Document:

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                                                                    EXHIBIT 10.2
                          MANAGEMENT SERVICES AGREEMENT

         This MANAGEMENT SERVICES AGREEMENT, dated as of November 5, 1999 (this
"Agreement"), is entered into by and among LEARNINGEXPRESS.COM, LLC., a Delaware
limited liability company ("LEC"), a subsidiary of LEARNINGEXPRESS.COM HOLDINGS
LLC., a Delaware limited liability company ("LECH"), LECH and THE LEARNING
EXPRESS, INC. a Massachusetts corporation ("LEI").

                                   BACKGROUND

A.       LEI has developed plans, manuals, methods, systems and procedures, a
         uniform and recognizable marketing image and reputation for toy stores
         and the sale of related products and services under the name, trademark
         and service mark "Learning Express" (referred to herein as the
         "System") and has (i) licensed the System to franchisees
         ("Franchisees") who own and operate retail toy stores under the name
         Learning Express (the "Retail Stores") and (ii) established a network
         of service providers ("Regional Owners") responsible for marketing
         local store franchises, making proper disclosures under state and
         federal franchise laws, assisting in site selection and lease
         negotiations, assisting in pre-opening operations and training, and
         furnishing on-going support in various regions of the United States.

B.       LEC wishes to develop, operate and promote an Internet-based on-line
         store (the "On-Line Store") to adapt the System for electronic commerce
         and, accordingly, LEC has licensed from LEI certain of LEI's
         intellectual property pursuant to the terms and conditions of a License
         Agreement, dated as of the date hereof (the "License Agreement"), by
         and between LEI and LEC.

C.       In order to facilitate the development of the On-Line Store, LEC wishes
         to have LEI contract with such of the Franchisees as are agreeable (any
         such Franchisee is a "Participating Franchisee") to (a) provide space
         for an Internet kiosk and certain related services in each Retail Store
         such Participating Franchisee operates to enable access to the On-Line
         Store, (b) promote the On-Line Store in such Participating Franchisee's
         advertising materials, including but not limited to such Participating
         Franchisee's catalogues, direct mail, and other printed materials, (c)
         cooperate with LEC in promotions and other similar activities and (d)
         support product fulfillment and returns for customers of the On-Line
         Store, all as described in this Agreement and in the form of the
         Amendment to Franchise Agreement (and attachments thereto) attached
         hereto as EXHIBIT A (the "Franchise Amendment").

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D.       LEI believes that the development of the On-Line Store will enhance the
         business of its Franchisees and thereby LEI's own business and,
         accordingly, LEI is willing to facilitate cooperation among LEI's
         franchisees and LEC on the terms set forth in this Agreement and in the
         Franchise Amendment and to make certain arrangements with the Regional
         Owners as set forth in an amendment to the Regional Franchise License
         Agreement between each Regional Owner and LEI (each such amendment is a
         "Regional Amendment").

E.       LECH desires to enhance and enable the business plan of its subsidiary,
         LEC, through LECH's compliance with the terms and conditions of this
         Agreement.

     Now therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the
meanings set forth below:

"Franchise Agreement" shall have the meaning set forth in Section 2(a).

"Franchise Amendment" shall have the meaning set forth in paragraph C of the
introductory paragraphs to this Agreement.

"Franchisees" shall have the meaning set forth in paragraph A of the
introductory paragraphs to this Agreement.

"Regional Amendment" shall have the meaning set forth in paragraph D of the
introductory paragraphs to this Agreement.

"New Agreement" shall have the meaning set forth in Section 2(b).

"New Franchisee" shall have the meaning set forth in Section 2(b).

"On-Line Commission" shall have the meaning set forth in Section 3(b).

"On-Line Store" shall have the meaning set forth in paragraph B of the
introductory paragraphs to this Agreement.

"On-Line Store Date" shall mean the date on which the On-Line Store first
commences operation on the Internet for the sale of Products to the general
public.

"Participating Franchisee" shall have the meaning set forth in paragraph C of
the introductory paragraphs to this Agreement.

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"Person" shall mean a natural person, corporation, association, trust,
(including a business trust), partnership, limited liability company, joint
stock company, organization or proprietorship or similar entity.

"Product" shall mean any product sold through the On-Line Store.

"Protected Territory" shall have the meaning set forth in Section 3(a)(i).

"System" shall have the meaning set forth in paragraph A of the introductory
paragraphs to this Agreement.

"Term" shall have the meaning set forth in Section 10(a).

2.       COVENANTS OF LEI.

         (a) Participating Franchisees. As soon as practicable after the date
hereof, and subject to LECH's compliance with the Securities Act of 1933 and all
applicable state securities laws related to LECH's issuance of securities of
LECH to the Participating Franchisees, LEI shall exercise best efforts so that
each Franchisee existing as of April 10, 2000 execute an amendment to such
Franchisee's existing franchise agreement or agreements (prior to such
amendment, the "Franchise Agreement") in the form of the Franchise Amendment. In
connection with the execution of each such Franchise Amendment, LEI shall ensure
that (i) the "Commission Territory" shall be defined therein so as not to cause
the On-Line Commission to be due with respect to more than one Retail Store for
a single sale and (ii) the Commission Territory shall not encompass any zip code
that is not at least partially within the applicable Participating Franchisee's
"Protected Territory," as defined in the applicable Franchise Agreement.

         (b) New Franchisees. LEI shall ensure that any agreement with any new
franchisee for any Retail Store (a "New Franchisee") shall obligate such New
Franchisee to support the operations of the On-Line Store to the same extent as
all Participating Franchisees; provided that the On-Line Commission for New
Franchisees shall be the same as the On-Line Commission paid to Participating
Franchisees and the New Franchisees shall not be entitled to receive Common
Shares or other equity of LECH (any franchise agreement with a New Franchisee on
terms consistent with this Section 2(b) is a "New Agreement").

         (c) Amendments to Learning Express Confidential Operations Manual. From
time to time LEI may materially modify the Learning Express Confidential
Operations Manual sections that require Franchisees to support and promote the
On-Line Store ("On-Line Store Sections"), provided that LEC shall have consented
to any such modification, which consent shall not be unreasonably withheld. LEI
shall modify the On-Line Store Sections in accordance with LEC's reasonable
requests.

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         (d) LEI's Operation of Retail Stores. If and to the extent LEI becomes
a direct operator of any Retail Store, LEI shall agree to and abide by all the
provisions of the Franchise Agreement, as amended by the Franchise Amendment,
with respect to the On-Line Store, including without limitation with respect to
all matters addressed in the Manual Amendment, as defined in the Franchise
Amendment; provided that LEI shall not be entitled to receive Common Shares or
other equity of LECH.

         (e) Business Information of LEI Relevant to the System. Throughout the
Term, LEI shall make appropriate staff available at reasonable times and places
to provide information (including information received from Franchisees and
Regional Owners) to LEC regarding the current operation of the System by LEI,
the Franchisees and the Regional Owners, including information with respect to
LEI's sales, buying programs, marketing programs, customers, vendors and
services. LEC may use such information for its own business purposes throughout
the Term provided that such use is consistent with the terms and conditions of
(1) the License Agreement and (2) this Agreement, including without limitation
the provisions of Section 9 hereof.

         (f) Marketing and Promotion of the On-Line Store. Throughout the Term,
LEI shall promote LEC and the On-Line Store in all marketing, advertising and
promotion campaigns relating to the Retail Stores. The foregoing shall include
without limitation a prominent listing of the name, URL and a brief description,
such as "Shop for Learning Express toys and games on-line at
www.LearningExpress.com," for the On-Line Store in all catalogs, periodic
product newsletters and any other marketing, advertising or promotional
materials prepared by or on behalf of LEI for use by the Regional Owners,
Franchisees and/or Retail Stores.

3.       COVENANTS OF LEC.

         (a) On-Line Commission to LEI.

                  (i) LEC shall pay to LEI a commission (the "On-Line
         Commission") with respect to each calendar month (or portion thereof)
         during the Term (in each case within 20 days following the end of such
         calendar month), equal to a "Percentage" of "Net Sales in Territory"
         accrued during such month (or portion thereof during the Term).
         "Percentage" shall mean (a) five percent (5%) through the second
         anniversary of On-Line Store Date and (b) for the period thereafter,
         LEC presently intends to maintain the Percentage at the 5% level but
         reserves the right to have the Board of Managers of LEC establish a
         different level from time to time based on experience of sales and cash
         flow of the On-Line Store, provided, however, that such percentage
         determined by the Board of Managers shall not be less than 2.5%. "Net
         Sales in Territory" shall mean (A) LEC's gross revenues from the sale
         through the On-Line Store of Products ordered by customers of the
         On-Line Store whose "bill-to" address for the applicable order is
         within any "Protected Territory" as

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                defined in the Franchise Amendments as then in effect minus (B)
                all costs and charges incurred in connection with returned
                products and shipping and handling charges in connection
                therewith.

                (ii) Within ninety (90) days following the end of each fiscal
                year during the Term (or portion of such fiscal year if the Term
                does not extend during an entire fiscal year), LEC shall
                transmit to LEI a statement certified by LEC's chief financial
                officer detailing the calculation of Net Sales for such fiscal
                year then ended.

                (iii) LEC shall maintain accurate books and records supporting
                the calculations of Net Sales set forth in the foregoing
                subsection throughout the Term and for a period of two (2) years
                following the fiscal years for which such determinations have
                been made and permit LEI and its representatives, upon at least
                10 days prior written notice to LEC, to make examinations of
                such books and records during usual business hours and at the
                place at which LEC usually keeps its books and records.

         (b) Throughout the Term and to the extent reasonable practicable, LEC
shall include in marketing, advertising and promotional campaigns relating to
the On-Line Store statements to encourage consumers to shop at Retail Stores
operated by Franchisees.

         (c) LEC shall post on the On-Line Store, and update within a reasonable
period of time after LEI provides updated information, a listing of the names,
addresses and telephone numbers for the Retail Store(s) operated by each
Franchisee.

         (d) LEC shall share with LEI information with respect to LEC's sales,
inventory, customers, vendors and products to the extent consistent with any
confidentiality or other contractual arrangements with the parties providing
such information to LEC. LEI may use such information for LEI's own business
purposes throughout the Term provided that such use is consistent with the terms
and conditions of this Agreement, including without limitation the provisions of
Section 9 hereof.

         (e) Regarding Retail Stores. Promptly following full execution of each
Franchise Amendment and each New Agreement, LEC shall (i) assist Participating
Franchisees and New Franchisees with the procurement, installation and operation
of the Kiosk Equipment and the Kiosk throughout the Term as provided in the
Manual Amendment (or the sections corresponding thereto in the applicable New
Agreement), (ii) provide all reasonable cooperation, assistance and payments to
the applicable Participating Franchisee or New Franchisee as may be required to
effectuate the provisions of the applicable Franchise Amendment and the Manual
Amendment, as defined therein, (and/or the sections corresponding thereto in the
applicable New Agreement), and (iii) effectuate and otherwise make all payments
required to be made to the applicable Participating Franchisee or New Franchisee
in connection with the Product order,

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fulfillment and return functions described in the Manual Amendment (or the
sections corresponding thereto in the applicable New Agreement);

4.       COVENANTS OF LECH

         (a) Subject to LECH's compliance with the Securities Act of 1933 and
all applicable state securities laws, issue to each Participating Franchisee who
has executed a Franchise Amendment, upon such execution or as soon as shall be
practicable thereafter, Common Shares of LECH in accordance with the terms and
conditions of Section 5(a) of such Franchisee's Franchise Amendment.

         (b) Subject to LECH's compliance with the Securities Act of 1933 and
all applicable state securities laws, issue to each Regional Owner who has
executed a Regional Amendment upon such execution or as soon as shall be
practicable thereafter, Common Shares of LECH in accordance with the terms and
conditions of Section 2(a) of the applicable Regional Amendment.

5. FURTHER COOPERATION. Each of the parties hereto covenants and agrees that it
shall furnish to the other party hereto such reasonably necessary information
and reasonable assistance, including without limitation execution of documents,
certificates and instruments, as such other party may reasonably require to
effectuate the provisions of this Agreement.

6. REPRESENTATIONS AND WARRANTIES BY LEI

         (a) General. LEI represents and warrants to LEC and LECH that: (i) LEI
is a corporation duly organized and validly existing under the laws of the
Commonwealth of Massachusetts; (ii) LEI has the requisite corporate power and
authority to execute and deliver, and to perform LEI's obligations under, this
Agreement; and (iii) neither the execution and delivery of this Agreement by LEI
nor the performance by LEI of LEI's obligations hereunder will violate or
conflict with (A) the provisions of any agreement to which LEI is a party, or
(B) the provisions of any law, statute, rule, regulation, judgment, order, or
decree of any domestic or foreign governmental, administrative, or judicial
authority which, if violated, would have a material adverse effect on the
ability of LEI to perform LEI's obligations hereunder.

7. REPRESENTATIONS AND WARRANTIES BY LEC. LEC represents and warrants to LEI
that: (i) LEC is a limited liability company duly organized and validly existing
under the laws of the State of Delaware; (ii) LEC has the requisite limited
liability company power and authority to execute and deliver, and to perform
LEC's obligations under, this Agreement; and (iii) neither the execution and
delivery of this Agreement by LEC nor the performance by LEC of LEC's
obligations hereunder will violate or conflict with (A) the provisions of any
agreement to which LEC is a party, or (B) the provisions of any law, statute,
rule, regulation, judgment, order, or decree of any domestic or foreign
governmental, administrative, or judicial authority which, if

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violated, would have a material adverse effect on the ability of LEC to perform
LEC's obligations hereunder.

8. REPRESENTATIONS AND WARRANTIES BY LECH. LECH represents and warrants to LEI
that: (i) LECH is a limited liability company duly organized and validly
existing under the laws of the State of Delaware; (ii) LECH has the requisite
limited liability company power and authority to execute and deliver, and to
perform LECH's obligations under, this Agreement; and (iii) neither the
execution and delivery of this Agreement by LECH nor the performance by LECH of
LECH's obligations hereunder will violate or conflict with (A) the provisions of
any agreement to which LECH is a party, or (B) the provisions of any law,
statute, rule, regulation, judgment, order, or decree of any domestic or foreign
governmental, administrative, or judicial authority which, if violated, would
have a material adverse effect on the ability of LECH to perform LECH's
obligations hereunder.

9. CONFIDENTIALITY.

         (a) Except as expressly provided in this Agreement, no party hereto,
without the prior written consent of the other parties hereto, shall disclose to
any third party (i) any information regarding the terms of this Agreement or
exchanged in connection with the negotiation of this Agreement or regarding the
transactions contemplated hereby (such information the "Agreement-Specific
Information"), or (ii) any information regarding the actual or anticipated
business or technology of the other party(ies), in either case to the extent
disclosed by such other party(ies) in connection with the transactions
contemplated hereby or the performance by the other party of such other
party(ies)'s obligations hereunder, including, without limitation, information
regarding or which includes customers, business practices, business prospects,
financial condition, pricing policies, processes, technical data or
specifications, source code or any other proprietary information (such
information is, the "Proprietary Information").

         (b) Notwithstanding the foregoing, each party hereto may (i) disclose
the Proprietary Information of the other party(ies) to such party's employees,
directors, advisers, consultants, and representatives with a "need to know,"
including without limitation Franchisees and Regional Owners and who agree to be
subject to the confidentiality restrictions set forth in this Section 9, (ii)
disclose all or such portion of the Agreement-Specific Information or the
Proprietary Information of the other party(ies) as such party shall be ordered
to disclose to a judicial or administrative agency of competent jurisdiction,
provided that such party shall give the original disclosing party reasonable
notice of such order and a timely opportunity to attempt to preclude or limit
such production, (iii) disclose the terms hereof to the extent necessary to
comply with any applicable securities laws; and (iv) disclose the existence,
general terms and the length of term of this Agreement to such party's current
and prospective business partners and investors.

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         (c) The obligations in this Section 9 shall not apply to any
information disclosed by any party to any other party hereunder to the extent
that, and after such time as, such information (i) becomes publicly available
other than by a breach of this Agreement, (ii) is rightfully received by the
non-disclosing party from a third party who is not under an obligation of
confidentiality with respect thereto, (iii) can be demonstrated to have been
independently developed by the non-disclosing party without access to or use of
any of the Proprietary Information of the other party, or (iv) is known to the
non-disclosing at the time of disclosure, provided that the non-disclosing party
shall have promptly delivered to the other party written notice of such prior
knowledge.

         (d) Each party agrees (except to the extent that such party has rights
to such Proprietary Information in accordance with this Agreement) to (i) cease
using the Proprietary Information of the other party(ies) upon the expiration or
termination of this Agreement and (ii) promptly return to the applicable other
party all materials embodying the Proprietary Information of such other party
upon the expiration or termination of this Agreement and, at any time prior
thereto, promptly upon the written request of such other party (except to the
extent the non-disclosing party has rights to such Proprietary Information in
accordance with this Agreement).

10.      TERM AND TERMINATION.

         (a) This Agreement shall commence on the date hereof and continue for
an indefinite period in full force and effect until it is terminated in
accordance with this Section 10 (such period is, the "Term").

         (b) Any party shall have the right but not the obligation to terminate
this Agreement immediately if at any time: (i) any other party shall be in
material breach of any of its obligations hereunder or under the License
Agreement, and such breach shall not be cured within 20 days following receipt
of written notice thereof; (ii) any other party shall be the subject of a
voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation or assignment for the benefit of
creditors; (iii) any other party shall become the subject of any involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation or assignment for the benefit of creditors, and such
petition or proceeding shall not be dismissed within 60 days of filing; (iv) the
business of any other party shall be liquidated or otherwise terminated on any
basis; or (v) any other party shall become insolvent or unable to pay its debts
as they become due.

         (c) A party may exercise its right to terminate this Agreement pursuant
to this Section 10 by written notice to the other parties. No exercise by a
party of its rights under this Section 10 shall limit its remedies by reason of
any other party's default, the party's rights to exercise any other rights under
this Section 10 or any other rights of that party.

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         (d) The provisions of Sections 3(b) (with respect to Commissions
accrued through the effective date of such termination), 5, 9, 10(d), 11 and 12
shall survive any termination of this Agreement.

11. SPECIFIC ENFORCEMENT. The parties hereto each acknowledge that the other
parties hereto will be irreparably damaged in the event that this Agreement is
not specifically enforced. Upon a breach or threatened breach of the terms,
covenants or conditions of this Agreement by any party, the other parties hereto
shall, in addition to all other remedies, be entitled to a temporary or
permanent injunction, without showing any actual damage, or a decree for
specific performance, in accordance with the provisions hereof.

12. MISCELLANEOUS.

         12.1 Notices. Any notice required or permitted to be given hereunder
shall be in writing and shall be deemed to be properly given on the date of
postmark when sent by registered or certified mail, return receipt requested,
addressed as follows:

                  If to LEI:

                  The Learning Express, Inc.
                  Devens Business Community
                  29 Buena Vista Street
                  Ayer, MA  01432
                  Attn:  Chief Executive Officer

                  If to LEC:

                  LearningExpress.com, LLC
                  Devens Business Community
                  29 Buena Vista Street
                  Ayer, MA  01432
                  Attn:  Chief Executive Officer

                  If to LECH

                  LearningExpress.com Holdings LLC
                  Devens Business Community
                  29 Buena Vista Street
                  Ayer, MA  01432
                  Attn:  Chief Executive Officer

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or such other address as any party may give the others notice of pursuant to
this Section.

         12.2 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
regard to conflicts of laws principles thereof. Any action to enforce, arising
out of, or relating in any way to, any of the provisions of this Agreement shall
be brought and prosecuted in the state courts of the Commonwealth of
Massachusetts or the United States District Court for the District of
Massachusetts and the parties consent to the jurisdiction of said courts and to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.

         12.3 Waivers; Amendments. No waiver of any right hereunder by any party
shall operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by any party of any breach of this Agreement shall be held to constitute
a waiver of any other breach or a continuation of the same breach. All remedies
provided by this Agreement are in addition to all other remedies provided by
law, in equity or otherwise. This Agreement may not be amended except in a
writing signed by the parties hereto.

         12.4 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the respective legal representatives, successors
and assigns of the parties hereto.

         12.5 Severability. If any provision of this Agreement shall be declared
void or unenforceable by any judicial or administrative authority, the validity
of any other provisions and of the entire Agreement shall not be affected
thereby.

         12.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         12.7 Prior Understandings. This Agreement represents the complete
agreement of the parties with respect to the transactions contemplated hereby
and supersedes all prior agreements and understandings.

         12.8 Headings. Headings in this Agreement are included for reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.

         12.9 Sealed Instrument. This Agreement shall have the effect of an
instrument executed under seal.

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         IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.

THE LEARNING EXPRESS, INC.                     LEARNINGEXPRESS.COM, LLC

By:  /s/ Sharon DiMinico                       By:   /s/ Steven P. Manfredi
     -----------------------                         -----------------------
     Name:                                           Name:
     Title:                                          Title:

                                               LEARNINGEXPRESS.COM HOLDINGS LLC

                                               By:   /s/ Steven P. Manfredi
                                                     -----------------------
                                                     Name:
                                                     Title:

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                                    Exhibit A

                                  AMENDMENT TO
              FRANCHISE AGREEMENT/LOCAL FRANCHISE LICENSE AGREEMENT

         AMENDMENT (this "Amendment"), dated as of ____ _____, _____, by and
between THE LEARNING EXPRESS, INC. a Massachusetts corporation ("Franchisor"),
and ________________, a _______________ _____________ (the "Franchisee").

                                   BACKGROUND

A.       Franchisor and Franchisee are parties to that certain Franchise
         Agreement/Local Franchise License Agreement dated as of ____ _____,
         _____ by and between Franchisor and Franchisee (the "Franchise
         Agreement") pursuant to the terms and conditions of which Franchisor
         has granted a franchise to Franchisee to operate a retail specialty toy
         store (the "Retail Store") using Franchisor's "System" and "Marks" in
         the "Protected Territory," all as defined in the Franchise Agreement.

B.       Franchisor has entered into a License Agreement, dated as of November
         5, 1999 (the "LEC Agreement") with LearningExpress.com, LLC, a Delaware
         limited liability company ("LEC"), pursuant to the terms and conditions
         of which Franchisor has licensed certain components of the System and
         the Marks to enable LEC to develop, operate and promote an
         Internet-based on-line specialty toy store under the name
         LearningExpress.com (the "On-Line Store").

C.       Franchisor has entered into Management Services Agreement, dated as of
         November 5, 1999 (the "Management Agreement") by and among Franchisor,
         LEC and LearningExpress.com Holdings LLC ("LECH"), the principal owner
         of LEC, pursuant to the terms and conditions of which, among other
         matters, Franchisor has agreed to (1) support LEC's use of the System
         in the On-Line Store through assistance with marketing, promotion and
         exchange of information regarding sales, customers, vendors, and (2)
         contract with each of Franchisor's franchisees on the terms and
         conditions set forth in this Amendment.

D.       Franchisor and Franchisee believe that the On-Line Store will enhance
         Franchisor's and Franchisee's respective businesses by, among other
         things, promoting the "Learning Express" image and good will to
         consumers who use the Internet and enhancing customer traffic to the
         Retail Store and other retail stores operated by other franchisees of
         Franchisor.

E.       Accordingly, Franchisor and Franchisee are entering into this Amendment
         to facilitate the development, operation and promotion of the On-Line
         Store by LEC

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<PAGE>   13
         and to set forth: (i) certain services that Franchisee has agreed to
         provide to Franchisee's and LEC's customers with respect to the On-Line
         Store and (ii) certain specified payments and other benefits that
         Franchisee will receive in consideration thereof.

     Now therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1.       AMENDMENT OF FRANCHISE AGREEMENT; CAPITALIZED TERMS. The terms and
provisions of this Amendment amend the Franchise Agreement. In the event of any
conflict between the terms of the Franchise Agreement and the terms of this
Amendment, the terms of this Amendment shall govern. Capitalized terms not
otherwise defined herein shall have the same meaning(s) as set forth in the
Franchise Agreement.

2.       AMENDMENT TO LEARNING EXPRESS CONFIDENTIAL OPERATIONS MANUAL.

         (a) Franchisee consents and agrees to all of the amendments to the
LEARNING EXPRESS CONFIDENTIAL OPERATIONS Manual (the "Manual") set forth on
Exhibit A hereto (the "Manual Amendment").

3.       TERM. Franchisee's and Franchisor's obligations under this Amendment,
shall commence on        , 2000 and continue until the earlier to occur of: (i)
termination of the Franchise Agreement in accordance with its terms (without
giving effect to this Amendment), (ii) the occurrence of a material breach by
Franchisee of the terms and conditions of this Amendment following written
notice to Franchisee by Franchisor detailing such alleged breach and
Franchisee's failure to remedy any such actual breach within ten (10) days, or
such other period as may be required by applicable state law, following such
notice, or (iii) upon Franchisor's election, exercised in its sole discretion by
written notice to Franchisee, to terminate this Amendment incident to a breach
by LEC of the LEC Agreement or the Management Agreement. The foregoing period is
referred to herein as the "Term".

         Upon any termination in accordance with subsection (iii) of the
foregoing paragraph, all obligations of the Franchisor and the Franchisee under
this Amendment shall terminate but the Franchise Agreement and all obligations
of the parties thereunder shall continue in full force and effect in accordance
with their terms unaffected hereby.

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4.       EQUITY AND COMMISSION

         (a)      Equity of LECH.

                  (i)      In consideration of Franchisee's agreement to execute
                           and consummate the terms and conditions of this
                           Amendment, Franchisor shall cause LECH to issue to
                           Franchisee 14,250 Common Shares of LECH for each
                           Retail Store operated by Franchisee (such shares, the
                           "Shares").

                  (ii)     Prior to issuance of the Shares, LECH may require
                           Franchisee to execute an investment letter or letters
                           to the effect that the Shares are being acquired by
                           Franchisee for Franchisee's own account for
                           investment purposes, that Franchisee has no present
                           intention of offering, distributing or otherwise
                           disposing of the Shares, and that Franchisee shall
                           agree not to dispose of the Shares unless a
                           registration statement or appropriate qualification
                           is then in effect under applicable state "Blue Sky"
                           laws with respect to the Shares or in the opinion of
                           counsel for LECH the Shares are exempt from the
                           registration or qualification requirements of such
                           laws.

                  (iii)    Prior to issuance of the Shares, Franchisee shall
                           execute and enter into the then current Operating
                           Agreement for LECH and be bound thereby as a member
                           of LECH. Such Operating Agreement shall provide,
                           among other matters, that, until such time as LECH,
                           or a successor entity, has completed an "Initial
                           Public Offering" (defined below), all of the Shares
                           shall be forfeited to LECH immediately upon the
                           termination of either or both of the Franchise
                           Agreement or this Amendment, provided, however, that
                           the Shares shall not be subject to forfeiture in the
                           case where either or both of the Franchise Agreement
                           and this Amendment are terminated in connection with
                           the sale or transfer of Franchisee's Retail Store to
                           a New Franchisee.

                  (iv)     Franchisee agrees that Franchisee will not, for a
                           period of at least 180 days following the effective
                           date of any "Initial Public Offering" (defined below)
                           by LECH (or its successor-in-interest) or by LEC (or
                           its successor-in-interest), directly or indirectly,
                           sell, offer to sell or otherwise dispose of the
                           Shares other than any securities which are included
                           in such Initial Public Offering, provided, however,
                           that LECH shall be under no obligation to include the
                           Shares or any portion thereof in any Initial Public

                                      -3-
<PAGE>   15
                           Offering. If the managing underwriter of any such
                           Initial Public Offering determines that a shorter
                           time period is appropriate, the aforementioned 180
                           day period may be shortened consistent with the
                           requirements of such managing underwriter. An
                           "Initial Public Offering" shall mean LECH's, or a
                           successor entity's, initial distribution of
                           securities in a firm commitment underwritten public
                           offering to the general public pursuant to a
                           registration statement filed with the Securities and
                           Exchange Commission.

         (b)      On-Line Commission.

                  (i)      In consideration of Franchisee's performance of
                           Franchisee's obligations hereunder, Franchisor shall
                           pay to Franchisee a commission (the "On-Line
                           Commission") equal to a percentage (the
                           "Percentage"), of the On-Line Store's "Net Sales in
                           Territory" accrued during each calendar month (or
                           portion thereof) during the Term. "Percentage" shall
                           mean (a) five percent (5%) through the second
                           anniversary of the "On-Line Store Date," defined
                           below, and (b) for the period thereafter, the
                           percentage established from time to time by the Board
                           of Managers of LEC based on experience of sales and
                           cash flow of the On-Line Store, provided, however,
                           that, (1) without limitation of the foregoing, LEC
                           presently intends to maintain the Percentage during
                           such period at the 5% level and (2) notwithstanding
                           anything herein to the contrary such percentage
                           determined by the Board of Managers shall never be
                           less than 2.5%. "Net Sales in Territory" shall mean:
                           (A) LEC's gross revenues accrued from the sale
                           through the On-Line Store of On-Line Store products
                           ("Products") ordered by customers ("Customers") whose
                           "bill-to" address for the applicable order is within
                           the "Protected Territory" as defined in the Franchise
                           Agreement minus (B) all costs and charges incurred in
                           connection with returned products and shipping and
                           handling charges in connection therewith. "On-Line
                           Store Date" shall mean the date on which the On-Line
                           Store first commences operation on the Internet for
                           the sale of Products to the general public.

                  (ii)     The On-Line Commission will be payable to the
                           Franchisee within 35 days after the end of the
                           calendar month in which LEC accrues the applicable
                           sale(s).

                  (iii)    In addition, Franchisor need not pay the On-Line
                           Commission to Franchisee to the extent that LEC,
                           under and pursuant to that

                                      -4-
<PAGE>   16
                           certain Management Services Agreement by and among
                           Franchisor, LEC and LearningExpress.com Holdings LLC
                           (the "MSA"), has not paid to Franchisor the component
                           of the "On-Line Commission," as defined in the MSA,
                           corresponding to the On-Line Commission otherwise
                           payable by Franchisor to Franchisee hereunder.

                  (iv)     Franchisor may suspend payment of the On-Line
                           Commission to Franchisee if Franchisor determines
                           that Franchisee continues to be materially
                           noncompliant with the Manual, as amended from time to
                           time, following written notice by Franchisor to
                           Franchisee of such noncompliance and a subsequent
                           thirty (30) day opportunity to cure such
                           non-compliance.

         (c) Except for payment of the On-Line Commission and the other
consideration provided for in this Agreement, Franchisee shall have no rights
under the Franchise Agreement or otherwise against Franchisor or any other party
with respect to the operations and sales of LEC and the On-Line Store regardless
of the billing address, shipping address or other location of the Customer or
other person to whom any Product is delivered or otherwise on account of any
sale of any Product.

5.       FURTHER COOPERATION. Each of the parties hereto covenants and agrees
that it shall furnish to the other party hereto such reasonably necessary
information and reasonable assistance, including without limitation execution of
documents, certificates and instruments, as such other party may reasonably
require to effectuate the provisions of this Amendment.

6.       CONFIRMATION OF FRANCHISE AGREEMENT. The parties hereto acknowledge,
agree and confirm that subject to Sections 2(a) and 4(c) hereof, all terms and
conditions of the Franchise Agreement not inconsistent with the terms of this
Amendment shall continue and remain in full force and effect unaffected by this
Amendment.

7.       EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not be effective
until a copy executed by Franchisee and delivered to Franchisor has been
countersigned by Franchisor and delivered to Franchisee.

                                      -5-
<PAGE>   17
8.       MISCELLANEOUS.

         8.1      Notices.

Any notice required or permitted to be given to Franchisor hereunder shall be
addressed as follows:

                  The Learning Express, Inc.
                  Devens Business Community
                  29 Buena Vista Street
                  Ayer, MA  01432
                  Attn:  Chief Executive Officer

Any notice required or permitted to be given to Franchisee hereunder shall be
addressed as follows:

or such other address as any party may give the others notice of pursuant to
this Section.

         8.2 Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         8.3 Headings. Headings in this Amendment are included for reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.

         8.4 Sealed Instrument. This Amendment shall have the effect of an
instrument executed under seal.

                            [continues on next page]

                                      -6-
<PAGE>   18
         IN WITNESS WHEREOF, this Amendment has been executed as of the date
first above written.

THE LEARNING EXPRESS, INC.       FRANCHISEE
                                 PRINT NAME OF LEGAL ENTITY (IF ANY):

By:  _______________________     ________________________________________
     Name:
     Title:
                                 BY:   _______________________
                                 PRINT NAME OF SIGNER: ____________________
                                 PRINT TITLE OF SIGNER: _____________________

                                 (if more than one signer, continue
                                  signatures below)

                                 BY:   _______________________
                                 PRINT NAME OF SIGNER: ____________________
                                 PRINT TITLE OF SIGNER: _____________________

                                 BY:   _______________________
                                 PRINT NAME OF SIGNER: ____________________
                                 PRINT TITLE OF SIGNER: _____________________

                                 BY:   _______________________
                                 PRINT NAME OF SIGNER: ____________________
                                 PRINT TITLE OF SIGNER: _____________________

                                      -7-
<PAGE>   19
                                    EXHIBIT A

             SUPPLEMENT TO LEARNING EXPRESS, INC. OPERATIONS MANUAL

This supplement is intended to outline the key operational requirements of each
Learning Express franchisee that will facilitate cooperation thereby enhancing
the development of the On-Line Store as well as the franchised stores. It does
not address in detail all operational procedures that will facilitate a seamless
environment for the Learning Express customer when shopping either through a
franchised location, the On-Line Store or both. Those detailed procedures are
under development and will be incorporated, along with the following, as part of
the Learning Express, Inc. Policies and Procedures section of the Operations
Manual.

1.       IN-STORE KIOSK

         A cooperative program between Learning Express franchisee and
         LearningExpress.com E-commerce Company ("On-Line Store") that will
         enhance customer service and broaden product offerings by enabling
         access to the On-Line Store via a Kiosk unit.

         OPERATIONAL REQUIREMENTS: Learning Express franchisee will provide the
         appropriate retail space inside franchised location for placement of
         the Kiosk. Franchisee will provide the appropriate utility connections
         as well as subscription service to an Internet Service Provider ("ISP")
         for access to the World Wide Web. Customer will have access only to the
         LearningExpress.com URL.

         COST TO FRANCHISEE: Ongoing communications (i.e., telephone line and
         ISP subscription costs). On-line store will provide equipment and
         fixture to franchisee at no cost.

2.       MARKETING AND BRAND DEVELOPMENT

         Learning Express, Inc. believes that the development of the On-Line
Store will enhance the business of its Franchisees by creating additional
awareness of the Learning Express name through various cooperative marketing and
advertising programs.

         OPERATIONAL REQUIREMENTS: Learning Express franchisee will allow the
marketing and promotion of the On-Line Store as well as display the
LearningExpress.com URL on marketing materials including; catalogs, print ads,
marketing and advertising materials, bags and in-store display materials.

         COST TO FRANCHISEE: Minimal, if any.

                                      -8-
<PAGE>   20
         OPERATIONAL REQUIREMENTS: Learning Express franchisee will allow up to
four direct mailings to customer mailing list that will promote in a joint
fashion, the On-Line Store and that particular local store.

         COST TO FRANCHISEE: None

         OPERATIONAL REQUIREMENTS: Learning Express franchisee will accept
On-Line Store gift certificates and coupons utilizing the same process as now
used for the franchised store system. On-Line Store gift certificates and
coupons will be validated via telephonic or electronic means.

         COST TO FRANCHISEE: None

    3. PRODUCT RETURNS

         In order to provide seamless customer service and distinguish the
Learning Express On-Line Store from other like e-commerce companies, a
cooperative return process between the On-Line Store and the franchised store is
necessary.

         OPERATIONAL REQUIREMENTS: Learning Express franchised store will accept
product returns from Learning Express On-Line Store customers following the same
inter-store procedure as outlined in the current Operations Manual.

                  -        Returned products that are on the Learning Express
                           "Buying Program" will be retained into inventory by
                           store for sale at retail. Store will receive
                           reimbursement from On-Line Store for cost of item.

                  -        Returned products that are not on "Buying Program"
                           may be returned to the On-Line Store fulfillment
                           center. Store will receive full reimbursement of
                           credit given to customer.

                  -        Customer will receive instructions for those items
                           carried by the On-Line Store (i.e., direct ship by
                           mfg., affiliate sales, etc.) that are not returnable
                           to a franchised store location.

         COST TO FRANCHISEE:  Minimal to none

                                      -9-<PAGE>   1
                                                                    EXHIBIT 10.3

USTRUST                                                 LOAN AGREEMENT

THIS AGREEMENT made this 29th day of December, 1999, by and between
LearningExpress.com LLC, a Delaware corporation with an address and principal
place of business at 29 Buena Vista Street, Ayer, Massachusetts 01432
(hereinafter called the "BORROWER") and USTrust, a Massachusetts trust company
with a usual place of business at 30 Court Street, Boston, Massachusetts, 02108.

                              W I T N E S S E T H :

 The following constitutes the agreement of the parties:

                                    SECTION 1

                     AMOUNT AND TERMS OF CREDIT AND INTEREST
                                  THE TERM LOAN

 1.1 Subject to the terms and conditions of this Agreement, the Bank will make a
term loan to the Borrower on the date of execution of this Agreement (the
"LOAN"), in the amount of seven hundred fifty thousand ($750,000.00) dollars, as
evidenced by a Secured Term Note of even date in the original principal amount
of $ 750,000.00 (the "TERM NOTE").

       1.2 Interest on the principal balance of the Term Loan shall be payable
monthly in arrears commencing on the first day of the first month next
succeeding the date hereof at the fixed rate of nine percent (9%) per annum.

       Interest shall be computed on the basis of a 360-day year, for the actual
number of days elapsed. Default interest shall be charged in accordance with the
terms of the Term Note.

       1.3 The Term Loan shall be payable (after six (6) consecutive monthly
installments of interest only) in sixty (60) consecutive monthly installments of
principal and interest in the amount of $15,568.77 each (except the last
payment, which shall be in the amount of the outstanding principal balance,
together with accrued but unpaid interest thereon), with payments to be made
monthly in arrears on the first day of each month. On any date on which a
payment of interest or principal is due hereunder, the Bank may charge the
Borrower's demand deposit account(s) with the amount thereof. The failure of the
Bank so to charge such account shall not relieve the Borrower of its obligations
to make payments hereunder.

       1.4 The Bank need not enter payments of interest and principal upon the
Term Note, but may maintain a record thereof on a separate ledger maintained by
the Bank.

                                      -1-
<PAGE>   2
       1.5 All of the Borrower's obligations to the Bank, of every kind and
description, including those arising under this Agreement, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument they may be
evidenced, including those arising under any other agreements, instruments or
documents executed in conjunction herewith, or whether evidenced by an agreement
or instrument, including obligations to perform acts and refrain from taking
action, as well as obligations to repay the Loans, shall constitute the
Borrower's "LIABILITIES" to the Bank, as the same may be modified, amended,
replaced or extended from time to time.

       1.6 The Term Note is incorporated herein to the same extent as if it was
set forth in full in this Agreement.

                                    SECTION 2

                         WARRANTIES AND REPRESENTATIONS

      2.1 To induce the Bank to enter into this Loan Agreement and to make the
Loan, the Borrower warrants and represents that, as of this date:

      (a)   The Borrower is a duly organized and existing limited liability
            company under the laws of the State of Delaware and is in good
            standing under the laws of said State of Delaware.

      (b)   The Borrower is duly qualified to do business and in good standing
            as a foreign limited liability company in each state or other
            jurisdiction where the nature of the business conducted by it or the
            property owned by it requires such qualification.

      (c)   The Borrower has good and clear record and marketable title to all
            properties and assets which it purports to own, free and clear of
            all mortgages, liens, pledges, charges, security interests and
            encumbrances, other than those being granted to the Bank, if any,
            and those reflected on EXHIBIT A attached hereto.

      (d)   The Borrower owns and holds or leases all real and personal property
            necessary or incidental to the present conduct of its business,
            including, without limitation, patents, trademarks, service marks,
            trade names, copyrights and licenses and other rights with respect
            to the foregoing.

      (e)   All books and records of the Borrower, including, but not limited
            to, books of account, are accurate and reflect all matters and
            transactions which should currently be reflected therein.

      (f)   The general nature of the Borrower's business is as

                                      -2-
<PAGE>   3
            set forth on EXHIBIT A attached hereto.

      (g)   The Borrower has no subsidiaries and no investments in the stock or
            securities of any other corporation, firm, trust or other entity,
            except as set forth on EXHIBIT A.

      (h)   Except as set forth on EXHIBIT A, there are no actions, suits,
            investigations or proceedings pending, or to the knowledge of the
            Borrower threatened, against the Borrower or any of its properties
            in any court, before any governmental authority, arbitration board,
            or any other tribunal which, singly or in the aggregate, if decided
            adversely to the Borrower, would materially and adversely affect the
            business, properties or condition (whether financial or otherwise)
            of the Borrower. The Borrower is not, nor by execution and delivery
            of this Agreement and the performance of its obligations hereunder
            (with or without the passage of time) will the Borrower be in
            default with respect to any order of any court, governmental
            authority, arbitration board or other tribunal.

      (i)   The Borrower has furnished to the Bank the financial statements for
            the time period indicated on EXHIBIT A attached hereto. Said
            statements fairly present the condition of the Borrower at the dates
            thereof, and the statements of operation contained therein fairly
            present the results of the operations of the Borrower for the
            periods indicated, all in conformity with generally accepted
            accounting principles consistently applied.

      (j)   Except to the extent reflected or reserved against in the financial
            statements referred to above, the Borrower, as of the date of said
            financial statements, had no liabilities of any nature, whether
            accrued, absolute, contingent or otherwise, including, without
            limitation, tax liabilities, due or to become due, or arising out of
            transactions entered into or any state of facts existing prior
            thereto.

      (k)   Since the date of the financial statements referred to in Section
            2.1(i), and except as shown on EXHIBIT A, and except as to assets
            transferred to the Borrower, there has not been:

            (i)   any change in the condition of the Borrower's assets or
                  liabilities, other than changes in its ordinary course of
                  business, none of which has been materially adverse, nor has
                  there been any depletion of cash or decrease of working
                  capital which has been materially adverse;

                                      -3-
<PAGE>   4
            (ii)  any damage, destruction or loss, whether or not covered by
                  insurance, materially and adversely affecting the Borrower's
                  properties or business;

            (iii) any declaration of, setting aside of, or making of a payment
                  of any dividend or other distribution with respect to the
                  Borrower's capital stock or any direct or indirect redemption,
                  purchase or other acquisition of any such stock, except for
                  distributions to its stockholders to satisfy federal and state
                  tax liabilities on undistributed income (if Borrower is a
                  Subchapter "S" corporation); or

            (iv)  any materially adverse:

                  (1)   controversy with any labor organization or employees;

                  (2)   claim or controversy involving any federal, state or
                        local governmental agencies; or

                  (3)   other event or condition materially affecting the
                        business or properties of the Borrower.

      (l)   The Borrower has filed all federal and state income tax returns,
            excise tax returns, and all other tax returns of every kind and
            nature which are required to be filed by the Borrower as of the date
            hereof and has paid all taxes shown to be due on said returns.

      (m)   The Borrower keeps all records concerning its accounts (as said term
            is defined in the Massachusetts Uniform Commercial Code) and has its
            chief executive office and principal place of business at the
            address set forth at the beginning of the Agreement. The Borrower
            has no other addresses at which the Borrower has an office, conducts
            business or at which any of the Borrower's property is located
            except as set forth on EXHIBIT A.

      (n)   The execution and delivery of this Agreement, the borrowing by the
            Borrower as herein provided, the execution and delivery by the
            Borrower of all instruments, agreements and documents of every kind
            and nature pursuant hereto and the performance by the Borrower of
            all of its obligations to the Bank hereunder have been duly
            authorized by the Manager of the Borrower and, to the extent
            required by law or otherwise, and this Agreement and all
            instruments, agreements and documents executed pursuant hereto are
            valid and binding obligations of the Borrower enforceable in
            accordance with their terms except to the extent such enforceability
            may be limited by laws of general application affecting the rights
            of

                                      -4-
<PAGE>   5
            creditors.

      (o)   There is no provision in the Limited Liability Company Operating
            Agreement of the Borrower, or any indenture, contract or agreement
            to which it is a party or by which it is bound, which prohibits the
            execution and delivery of this Agreement or the performance by the
            Borrower of its obligations hereunder.

      (p)   No event has occurred and no condition exists, which, upon the
            execution and delivery of this Agreement would constitute a default
            or an Event of Default hereunder. Neither the nature of the Borrower
            or any of its business or properties, nor any relationships between
            the Borrower and any other person, nor any circumstances in
            connection with the execution or delivery of this Agreement, is such
            as to require a consent, approval, or authorization of or filing,
            registration, or qualification with, any governmental authority on
            the part of the Borrower as a condition of the execution and
            delivery of this Agreement or any other instrument, agreement or
            document contemplated hereby, or the performance by the Borrower of
            its obligations hereunder or thereunder.

      (q)   The Borrower has no pension, profit sharing, stock option, Employee
            Stock Ownership Trust ("ESOT"), insurance or other similar plan
            providing for a program of deferred compensation or benefits for any
            employee or officer, except as indicated on EXHIBIT A hereto.

                                    SECTION 3

                              AFFIRMATIVE COVENANTS

      3.1 The Borrower will duly and punctually pay all interest and principal
becoming due to the Bank and will duly and punctually perform all things on its
part to be done or performed under this Agreement, or pursuant to any
instrument, document or agreement executed pursuant hereto.

      3.2 The Borrower will, at all times, keep proper books of account in which
full, true and correct entries will be made of its transactions in accordance
with generally accepted accounting principles consistently applied.

      3.3 The Borrower will, at all reasonable times, make its books and records
available, in its offices, for inspection, examination and copying by the Bank
and the Bank's representatives and will, at all reasonable times, permit
inspection of its properties by the Bank and the Bank's representatives.

      3.4 The Borrower will, from time to time, furnish the Bank with such
information and statements as the Bank may reasonably request and with copies of
all financial statements and reports that it shall send or make available to its
members.

                                      -5-
<PAGE>   6
      3.5 The Borrower will furnish the Bank monthly, within twenty (20) days
after the close of each fiscal monthly period, commencing with the monthly
period in which this Agreement is executed, a balance sheet and income and
surplus statement reflecting the financial condition of the Borrower at the end
of each such period and the results of its operation during each such period.
Each statement shall also contain comparative statements for the same period
during the prior fiscal year. Each balance sheet and income and surplus
statement is to be certified by the Manager of the Borrower, such certification
to state that such balance sheet and income and surplus statement fairly present
the financial condition and the result of operations of the Borrower at the end
of such period and during such period in accordance with generally accepted
accounting principles consistently applied, subject, however, to ordinary
year-end adjustments, none of which will be materially adverse.

      3.6 The Borrower will furnish the Bank annually, within ninety (90) days
after the close of each fiscal year, a balance sheet and income and surplus
statement reflecting the financial condition of the Borrower at the end of each
such fiscal year and the results of its operation during such fiscal year. Each
such statement shall also contain comparative statements for the prior fiscal
year. Each such balance sheet and income and surplus statement is to be audited
by an independent certified public accountant satisfactory to the Bank with an
audit quality statement to be issued by the accountant and signed by the Manager
of the Borrower representing that neither the accounting firm nor the Manager of
the Borrower is aware of any material modifications necessary to the financial
statements for them to be in conformity with generally accepted accounting
principles consistently applied.

      3.7 The Borrower shall cause Sharon DiMinico, Louis DiMinico, The Learning
Express, Inc. and Toy Building, LLC, the Guarantors, to furnish their personal
financial statement and tax return with original signatures to the Bank
annually, not later than April 30th of each year, in form and substance
satisfactory to Bank.

      3.8 The Borrower shall make its books and records available to the Bank
for audit at any time and from time to time at the Bank's discretion and at the
Borrower's expense, provided, however, that absent the reoccurrence of an Event
of Default hereunder, Borrower shall not be responsible for the cost of more
than one (1) audit per fiscal year.

      3.9 The Borrower will maintain its existence in good standing, comply with
all laws and regulations of the United States, of any state or states thereof,
of any political subdivision thereof and of any governmental authority which may
be applicable to the Borrower or to the Borrower's business.

      3.10 The Borrower will pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefit, withholding, sales and other taxes assessed against it or payable by it
at such times and in such manner to prevent any

                                      -6-
<PAGE>   7
penalty from accruing or any lien or charge from attaching to its properties.
The provisions of this section, however, shall not preclude the Borrower from
contesting in good faith and diligently prosecuting any such tax, provided,
however, that the Borrower shall, upon request of the Bank, deposit with the
Bank funds sufficient to discharge such tax in the event such contest is
resolved against the Borrower. The Borrower shall not be in default under this
Section by reason of the existence of a lien for taxes not then due.

      3.11 The Borrower will put and maintain its properties in good repair,
working condition and order and, from time to time, make all needful and proper
repairs, renewals and replacements.

      3.12 The Borrower will maintain insurance at all times covering such risks
and in such amounts as the Bank may reasonably require in accordance with
industry standards, all such insurance to be in such form and for such periods
and written by such companies as shall be reasonably acceptable to the Bank.

      3.13 The Borrower will pay or reimburse the Bank, on demand, for all
expenses (including, without limitation, reasonable counsel fees and expenses)
incurred or paid by the Bank in connection with the preparation, amendment,
interpretation, extension or negotiation of this Agreement, and any instrument,
agreement or document to be delivered pursuant hereto; the enforcement by the
Bank of its rights as against the Borrower or any other person primarily or
secondarily liable to the Bank hereunder or thereunder; the administration,
supervision, protection or realization on any Collateral held by the Bank as
security for any obligation of the Borrower or any other person primarily or
secondarily liable with respect thereto and in the defense of any action against
the Bank with respect to its rights or liabilities hereunder or thereunder.

      3.14 The Borrower will punctually and promptly make all payments and
perform all other obligations which may be required of it with respect to any
indebtedness (whether for money borrowed, goods purchased, services rendered or
however such indebtedness may otherwise arise) owing to persons, firms or
corporations other than the Bank, including, without limitation, indebtedness
which may be secured by a security interest in assets of the Borrower or
property of the Borrower, and all obligations under the terms of any lease in
which the Borrower is the lessee. The provisions of this section shall not
preclude the Borrower from contesting in good faith and diligently prosecuting
any such indebtedness or obligation.

      3.15 The Borrower shall pay or cause to be paid when due all amounts
necessary to fund in accordance with their terms all the Borrower's deferred
compensation plans whether now in existence or hereafter created, and the
Borrower will not withdraw from participation in, permit the termination or
partial termination of, or permit the occurrence of any other event with respect
to any deferred compensation plan maintained for the benefit of its employees
under circumstances that could result in liability to the Pension Benefit
Guaranty Corporation, or any of its successors or assigns, or to the entity
which provides funds for such deferred

                                      -7-
<PAGE>   8
compensation plan.

      3.16 The Borrower shall maintain its primary operating accounts at the
Bank.

                                    SECTION 4

                               NEGATIVE COVENANTS

      4.1 The Borrower will not issue evidences of indebtedness or create,
assume, become contingently liable for, or suffer to exist indebtedness in
addition to indebtedness to the Bank, except for debt to its officers and
members that is subordinated to the Loans on terms satisfactory to the Bank (the
"SUBORDINATED DEBT"); provided, however, that the Borrower may incur liabilities
which are incurred or arise in the ordinary course of the Borrower's business
(other than liabilities incurred or arising with respect to money borrowed) and
purchase money security interests in acquired assets as reflected on EXHIBIT A.

      4.2 The Borrower will not make any loans or advances to any individual,
firm or corporation, including, without limitation, its members and employees;
provided, however, that the Borrower may make advances to its employees,
including its members, with respect to expenses incurred by such employees,
which expenses are reimbursable by the Borrower and directly related to the
conduct of the Borrower's business.

      4.3 The Borrower will not invest in or purchase any stock or securities of
any individual, firm or corporation, except for short term "overnight"
financing; provided, however, the Borrower may invest in direct obligations of
the United States of America having a maturity of one year or less from the date
of investment.

      4.4 The Borrower will not merge or consolidate or be merged or
consolidated with or into any other corporation.

      4.5 The Borrower will not sell or dispose of any of its assets except for
sales of inventory in the ordinary and usual course of its business; provided,
however, that the Borrower may dispose of (or trade in) equipment which is no
longer required for the conduct of the Borrower's business so long as the
Borrower receives therefor a sum (or credit) substantially equal to such
equipment's fair value.

      4.6 Except as set forth on EXHIBIT A, the Borrower will not grant or
suffer to exist any mortgage, pledge, title retention agreement, security
interest, lien, charge or encumbrance with respect to any of its assets,
tangible or intangible, whether now owned or hereafter acquired, or subject any
of such assets to the prior payment of any indebtedness, or transfer in any
manner any of such assets with the intent or purpose, directly or indirectly, of
subjecting such assets to the payment of indebtedness.

      4.7 The Borrower will not engage in any business other than the business
in which it is currently engaged or a business reasonably allied thereto.

                                      -8-
<PAGE>   9
                                    SECTION 5

                             SECURITY AND GUARANTIES

      5.1 The Bank shall have and hold as security for the repayment of the
Loans and all other Liabilities of the Borrower to the Bank a security interest
in substantially all of the Borrower's business assets (the "COLLATERAL"), and
the Borrower will execute and deliver all agreements, instruments and documents,
in form and substance satisfactory to the Bank, to establish, create and perfect
the same, including, without limitation, a Security Agreement (All Assets) of
even date (the "SECURITY AGREEMENT").

      5.2 The Loans will be guaranteed on an unlimited basis by Sharon DiMinico,
Louis DiMinico, Toy Building, LLC and The Learning Express, Inc. (each and
together the "GUARANTOR") by guarantys of even date.

      5.3 Any and all deposits or other sums at any time credited by or due from
the Bank to the Borrower shall at all times constitute additional security for
all obligations of the Borrower to the Bank and may be set off against any such
obligations at any time after the occurrence of an Event of Default, as
applicable, whether or not security held by the Bank is deemed to be adequate.
Any and all instruments, documents, policies and certificates of insurance,
securities, goods, accounts receivable, choses in action, chattel paper, cash,
property and the proceeds thereof owned by the Borrower or in which the Borrower
has an interest, which now or hereafter are at any time in possession or control
of the Bank or in transit by mail or carrier to or from the Bank or in the
possession of any third party acting in the Bank's behalf, without regard to
whether the Bank received the same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether the Bank has conditionally
released the same, shall constitute additional security for such obligations and
may be applied at any time after the occurrence of an Event of Default, as
applicable, to such obligations, whether due or not.

                                    SECTION 6

                                     DEFAULT

      6.1 The occurrence of any of the following events (after the expiration of
any applicable grace period) shall be an Event of Default hereunder:

      (a)   The Borrower shall fail to pay any installment of principal or
            interest on account of the Loans when such payment is due, or on
            demand, if such payment is due on demand.

      (b)   The Borrower shall fail to observe or perform any covenant or
            agreement contained in this Agreement or in any instrument,

                                      -9-
<PAGE>   10
            document or agreement executed pursuant hereto and the expiration of
            thirty (30) days from such failure.

      (c)   Any warranty, representation or statement made or furnished to the
            Bank by or on behalf of the Borrower proves to have been false in
            any material respect when made or furnished.

      (d)   Any event which results in the acceleration of the maturity of the
            indebtedness of the Borrower to others in excess of $10,000.00 under
            any indenture, agreement, undertaking or otherwise.

      (e)   Death, dissolution, termination of existence, insolvency, or
            business failure of the Borrower or any Guarantor, provided,
            however, that the death of a Guarantor shall not constitute an Event
            of Default hereunder if: within sixty (60) days of the death of any
            Guarantor, the Borrower provides the Bank with a substitute
            Guarantor acceptable to the Bank and/or provides the Bank with a
            plan for the continued future business operations of the Borrower,
            acceptable to the Bank in all respects, and the Bank remains
            satisfied with collateral for the Loan, the remaining Guarantor's
            support of the Loan and the financial condition of the Borrower.

      (f)   The Borrower shall: (i) cease, be unable, or admit in writing its
            inability to pay its debts as they mature, or make a general
            assignment for the benefit of, or enter into any composition, trust
            mortgage or other arrangement with creditors; (ii) apply for, or
            consent (by admission of material allegations of a petition or
            otherwise) to the appointment of a receiver, trustee or liquidator
            of the Borrower or of a substantial part of its assets, or authorize
            such application or consent, or proceedings seeking such appointment
            shall be commenced against the Borrower and continue undismissed for
            sixty (60) days; or (iii) apply for, or consent (by admission of
            material allegations of a petition or otherwise) to the application
            of any bankruptcy, reorganization, readjustment of debt, insolvency,
            dissolution, liquidation or other similar law of any jurisdiction,
            or authorize such application or consent, or proceedings to such end
            shall be instituted against the Borrower and remain unstayed and
            undismissed for sixty (60) days, be approved as properly instituted
            or result in adjudication of bankruptcy or insolvency. Upon the
            filing of any involuntary petition, Bank's agreement to consider
            making additional Loans hereunder shall be delayed until such time
            as such proceedings have been dismissed, whereupon, if such
            proceedings have not been dismissed then Bank's agreement to
            consider making additional Loans hereunder shall terminate.

      (g)   The calling or sufferance by the Borrower of a meeting of the
            creditors of the Borrower or the occurrence of a meeting by the
            Borrower or a representative thereof with a formal or informal
            committee of creditors of the Borrower.

                                      -10-
<PAGE>   11
      (h)   Termination of any guaranty by any Guarantor.

      (i)   The occurrence of any of the foregoing events by The Learning
            Express, Inc. as if that entity was the Borrower hereunder,
            including an Event of Default under the financial covenants
            contained in Section 4 of the Loan Agreement between The Learning
            Express, Inc. and the Bank, as may be amended.

      (j)   The occurrence of any of the foregoing events by Toy Building, LLC
            as if that entity was the Borrower hereunder.

      6.2 Upon the occurrence of any Event of Default, all Liabilities of the
Borrower to the Bank shall, at the Bank's option and without notice or demand,
and notwithstanding any terms of payment in any note or other instrument
evidencing such Liabilities, become immediately due and payable, and any
obligation of the Bank to consider making Loans pursuant to Section 1 shall
terminate.

                                    SECTION 7

                                     NOTICE

      7.1 All notices and other communications hereunder shall be made by
telegram, telex, electronic transmitter, overnight air courier, or certified or
registered mail, return receipt requested, and shall be deemed to be received by
the party to whom it was sent one (1) business day after sending, if sent by
telegram, telex, electronic transmitter, or overnight air courier, and three (3)
business days after mailing if sent by certified or registered mail. All such
notices and other communications to a party hereto shall be addressed to such
party at the address set forth at the beginning of this Agreement or to such
other address as such party may designate for itself in a notice to the other
party given in accordance with this section.

      7.2 The addresses to which such communications shall be sent are as
follows:

(a)   If intended for the Borrower, to:

       LearningExpress.com LLC
        29 Buena Vista Street
        Ayer, MA 01432
        Attn: Sharon DiMinico, Manager
        Telephone: (978) 889-1000
        Fax: (978) 889-1010

        with copies to:

       Kitt Sawitsky, Esq.
        Goulston & Storrs, PC
        400 Atlantic Avenue
        Boston, MA 02110
        Telephone: (617) 482-1776
        Fax: (617) 574-4112

                                      -11-
<PAGE>   12
 (b) If intended for the Bank, to:

       USTrust
        97 Lowell Road
        Concord, MA 01742
        Attn: Christopher J. Degenhardt, Vice President
        Telephone: (978) 371-3426
        Fax: (978) 371-3434

        with copies to:

       Brian T. Garrity, Esq.
        Shapiro, Israel & Weiner, P.C.
               100 North Washington Street
               Boston, MA 02114
        Telephone: (617) 742-4200
        Fax: (617) 742-2355

      7.3 The addresses set forth herein may be changed by notice hereunder.

                                    SECTION 8

                                  MISCELLANEOUS

      8.1 The Borrower will from time to time execute and deliver to the Bank
all such other and further instruments and documents and take or cause to be
taken all such other and further action as the Bank may reasonably request in
order to effect and confirm or vest more securely in the Bank all rights
contemplated in this Agreement.

      8.2 The Borrower may take any action herein prohibited or omit to perform
any act required to be performed by the Borrower if the Borrower shall obtain
the Bank's prior written consent to each such action, or omission to act. No
waiver on the Bank's part on any one occasion shall be deemed a waiver on any
other occasion. The Bank shall not be deemed to have waived any of its rights
hereunder unless such waiver shall be in writing and duly signed by an
authorized officer of the Bank.

      8.3 This Agreement may be amended only by an instrument in writing and
duly signed by the Borrower and an authorized officer of the Bank.

      8.4 All covenants, agreements, representations and warranties contained in
this Agreement shall bind the Borrower, its respective successors and assigns,
and shall inure to the Bank's benefit and the benefit of the Bank's successors
and assigns, whether expressed or not.

      8.5 All rights of the Bank hereunder shall be cumulative. The Bank shall
not be required to have recourse to any Collateral before enforcing its rights
or remedies against the Borrower or any

                                      -12-
<PAGE>   13
Guarantor. The Borrower and any Guarantor hereby waives presentment and protest
of any instrument and any notice thereof.

      8.6 If any provisions of this Agreement shall be held to be illegal or
unenforceable, such illegality or unenforceability shall relate solely to such
provision and shall not affect the remainder of this Agreement.

      8.7 This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Massachusetts.

      8.8 This Agreement shall take effect as an instrument under seal.

      8.9 BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Borrower hereby certifies that neither Bank nor any of its representatives,
agents or counsel has represented, expressly or otherwise, that Bank would not,
in the event of any such suit, action or proceeding, seek to enforce this waiver
of right to trial by jury. Borrower acknowledges that Bank has been induced to
enter into this Agreement by, among other things, this waiver. Borrower
acknowledges that it has read the provisions of this Agreement and in
particular, this Section; has consulted legal counsel; understands the right it
is granting in this Agreement and is waiving in this Section in particular, and
makes the above waiver knowingly, voluntarily and intentionally.

      8.10 Borrower and Bank agree that any action or proceeding to enforce or
arising out of this Agreement may be commenced in any court of the Commonwealth
of Massachusetts sitting in the counties of Suffolk or Middlesex, or in the
District Court of the United States for the District of Massachusetts, and
Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to Borrower or as otherwise provided by the laws of the Commonwealth of
Massachusetts or the United States of America.

      8.11 The exhibit annexed hereto as EXHIBIT A is the only exhibit to be
annexed to this Agreement, and the material contained therein shall be
incorporated herein.

      8.12 The captions herein contained are inserted as a matter of convenience
only and such captions do not form a part of this Agreement and shall not be
utilized in the construction hereof.

WITNESS:                      USTRUST
(AS TO BOTH)                  By: /s/ Christopher J. Degenhardt
                                  --------------------------------------
                                      Christopher J. Degenhardt,
                                      Vice President

/s/ Brian T. Garrity
---------------------
    Brian T. Garrity

                                      -13-
<PAGE>   14
                             LEARNINGEXPRESS.COM LLC

By: /s/ Sharon DiMinico
    ------------------------------------
        Sharon DiMinico, Manager

                                    EXHIBIT A

2.1(c)     Encumbrances

SECURED PARTY OR LESSOR:              COLLATERAL:

2.1(f)     General Nature of Borrower's Business

2.1(g)     Subsidiaries and Investments

2.1(h)     Litigation

2.1(i)     Date and Period Covered of Most Recent Financial
           Statements Furnished to the Bank

2.1(k)     Material Changes in Operations

2.1(m)     Other Locations

2.1(q)     Deferred Compensation Plans

                                      -14-

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