Franchise Agreement

The original documents were scanned as an image. The original file can be downloaded at the link above.

Sample Franchise Agreement

This Franchise Agreement (the "Agreement") is between Learning Express as Franchisor and You, as Franchisee. It is intended to describe and establish our relationship during the term of this Agreement. Learning Express strongly encourages You to read this Agreement carefully and with the assistance of a professional advisor who is familiar with franchising and franchise agreements.

RECITALS CLAUSE

Learning Express, as a result of expending time, effort and money has developed and continues to develop and improve plans, methods, systems and procedures (collectively, the "System"), which are Our confidential and valuable trade secrets and has successfully established a uniform and recognizable marketing image and reputation for specialty toy stores (the "Store") and the sale of related products and services, whose features are: distinctive decor; signs; floor plan; display of specialized products and services; comprehensive sales and marketing procedures and methods; and specialized advertising and promotion; all under the name LEARNING EXPRESS®;

We have full rights, together with all goodwill connected with the use of the trade name, trademarks, service marks and logos (the "Marks") and any other Marks We continue to develop, use and control for the benefit and use of Learning Express and Our franchise owners, in order to create uniformity; uniformity being essential in creating public recognition, acceptance and patronage;

It is the purpose of this Agreement to set forth and ensure uniform standards of appearance, quality, and operations for all Stores, and to protect and enhance the name and Marks, and You understand and acknowledge this; and

You wish to obtain a license to use the System and the Marks to operate a franchised Learning Express business (the "Franchised Business"), and We wish to grant You this license in accordance with the terms and provisions of this Agreement and the Confidential Operations Manuals, at the location and for the term as set forth below.

THEREFORE, in consideration of the mutual agreements, covenants and promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, You and Learning Express agree to be bound legally as follows:

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1.        SIGNIFICANT AGREEMENT PROVISIONS

1.01      Date of Agreement:_________________

1.02     Expiration Date:____________________

1.03     Renewal Notification Date:

1.04 Location of Learning Express Store:

1.05 Protected Territory:

1.06     Initial Franchise Fee: Thirty thousand dollars ($30,000.00)

1.07     Royalty Fee: 5%

1.08     Minimum Grand Opening Advertising: Ten thousand dollars ($10,000.00) 2. GRANT OF LICENSE

2.01      Grant. Subject to the terms and conditions of this Agreement, We hereby grant You and You accept a license to operate a Franchised Business, as the same may be constituted from time to time. You are permitted to conduct and operate the Franchised Business only under the name "Learning Express". We grant You the right to use the System and You agree as a condition to this grant of a license to comply with the obligations, which You accept by signing this Agreement. This license does not grant You the right to sell any service or product to others for resale, through other channels of distribution, or via electronic commerce. You may not establish or maintain a Website for Your Franchised Business.

2.02     Protected Territory.

A.         During the initial term (and any renewal) of this Agreement, and provided that You are not in default of this Agreement or any other agreement between You and Us, We will not own, operate, sell, grant, license or approve the transfer of, a Learning Express franchise to a location within the Protected Territory.

B.         Except as otherwise provided, We retain the right, in Our sole discretion, directly or through intermediaries or affiliates, to: (i) establish Stores, and to grant others the right to establish Stores, at any location, without regard to the proximity thereof to other Store(s),

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on such terms and conditions as We deem appropriate, provided, however, that We will not operate or grant or approve a franchise for a brick and mortar Store within the Protected Territory, (ii) operate and grant others the right to operate or franchise other non-competing business systems at any location(s) and on such conditions as We deem appropriate, without granting You any rights therein; and (iii) distribute, sell or license the distribution of any products, under or in connection with any trademarks, service marks, logos, and commercial symbols owned by Us, to any purchaser wherever located via the World Wide Web, the Internet, catalog, telephone or any other means.

2.03 Limited License. You do acknowledge that the license granted hereby is a limited grant of rights. Upon termination for any reason or upon expiration of this Agreement, Your rights to operate the Franchised Business will cease and this license will terminate.

3.         FRANCHISED LOCATION

3.01     Approved Location. The franchise which We grant You by this Agreement is for the operation of one (1) Store, to be located at the address listed in Section 1.04 above within the Protected Territory defined in Section 1.05, that we have approved. You may not relocate your Local Store Franchise without our prior written permission and payment in full of all moneys due to us. We will apply the same criteria to a request to relocate as We apply to Your initial proposed location. In furnishing Our approval, We will consider such factors as general location and immediate surroundings, market demographic characteristics, traffic patterns, visibility, size, layout, rental and lease terms, competition and growth trends in the area and your proven operating skill and willingness to follow the Learning Express system. In all cases, You must furnish Us with a copy of Your proposed lease and an outline of the lease's key business terms. Once You have signed the lease, You must furnish Us with a fully executed copy. Our approval of any site does not constitute a representation or warranty that the location will be profitable or that Your sales will attain any predetermined levels. Our approval is intended only to indicate that the proposed site meets Our minimum criteria for identifying sites. You agree that Our approval or disapproval of any proposed site will not impose any liability or obligation on Us.

3.02     Expiration of Lease. If a lease for any actual Store location expires or is not renewed, You agree to secure another Store location within ninety (90) days after the expiration of the prior lease, subject to Our approval. Upon relocation of the Franchised Business, You must refurbish, redecorate and re-equip the Store in accordance with Our then current standards and specifications, and in accordance with the System.

4.         TERM AND RENEWAL

4.01     Term. This Agreement will continue for a term often (10) years from the date of the signing of the Agreement, unless terminated sooner for any reason set forth in this Agreement.

4.02     Renewal. You will have the option to renew this Agreement for successive five (5) year terms on the basis of Our then current Franchise Agreement, subject to certain conditions which follow:

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A.        You have substantially complied with all the provisions of this Agreement during its term;

B.         You agree to refurbish, replace or redecorate all leasehold improvements, furniture and fixtures, equipment, material, inventory, supplies, signs and the like, to the extent that it is reasonable and necessary to comply with specifications and standards applicable under the then current Franchise Agreement;

C.         You notify Us of Your intention to exercise Your option to renew by sending Us written notice, no less than six (6) months prior to the expiration of this Agreement. Within thirty (30) days after Our receipt of timely notice, We will furnish You with Our recommendations and/or requirements relating to the furniture and fixtures, equipment, supplies, and inventory, image, appearance, and decoration of Your Franchised Business.

You must sign Our then current Franchise Agreement no later than three (3) months before the expiration date of this Agreement and You must agree to complete the changes proposed through Our recommendations or requirements. The new Franchise Agreement may contain different terms and obligations than the Agreement which You are signing today. You shall reimburse us for our actual administrative and legal expenses incurred in connection with a renewal of the Franchise Agreement. You will also be required to complete such improvements as are in our opinion necessary or desirable to maintain the Learning Express Mark and brand image. You do not have the right to exercise this option to renew unless all monies owed to Us are paid current and there are no defaults under the terms of this Agreement.

4.03 Notice Required By Law. If a state or federal law should require Learning Express to provide You with a longer notice period, then this Agreement will remain in effect on a month-to-month basis until We have given You the amount of notice which the law may require. You must, however, have a Store lease which is effective during this post-expiration period.

5.        TRADEMARKS

5.01      Ownership of the Marks. You acknowledge that We are the sole owner of the Marks and domain names (whether containing Our Marks or not), used to identify the System and any and all other proprietary marks and characteristics relating to Our business which are licensed to You under this Agreement. Your right to use the Marks is derived solely from this Agreement and is limited to Your conduct of business pursuant to and in compliance with this Agreement and all applicable standards, specifications and operating procedures. Your unauthorized use of the Marks will constitute a material breach of the terms of this Agreement. It is expressly recognized that all goodwill associated with the Marks, including any goodwill which may arise through Your activities, belongs exclusively to Us.

5.02     Identification of the Business. You must use the Marks as the sole identification of the Franchised Business and must identify Yourself as the independent owner in the manner prescribed by Us. You must not use any of the Marks as part of a business entity or trade name or with any prefix, suffix, or other modifying words, terms, designs, or symbols (other than expressly licensed to You), or in any modified form, nor can you use any of the Marks in

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connection with the sale of any unauthorized service or product or in any other manner not expressly authorized in writing by Us. You agree to prominently display the Marks on, or in connection with in-store displays, forms, stationery and packaging materials designated by Us. You also agree that You will not display the trademark, service mark, trade name or logo of any other person, firm or company in Your Store without Our express prior written consent.

5.03     Trademark Prosecution. You expressly agree that during the term of this Agreement, and after its expiration or termination, You cannot directly or indirectly contest or aid in contesting the validity or ownership of the Marks. You agree to promptly notify Us of any claim, demand, or suit based upon, or arising from, the use or attempted use by any other person, firm or corporation, of the trade name, service and/or trademarks licensed here, or any Mark, copyright, or colorable variation, in which We have a proprietary interest. In the event We, in our sole discretion and option, undertake the defense or prosecution of litigation, You agree to execute and convey any and all documents and do all acts and things as may, in the opinion of Our counsel, be necessary to carry out this defense or prosecution, either in Our name or in Your name, as We may elect, at Our expense.

5.04     Change of the Trademarks. If, at any time, in Our sole discretion, We determine that it is advisable for Us and/or You to modify or discontinue the use of any Mark, or use one or more additional or substitute trade names, trademarks, service marks, or other commercial symbols, You agree that after notice from Us, You will comply within a reasonable time. This may include changing signs, graphics, interior trade dress, interior decor, labels, products and supplies at Your sole expense.

5.05     Signs. You must prominently display, in places prescribed by Us, upon the structure at which the Franchised Business may be located, advertising signs of such nature, form, color, number, location and size, containing those legends of which We approve. You must use and maintain in good condition all interior and exterior signs for Your Franchised Business premises.

6.        PROPRIETARY INFORMATION

6.01 Our Trade Secrets. We possess proprietary knowledge comprising methods, techniques, drawings, specifications, procedures, information (including that pertaining to customers of the System), systems, vendor lists and vendor terms, knowledge of and experience in the design and operation of the Franchised Business and the purchase and sale of authorized and approved products and services (collectively, the "Trade Secrets"). You acknowledge that You had no part in creating or developing, no prior knowledge of and no other rights or claims in or to, any element of the System, including Our Trade Secrets. We, or Your Regional Franchisor Manager, will disclose the Trade Secrets to You in furnishing information regarding equipment, supplies, inventory, layouts, vendor lists and specifications and guidance in the development of the Franchised Business, the training program, Our Confidential Operations Manuals and in guidance furnished to You during the term of the Agreement. You understand and acknowledge that You will not acquire any interest in the Trade Secrets, other than the right to utilize the Trade Secrets in the development and operation of the Franchised Business during the term of this Agreement. Information other than Trade Secrets, that belongs to Us or is licensed by Us, that is of a confidential or secret nature and not generally known to the public is deemed to be

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"Confidential Information" and shall be treated by You as You are obligated to treat Trade Secrets.

6.02     Confidentiality of the Trade Secrets. You acknowledge that, except to the extent that the Trade Secrets are or become generally known in the industry, they are confidential and You agree to maintain this confidentiality during and after the term of this Agreement and any renewal term, and will adopt and implement all reasonable procedures prescribed by Us to prevent unauthorized use or disclosure. You also agree not to disclose or post the Trade Secrets on the Internet.

6.03     Confidential Operations Manuals, In order to protect the reputation and goodwill associated with the name and Marks, and to maintain the uniform standards of operation, You will conduct Your Franchised Business in strict accordance with the Learning Express Confidential Operations Manuals (also referred to as the "Manuals"). The Manuals remain Our property; We make them available to You on the Learning Express Intranet. We will amend and update the Manuals as conditions warrant, and make changes or completely revised Manuals available over the Learning Express Intranet. You agree:

A.         To treat the Manuals, including superseded pages, as confidential and not disclose the contents to unauthorized persons;

B.         To maintain and operate the Franchised Business in reasonable conformity with the Manuals; and

C.         Upon Our demand or upon Your termination, Your access to the Manuals will cease.

7.        FRANCHISE FEES

7.01      Initial Franchise Fee. You will pay Learning Express the initial franchise fee listed in Section 1.06. If this is Your first Learning Express franchise, the initial franchise fee for a single retail location, will be Thirty thousand dollars ($30,000.00). You understand and acknowledge that Learning Express has earned this fee because of the grant of this franchise. The fee is fully earned upon Learning Express signing this Agreement, and will not be refunded or forgiven for any reason.

7.02     Additional Franchise Fees. For each additional franchise for which You qualify, the initial fee will be Ten thousand dollars ($10,000.00). To obtain additional Learning Express franchises, You must satisfy Our criteria for new franchisees, demonstrate Your ability to provide adequate time and attention to each unit of a multi-unit endeavor, not be in default of any franchise or other agreement with Us and have opened all Stores for which You have signed Franchise Agreements. You must submit Our Notice of Intent, which is attached hereto as Addendum "A" and provide the information requested. You must execute Our then current form Franchise Agreement for each additional franchise.

7.03      Royalty Service Fee. As a royalty for the license of intellectual property and ongoing support, (the "Royalty"), You agree to pay Us without right of offset, credit or

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deduction, five percent (5%) of Your monthly Gross Receipts (defined below) notwithstanding actual gross receipts, the minimum monthly Royalty payable to us hereunder shall be One thousand dollars ($1,000.00) All Royalties must be received by Us, at Our offices or such other location as We may designate, before 5:00 p.m. eastern time, on the tenth (10th) calendar day (or the next business day, if the 10th day is a weekend or bank holiday) of the following month. You agree to participate in Our electronic funds transfer program which authorizes Us to utilize a pre-authorized bank draft system. You must sign and deliver to Us an irrevocable authorization in the form attached hereto as Addendum "B", to enable Our financial institution to debit Your account at Your bank in order to pay Us the Royalty and other amounts which You may owe Us under this Agreement or any other agreement between You and Us, in the event that We do not receive Your payment by the due date set forth above. In the event You fail to submit the Worksheet as required by Section 10.07.C, below and/or We do not receive Your Royalty on the due date set forth above, We shall have the right to debit Your bank account, in the amount of Two thousand five hundred dollars ($2,500.00), which amount shall be credited toward the payment of post and future royalties.

7.04     Gross Receipts. You agree that "Gross Receipts" include all forms of revenue which You receive while conducting the Franchised Business. These revenues may take the form of cash, check, credit, charge account, merchandise exchange (the "new" sale portion only), or barter. Gross Receipts will include money or credit which You receive from the sale of merchandise, from services which You or others may provide from the Store, or for any other service or product for which You charge separately. Gross Receipts will not include the sale of merchandise for which refunds have been made in good faith to customers or from any form of tax imposed by a governmental authority, which is collected by You and actually paid to such governmental authority.

7.05     Security Interest. In order to secure the prompt performance of your obligations under this Agreement and to secure Us with respect to the proper use and display of the Proprietary Marks and Our proprietary property, including the Learning Express trade dress, You grant Us a security interest in the equipment, furniture, fixtures, and improvements at your Store. This Agreement shall constitute a security agreement, and, You agree to execute any additional instruments required to perfect this security interest including, without limitation, a standard Uniform Commercial Code ("UCC") financing statement. You authorize Learning Express:

A.        To file a copy of this Agreement, a UCC financing statement and any other documents that may be necessary to perfect the security interest granted herein; and

B.         To sign on Your behalf and to file in any jurisdiction with or without Your signature, financing statements with respect to this security interest and security agreement.

8.        FRANCHISEE ADVERTISING AND PROMOTION.

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8.01     Grand Opening Advertising. You acknowledge the value of initial advertising and promotion. Therefore, You agree to expend the minimum figure set forth in Section 1.08 of this Agreement for advertising and promotion before the opening of and during the first month of Your Store's operations, all in accordance with the Grand Opening Manual. We will assist You in developing the grand opening advertising campaign, and You agree to expend the full grand opening advertising budget, according to Our advice.

8.02     Local Market Advertising. In acknowledging that You must further the public image and recognition of Your Store, You agree to expend at least four percent (4%) of Your Gross Receipts on advertising and promoting the Store in Your local market area. All local advertising and promotion shall be subject to Our prior review and approval. You agree to adhere to Our standards and advice regarding Your advertising and promotion efforts and expenditures. You agree to submit to Us or Our designated agency, for Our approval, all sales promotion materials and advertising to be used by You, including without limitation, newspaper, radio and television advertising, specialty and novelty items, signs, promotional items and products, posters, boxes, bags and wrapping paper. Your local market advertising program shall be in strict conformity with the policies established and amended from time to time in the Manuals. You may not maintain an independent e-commerce Website for Your Store.

8.03    Learning Express Advertising Fund. We reserve the right to require You to contribute (and You agree to pay to Learning Express) up to one percent (1%) of Your Gross Receipts, in addition to those expenditures which You will be obligated to make under Section 8.02 above. The money collected will be placed in the Learning Express Advertising Fund, to be used for the design and placement of advertising programs. It is understood and agreed that Learning Express may use the Learning Express Advertising Fund to offset its in-house advertising and design costs. You will, upon sixty (60) days' prior written notice from Us, pay this contribution in the same manner specified in Section 7.03 above.

8.04     Use of Learning Express Advertising Fund. The Learning Express Advertising Fund will be used for the design and production of advertisements, promotional materials, newsletters and holiday catalogs, and the payment of administrative expenses to Learning Express or its advertising agencies. You acknowledge that Learning Express will use its good faith discretion in the administration of the Learning Express Advertising Fund and that Learning Express will not be required to allocate or spend money from the Learning Express Advertising Fund to benefit any particular franchisee or group of franchisees on a pro rata basis. There is no fiduciary duty owed to You by Learning Express by virtue of the Learning Express Advertising Fund nor is any trust created thereby. Within ninety (90) days of the end of each fiscal year, You may request a copy of the annual financial statement of the Learning Express Advertising Fund.

8.05     Community Service. You acknowledge the importance of participating in and servicing community organizations, and We encourage You to become a member of one or more civic organization(s) in the community in which Your Store is located. We may suggest certain organizations and may encourage Our franchisees to participate in specific programs, including civic fund raising programs.

8.06     Franchisee Development of Advertising Materials. You agree during the term

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of this Agreement, to make available to Us for use by other parties, all advertising, marketing and other promotional materials that You develop. We require all other franchisees to share developed advertising, marketing and other promotional concepts in the same manner.

8.07 Advertising Campaigns. From time to time during the term hereof, We have the right to establish and conduct promotional campaigns on a national or regional basis, which may, by way of illustration and not limitation, promote particular products or marketing themes. You agree to participate in such promotional campaigns upon such terms and conditions as We may establish. You acknowledge and agree that such participation may require You to incur mailing and other costs and to purchase point of sale advertising material, posters, flyers, product displays and other promotional material. Nothing herein shall be construed to require You to charge any prices for the goods and services offered at other than those determined by You in Your sole and absolute discretion.

9.        TRAINING AND ASSISTANCE

9.01      Initial Training and Assistance. We, or our designee, will make available to You and those of Your staff who are approved by Us, initial orientation and training courses, before You open for business. The initial orientation and training course will be held at Our Corporate Headquarters and the second training course will be held at one of Our Learning Express training centers, each of these training sessions are approximately one (1) week in length. Additionally, We provide up to a three (3) week training program as part of Your Grand Opening, to be conducted at Your Store. During the first week of Your Store's operation, We or our designee will furnish additional training and assistance. We, or our designee, will bear the cost of the initial orientation and training course, except that You and Your employees must be responsible for all travel, salary and other expenses paid to or incurred by or on behalf of You or Your employee(s) in connection with this training. You will hire all initial and subsequent employees for the Franchised Business and be exclusively responsible for the terms of their employment, their compensation and for their required training. You will be required to attend advanced training, held at the Corporate Headquarters one (1) year following your Grand Opening. You will be responsible for all travel, salary and other expenses paid to or incurred by or on behalf of You or Your employee(s) in connection with this advanced training. In addition, You and persons designated from Your management staff may be required in our sole discretion to attend supplemental training, held at our Corporate Headquarters. If so required, You will be responsible for all travel, salary and other expenses paid to or incurred by or on behalf of You or Your employee(s) in connection with this supplemental training.

9.02     Extra Assistance. If You request additional assistance for operational problems of additional support after You have operated Your Franchised Business for ninety (90) days, which, based on our experience, we reasonably determine to be extraordinary, We, or Your Regional Franchisor Manager, will provide a qualified representative at times and places as may be reasonably necessary and mutually convenient. You must pay all reasonable travel and living expenses, as well as the then-current per diem for the representative.

9.03     Additional Services. So long as You are not in default under this Agreement, We, or our designee, will provide You with the following additional services:

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A.        Confidential Operations Manuals. We will provide You electronic access via Our Intranet, a copy of the Manuals, as more fully described in Section 6.03;

B.         Advisory Services. We, or our designee, will provide you with assistance in site selection and lease negotiations, supplier lists for equipment, furniture and fixtures, and a layout for placement of your Store fixtures. After the initial store design, You will pay for the cost of any further professional design work. We, or our designee, will place Your initial inventory order of products and Your order for fixtures.

9.04     On-Going Training and Assistance. We, or our designee, will advise You periodically and will furnish You with on-going guidance in the operation of Your Franchised Business. This guidance will be furnished through the Manuals, bulletins, email messages or over Our Intranet, other written materials, telephone consultations and/or consultations at Our offices, or at Your Store.

We will provide you with the following:

A.         Information concerning developments regarding additional training programs and materials;

B.         A newsletter or other bulletins detailing activities of other franchisees, as well as other matters of mutual interest;

C.         Media coverage, which may or may not affect Your market area;

D.         Continuing advisory assistance, including but not limited to, consultation concerning the promotion and operation of the Franchised Business;

E.         Information concerning the toy industry, and related products and services, and other related matters concerning the System;

F.         Telephone assistance concerning the selling of any product or service and other matters pertaining to the operation of the Franchised Business;

G.         Information and assessment of new products, services, product lines and other items;

H. Inventory control and general operating procedures; and

I.         Advertising, marketing and other promotional materials that We may

create and develop for use by Learning Express franchisees.

9.05     Limitation of Liability. While Learning Express agrees that it will apply, and will require Your Regional Franchisor Manager to apply, its skill and judgment to training and assisting You in the operation of Your Franchised Business, You agree that neither Learning Express, its advisors, consultants, contractors, employees nor Your Regional Franchisor Manager will be liable to You or to any third party for your performance or failure to perform.

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10. OPERATION OF BUSINESS

10.01    Compliance With the Manuals. You agree to conduct Your Franchised Business by strictly following the Manuals, as they are changed or modified from time to time. You acknowledge that this is necessary to protect the reputation and goodwill of the Marks and to maintain the uniform standards of operation throughout the Learning Express System. Adherence to the Manuals is vitally important to You, to Learning Express and to the collective success of all Learning Express franchisees.

10.02   Initial Construction of The Franchised Business. Upon delivery to You of the Store premises from Your landlord, You agree to begin construction within thirty (30) days thereafter. In connection therewith, you are responsible for the following:

A.         You must obtain all required permits and licenses necessary to commence construction;

B.         You must purchase all necessary equipment, furniture and fixtures, signs, supplies, opening inventory (You may not finance any part of Your initial investment, except for Your initial merchandise inventory), and other items that We require You to have in order to commence doing business;

C.         You must construct, or cause to be constructed, all required leasehold improvements within the Store premises, and decorate the Franchised Business in compliance with the layouts and specifications approved by Us;

D.         You must install all fixtures, signs and equipment required for the Franchised Business including, without limitation, the then-current point-of-sale (POS) and accounting software provided, and

E.         You must establish a high-speed Internet connection and E-mail account with an Internet Service Provider (ISP) designated by Learning Express, to provide frequent access to the Learning Express Intranet Web Site, to access "Best Seller" data, approved buying information, Manual updates and routine correspondence and use Our designated method for the electronic transmission of data.

10.03           Approval of Products and Services. We have developed and refined

specific Trade Secrets for the sale of toys and related products and services, and We enjoy a wide public acceptance. You recognize that the image, reputation and goodwill that We have established is based upon the sale of those products and services, and as such can only be maintained and enhanced by Your sale of those quality. Satisfied customers of Stores rely upon the uniformly high quality of those products and services. You agree that You will offer for sale only those additional products and services which We approve, which products or services have acceptable standards, performance, appearance and other characteristics determined by Us to be relevant. You must purchase products and services only from suppliers approved by Us, in Our sole discretion, as meeting Our criteria for durability, value, company consistency, appearance, quality and service, financial capacity and reliability. We may be one of such suppliers. We will

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provide You with a list of approved vendors and suppliers prior to the opening and during the operation of the Franchised Business. You agree to maintain at all times an inventory of authorized and approved products, in sufficient supply to satisfy reasonable customer demand.

The Learning Express system works best when franchisees carry a core of best selling products recommended by us and rounds out the product assortment with local best sellers and other recommended products. Accordingly, you agree to use reasonable efforts to review our suggested inventory mix and carry a substantial percentage of such products.

If You wish to buy products, services, equipment or inventory of a brand or from any supplier that is not approved by Us, You must notify Us in writing of Your intent, and submit specifications and other information that We may request. We will within a reasonable time, determine whether these brands and/or suppliers are substantially equal in composition, quality, performance, appearance, reliability and other relevant characteristics. In order for us to provide accurate sales information to You and other franchisees, You agree to conform to the Learning Express product identification numbers and category designations.

10.04   Management of Business. You understand and agree that active full-time participation of the franchisee is a critical element of the system. You will devote a minimum of thirty (30) hours per week to the "on-premises" managing, operating and developing of the Franchised Business. During the term of this Agreement, You agree not to engage in any other business or investment requiring Your active participation during normal business hours that would interfere with Your managing the operations of the Franchised Business in the unlikely event that we approve an arrangement in which the Franchised Business is managed by a qualified, full-time employee who has successfully completed the corporate training program, You agree to devote a sufficient number of hours per week to oversight of the Franchised Business.

10.05   Insurance. We will furnish You with minimum standards and limits for certain types of insurance coverage which You must secure and maintain at Your own expense. These minimum standards and limits may change from time to time. We will advise You of these changes through the Manuals or other advisory memoranda, and You agree to secure immediately the changed level of coverage. All insurance which You purchase will name Learning Express and Your Regional Franchisor Manager as additional insured. Your insurance policy will also provide that We will be given at least ten (10) days of prior written notice of any termination, amendment, cancellation or modification of Your policy.

10.06   Entry and Inspection. We and our designees have the right at any time during business hours, to inspect the Franchised Business and your business records and files, bookkeeping records, sales checks, purchase orders, invoices, payroll records, check stubs, sales tax records and returns, and any other records and documents, so long as inspection does not unreasonably interfere with the conduct of Your business. If We find that You have underreported Your Gross Receipts, You agree to pay immediately all monies owing to Us, along with accrued interest, as set forth in Section 10.08 below, as well as the costs of the inspection(s). In order to preserve the validity and integrity of the Marks and to assure that You are properly employing their use in the operation of the Franchised Business, We, or Your Regional Franchisor Manager, will at all times have the right to observe the manner in which

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You are offering for sale products and services to the public and to confer with Your employees and customers.

10.07   Records and Reports.

A.         You agree to record all Gross Receipts of the Franchised Business in a manner and on forms prescribed by us. You must keep and preserve during the term of the Agreement, full and complete books of account that accurately reflect the day-to-day operations of the Franchised Business. You must submit to Us periodic reports, forms and records, as We may specify. Any intentionally false statements in these or any other reports which You provide to Us shall be grounds for immediate termination of this Agreement. All profit and loss statements and balance sheets must be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and must be submitted to Us for Our examination at Our option. You must also submit to Us other periodic reports, copies of purchase orders, forms, information and records (including, without limitation, federal tax returns, monthly sales tax reports and monthly reports on advertising). You agree to maintain all records of the Franchised Business for five (5) years.

B.         You will compile and provide to Us, in the manner specified by Us, any statistical or financial information regarding the operation of Your Local Store Franchise, the products and services sold by it, or data of a similar nature including, without limitation, any financial data that We believe that We need to compile or disclose in connection with the sale of franchises or that We may elect to disclose in connection with the sale of franchises. All data provided to Us under this Paragraph will belong to Us and may be used and published by Us in connection with the Learning Express System.

C.         On or before the third (3r) business day of each month, You agree to send electronically or via facsimile to Our offices, or such other location as We may designate, Our then current version of the Royalty Worksheet (the "Worksheet"), containing all the information and detail supporting reports from Your point of sale system, as we may specify from time to time. In addition, on or before the third (3r) business day of each month, You agree to transmit, by email, to an electronic mailbox that We designate, Your "Item Sales Year to Date" file or other electronic file that We may designate. The information so provided each month, may be included in the "Best Sellers" information presented on the Intranet.

10.08   Late Payments. All Royalty Fees, advertising fees, amounts due for Your purchases from Us and other amounts which You owe Us, will, at our option, bear interest after the due date at the rate of one percent (1%) per month. You acknowledge that the foregoing does not constitute Our agreement to accept payments after they are due or Our commitment to extend credit to, or otherwise finance Your Franchised Business. Further, You acknowledge that Your failure to pay all amounts when due will constitute grounds for termination of this Agreement. In Our sole discretion, We can apply any of Your payments to any of Your past due indebtedness to Us.

10.09   Your Bank Account. You agree to open and maintain a bank account and to follow banking and administrative procedures which We may require of You. You also agree to

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maintain an account (with sufficient available funds) in a bank which can administer wire transfers or electronic funds transfers for the purpose of paying Your Royalty Fees and other amounts due Us and agree to do so or as set forth in Section 7.03, as We may otherwise direct from time to time.

10.10   Specifications, Standards and Operating Procedures. You recognize the importance of maintaining the highest standards of quality for performance, appearance, and service of the Stores. Therefore, You agree to maintain these high standards by complying with specifications, standards and operating procedures relating to the operation of the Franchised Business which We have established including, without limitation, the safety, cleanliness and appearance of the Franchised Business premises, fixtures, equipment, supplies and products; the quality of products and services sold by You in Your Store; the use of Our Marks and the use and protection of Our Trade Secrets; the display of advertising materials; the use and display of signs, posters, merchandising and promotional materials, standard formats and similar items; the training and appearance of employees; the preparation and retention of records and reports; the use and retention of standard forms; the materials and supplies used in operation of the Franchised Business; the establishment of daily business hours; the establishment of a corporate toy service program, with employee incentives; and Your identification as the independent owner of the Franchised Business in the manner We direct.

10.11   Compliance With Law. You agree to operate the Franchised Business in strict compliance with applicable laws, rules and regulations of all governmental authorities. You agree to be responsible for knowledge of, and compliance with, all applicable laws and regulations of the federal, state or local governments. You also agree to prepare and file all appropriate tax returns when due and to pay promptly all taxes imposed on You and upon Your Franchised Business.

10.12   Suggested Retail Prices. Although We may provide You with suggested retail prices, You acknowledge and agree that any list or schedule of prices which We furnish to You is by way of recommendation and is not binding on You or mandatory.

10.13  Your Employees. You agree to employ and properly train a sufficient number of competent employees and, where appropriate, managers, of good character and of neat appearance to service the customers of Your Store in keeping with Our service-oriented philosophy. You agree to conduct background and criminal checks on all prospective employees prior to employment.

10.14      Taxes. You agree to pay any tax imposed by the state in which Your local store is located if such tax is imposed on Royalties or other payments made to Us hereunder.

10.15       Incurring Debt. You agree that you have not, and will not, borrow for any purpose other than for the initial inventory purchase without our prior written consent.

10.16    Financials. You agree to provide complete financials including Profit and Loss, Balance Sheet and payables report to Us or our designee, annually.

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10.17   Hours of Operation. You agree to be open for business on the days and during the hours recommended by Us or required by your landlord. Depending upon Your location, You may be obligated to maintain longer hours of operation.

10.18   New York Toy Fair. You agree that You will attend the annual Toy Fair in New York City, or such other location determined by the Toy Industry Association.

10.19   Annual Convention. You agree that You will attend, in addition to the New York Toy Fair, the annual convention scheduled by Learning Express for all franchisees and Regional Franchisor Managers.

10.20   Independent Contractor and Indemnification.

A.         You understand and agree that this Agreement does not create an agency relationship between Us, that You are an independent contractor and that nothing in this Agreement is intended to make either You or Learning Express a general or special agent, legal representative, subsidiary, joint venture partner, or other partner, or employee of the other. Neither You nor Learning Express will make any express or implied agreements, warranties or representations, or incur any debt, in the name of or on behalf of the other or represent that our relationship is other than Franchisor and Franchisee. Neither You nor Learning Express will be obligated by, or have any liability under, any agreements or representations made by the other that are not expressly authorized, nor will Learning Express be obligated for any damages to person or property directly or indirectly arising out of the operation of the Franchised Business authorized by or conducted pursuant to the license granted hereby.

B.         You agree to indemnify and hold Us, Our subsidiaries, affiliates, stockholders, directors, officers, employees, agents, assignees and Your Regional Franchisor Manager harmless against, and to reimburse them for, all obligations, actual and consequential damages and taxes for which any of them is held liable and for all costs, reasonably incurred by any of them in the defense of any claim brought against any of them or in any action in which any of them is named as a party, which arise out of the operation of Your Franchised Business. We have the right to defend any colorable claim at Your sole expense. The indemnities and assumptions of liabilities and obligations will continue in full force and effect following the expiration or termination of this Agreement.

C.         We will not take responsibility for the actions of Your employees, nor will We take any control over Your employees' employment, discharge, pay or working conditions.

10.21   Renovations to Premises. After Your Store has been in operation for five (5) years, Learning Express may direct You to complete renovations which are part of an individual or system-wide updating program. You agree to complete such renovations at Your own expense at such time as reasonably directed by Learning Express.

10.22   Trade Accounts. You agree to promptly pay all accounts and indebtedness of every kind incurred by You in the conduct of the Franchised Business and to inform us if any trade vendor account is more than 30 days past due. You further agree that upon termination of

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this Agreement we may collect amounts due to trade vendors from You under the Guaranty of Performance, Addendum "C" to this Agreement.

11. ASSIGNMENT AND RIGHT OF FIRST REFUSAL

11.01    Assignment by Learning Express. We may freely transfer or assign Our rights and obligations under this Agreement to any person, corporation or other entity. The transfer or assignment will be binding upon and will inure to the benefit of the successors and assigns of Learning Express.

A.         You agree that Learning Express has the right, now or in the future, to purchase, merge, acquire or affiliate with an existing competitive or non-competitive franchise network, chain or any other business regardless of the location of that chain's or business' facilities, and to operate, franchise or license those businesses and/or facilities under the Trademarks or any other marks following Learning Express' purchase, merger, acquisition or affiliation, regardless of the location of these facilities (which You acknowledge may be within Your Protected Territory, proximate thereto, or proximate to any of Your locations). In the event of any territorial conflict or overlap, Learning Express shall use its best efforts to resolve same within nine (9) months of any such purchase, merger, acquisition or affiliation.

B.         You agree and affirm that Learning Express may: sell itself; its assets; the Trademarks and/or the System to a third party; may go public; may engage in a private placement of some or all of its securities; may merge, acquire other business entities, or be acquired by another business entity; and/or may undertake a refinancing, recapitalization, leveraged buyout or other economic or financial restructuring. With regard to any of the above sales, assignments and dispositions, You expressly and specifically waive any claims, demands or damages arising from or related to the loss of Learning Express' name, Marks (or any variation thereof) and System and/or the loss of association with or identification of Learning Express as the franchisor under this Agreement.

11.02   Assignment by You. You understand and acknowledge that the rights and duties created by this Agreement are personal to You (and Your owners, if You are a business organization, as defined hereinafter), and that We have granted this license in reliance on many factors, including without limitation, the individual or collective character, skill, aptitude and business and financial capacity, of You and any person owning an interest in You. Accordingly, neither You nor any person owning any direct or indirect equity interest in You, shall without Our prior written consent, directly or indirectly sell, assign, transfer, convey, give away, pledge, mortgage or otherwise encumber any interest: (a) in this Agreement or any portion or aspect thereof; (b) the Franchised Business; (c) in the assets (excluding this Agreement) of the Franchised Business, or (d) any equity or voting interest in You nor permit the Franchised Business to be operated, managed, directed or controlled directly or indirectly, by any person other than You (any such act or event is referred to as a "Transfer"), without Our prior written approval. Any such purported Transfer occurring by operation of law or otherwise, including any Transfer by a trustee in bankruptcy, without Our prior written consent, shall be a mutual default of this Agreement, but the transferor shall remain obligated under this Agreement until released by Us, or until this Agreement is terminated and all post-term obligations pursuant to Article 14 are fulfilled.

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A.         Right of First Refusal. If You desire to engage in a Transfer, You shall deliver to Us written notice setting forth all the terms of the proposed Transfer and all information that We request concerning the proposed assignee. We shall have the option, during ten (10) days after receipt of the notice or ten (10) days after receipt of all additional information We request, to purchase the Franchised Business and accept assignment of this Agreement on the terms contained in the notice, provided that We shall have the right to substitute cash for any non-cash consideration described in such notice. If We exercise this option, the purchase of the Franchised Business by Us must be completed no later than thirty (30) days after Our notice to You of Our purchase election.

If We do not exercise this option during such ten (10) day period, then You may, during the following one hundred twenty (120) days, transfer the Franchised Business and assign this Agreement to the proposed assignee on the terms in the notice, provided that the assignment shall be made, without limitation, in compliance with Section 11.02B. Any proposed Transfer not completed within such one hundred twenty (120) day period and any material change in the terms of the proposed transaction prior to closing, shall constitute a new offer and shall require compliance with this Section 11.02A.

B.         Permitted Transfers. If We elect not to exercise Our right of first refusal, Our approval to a proposed Transferee shall not be unreasonably withheld. However, without limitation of the foregoing, imposition of any or all of the following conditions precedent to Our approval shall be deemed to be reasonable:

(i) that the proposed assignee or, if the proposed assignee is a business organization, its principal officers, stockholders, directors, partners, members or managers, attend a personal interview at Our offices, demonstrate skills, qualifications and economic resources necessary in Our reasonable judgment, to operate the franchise that this Agreement contemplates, and, in any event, shall at least be equal to Your skills, qualifications and financial resources;

(ii) that the proposed assignee expressly assume in writing, for Our benefit, all Your obligations under this Agreement including, without limitation, payables to landlord, vendors and other Learning Express franchisees;

(iii) that the proposed assignee shall have completed Our training program to Our sole, subjective satisfaction, at the assignee's sole cost and expense;

(iv) that as of the date of any such Transfer, You shall have fully complied with all of Your monetary and non-monetary obligations to Us under this Agreement and any other agreement, arrangement or understanding;

(v) that the proposed assignee executes Our Franchise Agreement then being offered to prospective franchisees, except that no initial franchise fee shall be required from the proposed assignee and the term of the Agreement shall be modified to equal the remaining term under this Agreement. Under no circumstances may you transfer any assets including, without limitation, inventory, fixtures, or lease to an entity intending to operate a retail

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toy store at the franchise location without first ensuring that the proposed transferee has executed a Learning Express franchise agreement.

(vi) that the proposed assignee pay Us a transfer fee equal to Ten thousand dollars ($10,000.00) to cover Our expenses relating to such Transfer and the training required under this Agreement;

(vii) You must execute a general release, in the form which We provide, of all claims against Learning Express, its affiliates, stockholders, directors, officers, employees agent and Your Regional Franchisor Manager;

(viii) if We procure the assignee, then You will pay us a fee equal to ten percent (10%) of the purchase price, in addition to all other amounts You owe Us; and

(ix) if We request, assignee, at its expense, shall upgrade the Store to conform to the then-current standards and specifications of Stores then being established in the System, and shall complete the upgrading and other requirements within the time specified by Us.

You agree that You will not retain a security interest in the Franchised Business or its assets without Our express prior consent.

If you are a Business Organization, any owner whose ownership is the subject of a Transfer and any third party who acquires the ownership interest, shall be subject to the provisions of the covenants set forth in Section 15 of this Agreement after the Transfer has been completed.

C. Transfer Upon Death or Permanent Incapacity. Immediately following Your death or permanent incapacity (or if You are a corporation, immediately following the death or permanent incapacity of the major stockholder, or if You are a limited liability company, immediately following the death or permanent incapacity of the manager or a majority member), Learning Express or Our representative may assume operation of the Franchised Business, if there are no qualified members of Your immediate family available to do so. We will allow Your estate to assign the Franchised Business to a member of Your immediate family, provided that he/she/they meet Our reasonable qualifications to operate the Store. Immediate family members shall mean Your parents, Your children or Your spouse. Your heirs shall also have the right to sell the Franchised Business, provided that they follow the requirements of Section 11.02B. In lieu of the right of first refusal as set out in Section 11.02A, Learning Express will have the right to purchase the Franchised Business at a price representing the average appraisal of the Franchised Business made by three (3) independent business appraisers (the "Buy-Out Price"). We will choose one (1) appraiser, Your estate will choose one (1) appraiser and the two (2) appraisers so chosen will choose the third appraiser. This right of first refusal in Learning Express shall extend for a period of ninety (90) days following Your death or permanent incapacity. You agree that Your heirs, beneficiaries and successors will sign all documents which Learning Express may require to show that the franchise and the Franchised Business were acquired by Learning Express, upon the payment of the Buy-Out Price.

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You agree that permanent incapacity will mean that You are unable to operate the Franchised Business on a full-time basis for six (6) consecutive months. Once You are considered to be permanently incapacitated, You or Your legal representative must transfer the Franchised Business as provided for above.

11.03 Transfer to Business Organization. You may transfer this Agreement and the assets and liabilities of Your Franchised Business to a business organization or entity (i.e., a corporation, partnership, limited liability company or other similar entity) (a "Business Organization"), if all the following conditions are met:

A.        The Business Organization must conduct no business other than the Franchised Business.

B.         You must actively manage the Business Organization and own, control and direct its operations, either through binding written agreements, governing documents or voting power.

C.         You must personally guarantee performance of all of the Business Organization's obligations under this Agreement, by signing Learning Express' standard form of Personal Guaranty (Addendum "C") and execute Learning Express' form Confidentiality Agreement and Covenants Not to Compete (Addendum "D").

D.        You must provide Learning Express with copies of all governing documents (articles of incorporation or organization, bylaws, agreements among owners, etc.)

E.         The governing documents of the Business Organization must recite that the issuance and assignment of any ownership interest (i.e., corporate stock, or partnership or membership interests) are restricted by the terms of this Agreement.

F.         All issued and outstanding ownership interests must bear a legend reciting or referring to the restrictions of this Agreement on the issuance and transfer of ownership interests in the Business Organization.

G.         As a condition of Learning Express' approval of the issuance or transfer of ownership interests to any person other than You, subject to the provisions of Sections 11.02 A and B of this Agreement, Learning Express may require (in addition to the other requirements Learning Express has the right to impose) that the proposed owner sign Our standard form of personal guaranty.

H. You must promptly notify Learning Express of any proposed changes in the principal owners and the governing documents.

12. STEP-IN RIGHTS.

12.01 Cause for Step-in. If a material default under this Agreement occurs and remains uncured, or is not subject to cure, or if Your actions jeopardize the integrity of Our Marks or Our System, then You authorize Us to operate the Franchised Business for as long as in our

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reasonable judgment, We believe that it is necessary or practical. You acknowledge that this right to step-in is necessary to preserve the value and integrity of the System. Even if We exercise this right to step-in, You agree that We do not lose or waive a right to exercise any other rights or remedies which We may have legally or under this Agreement. Among the reasons We may act under these step-in rights are:

A.         We reasonably determine that You are unable to operate the Franchised Business because You are absent or incapacitated because of illness, accident, injury or death; or

B.         You have not paid Your monetary obligations to Us or others when they are due; or

C.         You have not removed non-consensual liens or encumbrances which have been placed against Your Franchised Business; or

D.         We determine that material operational problems require that We operate Your Franchised Business for a period of time.

12.02 Duties of the Parties. During a step-in period, Learning Express will maintain in a separate account, all Gross Receipts of the Franchised Business. From that account We will pay all expenses of the Franchised Business, which will include the Royalty Fee, all advertising contributions or payments, and reasonable compensation and expenses for the representatives of Learning Express. If We exercise these step-in rights, then You agree to hold harmless Learning Express and its representatives for all actions or omissions which occur during the course of the temporary operation. You agree to pay Us Our reasonable attorneys' fees and costs which might arise from the exercise of these step-in rights. Nothing in this Section 12 will prevent Us from exercising any other rights which We may have under this Agreement, including the right to terminate the Agreement.

13. DEFAULT AND TERMINATION

13.01 Immediate Termination. If any of the following defaults occur, then We can terminate this Agreement immediately upon written notice to You without providing You with an opportunity to cure the default:

A. If You become bankrupt or insolvent or enter into any insolvency arrangement, unless You:

(i) promptly undertake to reaffirm the obligations under this Agreement;

(ii) promptly comply with all conditions as legally may be imposed by Learning Express upon such an undertaking to reaffirm this Agreement; and

(iii) promptly comply with such other conditions and provide such assurances as may be required in relevant provisions of the appropriate bankruptcy rules and regulations;

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provided, however, that the parties acknowledge that this Agreement constitutes a personal service contract and that We have relied to a degree and in a manner material to this Agreement upon Your personal promises and/or Your directors, officers, shareholders partners, members or managers, as the case may be, to participate personally on a full-time basis in the management and operation of the Franchised Business, and, consequently, the parties agree that any attempt by any other party, including the trustee in bankruptcy or any third party, to assume or to accept an assignment of this Franchise Agreement, shall be void.

B.         You attempt to transfer some or all of the assets of the Franchised Business without first seeking and receiving the prior approval of Learning Express;

C.         You abandon the Franchised Business or cease to operate it Yourself or with full-time management or You fail to operate for five (5) consecutive business days within any twelve (12) month period without Our consent or You fail to open Your Franchised Business within one (1) year of the date of this Agreement;

D.         You are convicted or plead no contest to: 1) a felony or misdemeanor which relates to the operation of Your business; or 2) a felony or misdemeanor which involves moral turpitude;

E.         You commit an act or conduct Yourself so as to impair substantially or jeopardize, the goodwill associated with the Marks, the System or other affiliated or franchised Learning Express businesses;

F.         You violate the provisions of Article 15;

G.         You, or Your employees with Your knowledge, do not report or record all sales;

H. You do not complete Our initial training program and do not receive Our certification to operate the Franchised Business;

I.         You provide Learning Express with false information or You omit

material information in Your initial application, whether written or oral; or

J.          Your lease expires, as set forth in Section 3.02.

K. You fail to perform the required background and criminal checks on employees.

In the event that we issue a Notice of Default hereunder, we will simultaneously notify Your trade vendors that you are no longer in good standing with us.

13.02 Termination With Notice to Cure. If You should be in default as set forth below and You do not cure that default within ten (10) calendar days of written notice by Us to

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The original documents were scanned as an image. The original file can be downloaded at the link above.