KIDVILLE FRANCHISE COMPANY, LLC FRANCHISE AGREEMENT

Exhibit 10.4

KIDVILLE FRANCHISE COMPANY, LLC

FRANCHISE AGREEMENT

TABLE OF CONTENTS

TABLE OF CONTENTS

TABLE OF CONTENTS

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

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.

     (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

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).

     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

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.

     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

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.

     (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.

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

     (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

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

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:

         (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.

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

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

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

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.

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.

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

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;

     (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

     (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;

     (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

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

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);

     (9) your obligation to advise us of (and update) the sales tax rates in your Territory so that we (or a designated vendor