How must a Hyper Kidz Development Right be exercised?

ill execute the Franchise Agreement for the first Hyper Kidz Business to be developed hereunder contemporaneously with the execution of this Agreement and we will apply a portion of the Development Fee to satisfy in full the initial franchise fee for this first Hyper Kidz Business. For each additional Hyper Kidz Business you develop hereunder, when you execute the Franchise Agreement for that Hyper Kidz Business we will apply a pro rata portion of the Development Fee toward the initial franchise fee due for such Hyper Kidz Business and the balance of the initial franchise fee, or Nineteen Thousand Seven Hundred Fifty Dollars ($19,750), is payable in a lump sum upon execution of such Franchise Agreement.

SECTION 3: SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS

• 3.1 Recognizing that time is of the essence, you agree to exercise each of the Development Rights granted hereunder in the manner specified herein, and to satisfy the Minimum Performance Schedule in a timely manner. Your failure to adhere to the Minimum Performance Schedule shall constitute a default under this Agreement as provided in Section 9.1. Under no circumstances, however, may you open a Hyper Kidz Business for business unless and until there is a fully executed Franchise Agreement in place for such Hyper Kidz Business and you have complied with all requirements under the Franchise Agreement for opening such Hyper Kidz Business.
• 3.2 You shall exercise each Development Right granted herein only by executing a Franchise Agreement for each Hyper Kidz Business in accordance with the Minimum Performance Schedule. The Franchise Agreement for the first Development Right exercised hereunder has been executed contemporaneously with this Agreement. The Franchise Agreement for each additional Development Right

exercised hereunder shall be the then-current Hyper Kidz Business Franchise Agreement. In the event we do not receive the properly executed Franchise Agreement with the appropriate number of copies and payment of the balance of the initial franchise fee by the deadline set forth on the Minimum Performance Schedule, you shall be in default under this Agreement.

3.3 You may enter into the initial Franchise Agreement or any subsequent Franchise Agreement as required under this Agreement using a newly formed entity, such as limited liability company, corporation or partnership, for the sole purpose of entering into a Franchise Agreement and operating the Hyper Kidz Business pursuant thereto, provided that you shall also personally sign such Franchise Agreement as a principal. In no event shall you relinquish control over each entity operating each Hyper Kidz Business.

SECTION 4: DEVELOPMENT RIGHTS AND OBLIGATIONS

• 4.1 Subject to the provisions of this Agreement, we grant to you the Development Rights, as described in Section 1.1.

Source: Item 23 — RECEIPTS (FDD pages 52–205)