisee or its owners; and (5) this Guaranty will continue in full force and effect for
(and as to) any extension or modification of the Agreement and despite the transfer of any interest
in the Agreement or Franchisee, and each of the undersigned waives notice of any and all renewals,
extensions, modifications, amendments, or transfers.



     Each of the undersigned waives: (i) all rights to payments and claims for reimbursement or
subrogation that any of the undersigned may have against Franchisee arising as a result of the
undersigned’s execution of and performance under this Guaranty; and (ii) acceptance and notice of
acceptance by us of his or her undertakings under this Guaranty, notice of demand for payment of
any indebtedness or non-performance of any obligations hereby guaranteed, protest and notice of
default to any party with respect to the indebtedness or nonperformance of any obligations hereby
guaranteed, and any other notices to which he or she may be entitled.



 









 





     If we are required to enforce this Guaranty in a legal proceeding and prevail in such
proceeding, we shall be entitled to reimbursement of our costs and expenses, including, but not
limited to, reasonable accountants’, attorneys’, attorneys’ assistants’, arbitrators’, and expert
witness fees, costs of investigation and proof of facts, court costs, other litigation expenses,
and travel and living expenses, whether incurred prior to, in preparation for, or in contemplation
of the filing of any such proceeding. If we are required to engage legal counsel in connection
with any failure by the undersigned to comply with this Guaranty, the undersigned shall reimburse
us for any of the above-listed costs and expenses we incur even if we do not commence a legal
proceeding.



     IN WITNESS WHEREOF, each of the undersigned has affixed his or her signature on the same day
and year as the Agreement was executed.



	 	 	 	 	 	 	 
	 	 	PERCENTAGE OF OWNERSHIP
	GUARANTOR(S)	 	IN FRANCHISEE
	 

	 	 	 	 	%	 
	 

	 	 	 	 
	 

	 	 	 	 	%	 
	 

	 	 	 	 
	 

	 	 	 	 	%	 
	 

	 	 	 	 
	 

	 	 	 	 	%	 
	 

	 	 	 	 
	 

	 	 	 	 	%	 
	 

	 	 	 	 






2









 








NON-MONETARY GUARANTY AND ASSUMPTION OF OBLIGATIONS




     THIS NON-MONETARY GUARANTY AND ASSUMPTION OF OBLIGATIONS is given this                                          day of , 20     
                by
              
                          .



     In consideration of, and as an inducement to, the execution of that certain Franchise
Agreement (the “Agreement”) on this date by KIDVILLE FRANCHISE COMPANY, LLC (“us,” “we,” or “our”)
with                                         , a                           
               (“Franchisee”), each of the undersigned
unconditionally agrees (a) to be personally bound by, and personally liable for his or her own
breach of, Sections 1.C., 4.C., 5, 6, 7, 9.E., 12, 13, 14.B., 15 (except for Subsection 15.A.),
16.B., 18 and 19 of the Agreement, and (b) to be personally bound by Sections 1.B. and 17.F., G, H,
I, J, and K of the Agreement. None of the undersigned will be responsible for any of Franchisee’s
payment obligations under the Agreement.



     Each of the undersigned consents and agrees that: (1) his or her direct and immediate
liability under this Guaranty will be joint and several, both with Franchisee and among other
guarantors; (2) he or she will render any performance required under the Agreement upon demand if
Franchisee fails or refuses punctually to do so; (3) this liability will not be contingent or
conditioned upon our pursuit of any remedies against Franchisee or any other person; (4) this
liability will not be diminished, relieved, or otherwise affected by any extension of time, credit,
or other indulgence that we may from time to time grant to Franchisee or to any other person,
including, without limitation, the acceptance of any partial performance or the compromise or
release of any claims (including the release of other guarantors), none of which will in any way
modify or amend this Guaranty, which will be continuing and irrevocable during and after the term
of the Agreement (including extensions) for so long as any performance is or might be owed under
the Agreement by Franchisee or its owners and for so long as we have any cause of action against
Franchisee or its owners; and (5) this Guaranty will continue in full force and effect for (and as
to) any extension or modification of the Agreement and despite the transfer of any interest in the
Agreement or Franchisee, and each of the undersigned waives notice of any and all renewals,
extensions, modifications, amendments, or transfers.



     Each of the undersigned waives: (i) all rights to payments and claims for reimbursement or
subrogation that any of the undersigned may have against Franchisee arising as a result of the
undersigned’s execution of and performance under this Guaranty; and (ii) acceptance and notice of
acceptance by us of his or her undertakings under this Guaranty, notice of non-performance of any
obligations hereby guaranteed, protest and notice of default to any party with respect to the
nonperformance of any obligations hereby guaranteed, and any other notices to which he or she may
be entitled.



     If we are required to enforce this Guaranty in a legal proceeding and prevail in such
proceeding, we shall be entitled to reimbursement of our costs and expenses, including, but not
limited to, reasonable accountants’, attorneys’, attorneys’ assistants’, arbitrators’, and expert
witness fees, costs of investigation and proof of facts, court costs, other litigation expenses,
and travel and living expenses, whether incurred prior to, in preparation for, or in contemplation
of the filing of any such proceeding. If we are required to engage legal counsel in connection
with any failure by the undersigned to comply with this Guaranty, the undersigned shall reimburse
us













 







for any of the above-listed costs and expenses we incur even if we do not commence a legal
proceeding.



     IN WITNESS WHEREOF, each of the undersigned has affixed his or her signature on the same day
and year as the Agreement was executed.



	 	 	 
	 


	 	 
	 
	 	 
	 


[Signature]
		 
	 
	 	 
	Date:                     
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	 


[Signature]
	 	 
	 
	 	 
	Date:                     
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	 


[Signature]
	 	 
	 
	 	 
	Date:                     
	 	 







2