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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO


CDMO, INC. AND CDET, INC.
PlaintiIIs,
v.
COMFORT DENTAL GROUP, INC.,
DeIendant.
CASE NO.
1URY TRIAL DEMANDED
CDMO, Inc. ('CDMO) and CDET, Inc. ('CDET) (collectively, 'PlaintiIIs), Ior their
Complaint against ComIort Dental Group, Inc. ('ComIort Dental) seeking declaratory
judgment, damages, and injunctive relieI, hereby state and allege as Iollows:
INTRODUCTION
1. PlaintiIIs seek to enjoin ComIort Dental`s illegal enIorcement oI its agreements
with PlaintiIIs, stop ComIort Dental Irom continuing in its eIIorts to exert excessive and
improper control over medical decisions and judgments oI dentists practicing in Missouri,
Kentucky and Indiana, and stop ComIort Dental Irom imposing improper, extra-contractual
demands to sell unregistered 'discount medical plans to dental patients. PlaintiIIs Iurther seek
to void the SubIranchisor Agreements because oI ComIort Dental`s ongoing eIIorts to implement
them in a manner contrary to law and public policy. The SubIranchisor Agreements should be
invalidated Ior the additional reason that ComIort Dental Iraudulently induced PlaintiIIs to enter
into them, and because ComIort Dental materially breached them, causing signiIicant damages.
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PARTIES
2. PlaintiII CDMO is a Missouri Corporation with its principal place oI business in
Overland Park, Kansas.
3. PlaintiII CDET is a Wyoming Corporation with its principal place oI business in
Overland Park, Kansas.
4. DeIendant ComIort Dental Group, Inc. ('ComIort Dental) is a Colorado
Corporation with its principal place oI business in Lakewood, Colorado. ComIort Dental was
Iounded by Dr. Rick Kushner ('Dr. Kushner) in 1977. ComIort Dental has more than
114 general dental Iranchises in 11 states. The principals oI ComIort Dental own an 'aIIiliated
dental laboratory company located in Colorado, Budget Dental Labs, Inc., which also does
business under the name Premier Labs (collectively, 'ComIort Dental Labs).
1URISDICTION AND VENUE
5. This Court has jurisdiction over this action pursuant to 28 U.S.C. 1332 because
there is complete diversity oI citizenship between PlaintiIIs and DeIendant and, as more Iully set
Iorth in this Complaint, the amount in controversy exceeds $75,000.
6. Venue is proper under 28 U.S.C. 1391 because a substantial portion oI the
events giving rise to PlaintiIIs` claims occurred in this judicial district.
7. This Court Iurther has jurisdiction over this matter pursuant to a Iorum selection
clause in the contracts that are the subject matter oI this litigation in which the parties agreed to
litigate any disputes arising Irom the contracts in a court oI general jurisdiction located in
Denver, Colorado, and waived any objections to personal jurisdiction or venue.
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FACTS
Franchise Agreements at Issue
8. The principal shareholders oI CDMO and CDET, Carl Bahr and Craig Bahr,
commenced their relationship with Dr. Kushner in 2000, while they were both still in dental
school. They responded to an advertisement placed by Dr. Kushner and DeIendant ComIort
Dental in the Journal of Clinical Orthodontics Ior a 'guaranteed reIerral network.
9. During the next several years, the Bahrs had personal contact with Dr. Kushner,
Neil Norton (another principal in ComIort Dental), and other ComIort Dental personnel. In the
Iall oI 2003, a personal meeting took place in Colorado at which they discussed the possibility
that Carl and Craig Bahr would join ComIort Dental aIter they completed their orthodontics
residency aIter the summer oI 2005.
10. On December 9, 2003, Carl and Craig Bahr signed a Franchise Agreement with
ComIort Smile, on inIormation and belieI, a sister corporation to DeIendant, ComIort Dental, to
operate, as Iranchisees, three (3) orthodontics territories in the Denver metropolitan area. At the
time, the Bahrs were still in their orthodontics residency.
11. In 2008, ComIort Dental Iirst induced CDMO and its principal shareholders, Carl
Bahr and Craig Bahr (through their companies), to enter into a subIranchisor agreement dated
August 21, 2008 to subIranchise dental oIIices in Missouri pursuant to a Master Franchise
Agreement entered into between the parties.
12. On August 23, 2008, Craig Bahr, Carl Bahr and three othersall dentists or
orthodontists then living and practicing in Coloradomet at a restaurant in Thornton, Colorado
with spouses Ior dinner. Graig Bears, General Counsel to ComIort Dental, brought with him a
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Iranchise agreement, which he requested that everyone sign. ComIort Dental did not provide
these dentists and prospective Iranchisees any Iranchise oIIering circular or Franchise Disclosure
Document ('FDD), a document required by the Federal Trade Commission (the 'FTC). This
Iranchise agreement pertained to the Iormation and operation oI CDMO in Missouri and the
establishment oI ComIort Dental Iranchised dental and orthodontics oIIices in Missouri.
13. ComIort Dental then induced CDMO to enter into a second Master Franchise
Agreement (the 'CDMO Agreement) on February 18, 2011, which is the current, eIIective
Agreement memorializing the subIranchisor relationship between CDMO and ComIort Dental.
The CDMO Agreement is attached hereto as Exhibit A.
14. CDET and ComIort Dental began their business relationship in 2011 when CDET
and ComIort Dental entered into a Master Franchise Agreement dated July 1, 2011 ('CDET
Agreement) pursuant to which CDET was authorized to subIranchise dental oIIices in Kentucky
and Indiana. The CDET Agreement is attached hereto as Exhibit B.
15. The CDMO and CDET Agreements were each Ior an initial term oI twenty-Iive
(25) years.
16. Pursuant to the CDMO and CDET Agreements (collectively, 'SubIranchisor
Agreements), ComIort Dental granted CDMO and CDET the right to oIIer subIranchises Ior the
operation oI Dental OIIices
1
using the Marks and the Licensed Methods within deIined
geographic areas pursuant to the terms and conditions oI the relevant Agreement. The
geographical area Ior CDMO was Missouri and the geographical areas Ior CDET were Kentucky
and Indiana. |CDMO Agreement 1.3 and Exhibit I; CDET Agreement 1.3 and Exhibit I|.

1
Capitalized words or phrases not otherwise deIined shall have the same meanings as contained in the Agreement.
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17. In return Ior the use oI the Marks and Licensed Methods, as well as the promised
provision oI signiIicant assistance and various other obligations oI ComIort Dental, CDMO and
CDET each paid required Iees to ComIort Dental. CDMO and CDET Iurther agreed to pay
ComIort Dental the Master Franchisor`s Royalty Fee equal to one percent (1) oI the monthly
Gross Collections received Irom CDMO`s SubIranchisees in the Territory. |CDMO Agreement
5.1 and 5.2; CDET Agreement 5.1 and 5.2|. The SubIranchisor Agreements also provided
that CDMO and CDET would pay ComIort Dental a New OIIice Fee oI FiIty Thousand Dollars
($50,000) commencing with the second Dental OIIice opened within the Territory and Ior every
subsequent Dental OIIice opened thereaIter within the Territory. |CDMO Agreement 5.3;
CDET Agreement 5.3|.
18. CDMO and CDET then began oIIering subIranchises to various subIranchisees in
their respective geographical areas per the terms oI the SubIranchisor Agreements. CDMO`s
Iirst subIranchisee in Missouri opened in February 2009, and CDET`s Iirst subIranchisees in
Kentucky and Indiana opened in May 2011.
19. Pursuant to the Iorm agreements prepared by ComIort Dental that ComIort Dental
mandates (through its Master SubIranchisor Agreements) be used, CDMO has entered into Iive
(5) subIranchise agreements in the State oI Missouri. CDET entered into one (1) subIranchise
agreement in the State oI Kentucky and one (1) subIranchise agreement in the State oI Indiana.
20. The mandated Iorm oI the subIranchise agreement between CDMO or CDET and
their subIranchisees state that ComIort Dental is an intended third-party beneIiciary to the
agreement and states that it is entitled to 'independently enIorce any term, condition, or
provision oI |the agreement|, including, but not limited to those dealing with the System, the
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Marks, proprietary rights, conIidentiality, non-competition, advertising Iees, modiIication,
standards and speciIications, deIault and termination, and approved Vendors. |SubIranchisee
Agreement 12.10|. An example oI a subIranchise agreement between CDMO and a ComIort
Dental subIranchisee is attached hereto as Exhibit C ('SubIranchisee Agreement).
The Parties` Relationship
21. Prior to CDMO and CDET entering into any business relationship with ComIort
Dental, ComIort Dental`s authorized representatives made various Ialse representations or
material omissions to CDMO and CDET to induce them to enter into the SubIranchisor
Agreements with ComIort Dental and to recruit and engage in business relationships with
subIranchisees.
22. ComIort Dental, through Dr. Kushner and other ComIort Dental executives, made
numerous misrepresentations to induce PlaintiIIs to enter into the SubIranchisor Agreements,
including:
a. that their subIranchisees could deduct their Iranchise payments as
'consulting Iees and could thereby gain a tax advantage that would entice dentists to
enter into the subIranchisee arrangements which would assist CDMO and CDET in
recruiting subIranchisees;
b. that CDMO, CDET, and their dentists, would be Iree to interview and use
vendors other than those approved by ComIort Dental in territories outside oI Colorado;
c. that CDMO and CDET would be provided the marketing latitude and
Iunds to advertise and recruit subIranchisees within their territories, but Iailing to disclose
the Iact that CDMO and CDET would be required to market ComIort Dental`s discount
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medical plans, and reIer all laboratory services to ComIort Dental Labs, Ior the sole
beneIit oI ComIort Dental and its owners;
d. that ComIort Dental would provide substantial support and compliance
services to CDMO and CDET and their dentists;
e. that ComIort Dental had substantial expertise in operating a multi-state
dental Iranchise business in compliance with all laws; and
I. that CDMO, CDET and their dentists would at all times be Iree to exercise
their independent medical/proIessional judgment in treating their patients.
23. These representations were made to CDMO and CDET in person at meetings in
Colorado and during telephone conversations prior to CDMO and CDET entering into
agreements with ComIort Dental.
24. CDMO and CDET reasonably relied upon these representations when entering
into the CDMO Agreement and CDET Agreement and when dealing with their subIranchisees.
Several CDMO and CDET dentists, in reliance on these representations, sold their practices and
homes in Colorado and moved, with their Iamilies, to Missouri, Indiana, or Kentucky,
respectively.
25. As described more Iully in this Complaint, ComIort Dental`s representations were
Ialse, were known at the time to be Ialse by ComIort Dental and its principals, were made with
the intention that PlaintiIIs rely on such representations, and were in Iact reasonably relied upon
by PlaintiIIs.
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Franchise Disclosure Document
26. ComIort Dental`s conduct and misrepresentations with respect to its Franchise
Disclosure Document ('the FDD) were also intended to Iraudulently induce CDMO and CDET
to execute the Agreements.
27. Federal law requires Iranchisors to provide an FDD to Iranchisees in connection
with the Iranchise relationship. See 14 C.F.R. Part 436. Many state laws have similar
requirements, and some states require the Iranchise disclosure documents, Iranchise agreement,
and related documents be Iiled with departments or agencies within such states prior to oIIering
any Iranchises Ior saleIndiana being one oI such states.
28. An FDD is a disclosure document which must be presented to prospective
purchasers oI Iranchises at least Iourteen (14) days prior to the execution oI a Iranchise
agreement. The FDD must contain certain inIormation and disclosures regarding the Iranchise to
enable buyers to make an educated decision regarding purchase. InIormation which must be
contained in the FDD includes (in pertinent part) the Iranchisor`s background inIormation and
experience, the Iranchisor`s litigation history, Iranchise Iees, start-up costs, royalties,
product-sourcing restrictions, inIormation regarding training provided by the Iranchisor,
inIormation regarding the protected area or territory, Iinancial statements, and other risks.
29. ComIort Dental Iailed to provide an FDD to CDMO when it initially entered into
a subIranchisor agreement with CDMO in 2008 or when it entered into the revised CDMO
Agreement and CDET Agreement in 2011.
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30. Based on misrepresentations and/or omissions made by ComIort Dental, including
those set Iorth above, CDMO and CDET entered into the SubIranchisor Agreements with
ComIort Dental.
31. ComIort Dental entered into a Consent Decree with the Washington Department
oI Financial Institutions, Securities Division, in April 2012, aIter a prolonged investigation.
(www.dIi.wa.gov/sd/orders/S-11-0766-12-C001.pdI) stating that ComIort Dental, Dr. Kushner,
Neil Norton and Graig Bears oIIered Iranchises and subIranchisees Ior 'turn-key dental practice
opportunities in the State oI Washington, but Iailed to provide the prospective purchasers with a
disclosure document or oIIering circular as required by RCW 19.100.080.
Terms of the Subfranchisor Agreements
32. The SubIranchisor Agreements contain various terms that govern the rights and
obligations oI the parties.
33. Pursuant to Section 3.2 oI the SubIranchisor Agreements, ComIort Dental is not
permitted to 'establish, operate, or license any other person to establish or operate, any other
Dental OIIice within the Territory. |CDMO Agreement 3.2; CDET Agreement 3.2|.
34. ComIort Dental is obligated to provide operating assistance to CDMO and CDET
under Section 8 oI the SubIranchisor Agreement, including providing an Operations Manual to
CDMO and CDET which sets Iorth certain mandatory and suggested speciIications, standards
and operating procedures Ior subIranchisor operations. |CDMO Agreement 8.1; CDET
Agreement 8.1|. The Manual provides that it is the 'primary means by which uniIorm
standards oI quality and service are maintained. |Id|.
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35. The SubIranchisor Agreement contains a number oI provisions by which ComIort
Dental seeks to control virtually all aspects oI the practice oI dentistry engaged in by ComIort
Dental dentists, including, among others, requirements that ComIort Dental approve all new
subIranchisees ( 4.4), that ComIort Dental Forms be used Ior all subIranchisee agreements
( 4.2), that the subIranchisor undergo three days oI ComIort Dental training (including 1 day in
'Master Franchisor`s aIIiliate`s lab) ( 7.1), that the subIranchisees comply with all 'standards
and speciIications Ior services and products oIIered by |subIranchisors| and the equipment and
supplies used. ( 13.1), that the SubIranchisor ensure that no subIranchisees 'oIIer any good or
service that is not expressly authorized in writing by ComIort Dental ( 13.4), and that the
SubIranchisors allow ComIort Dental to enter its premises, without notice, to inspect, audit and
copy any records ( 14.1).
36. In addition to the Manual and various contractual provisions, ComIort Dental,
through continual written and oral directives and written and verbal training programs, attempts
to direct the activities oI ComIort Dental subIranchisees, including through the 'Lean and Mean
instructions and testing, which all dentists are required to review and obey. The 'Lean and
Mean system consists oI a number oI publicly available lectures given by Dr. Kushner over the
past 15 to 20 years about how he thinks a dental oIIice should be run.
37. Section 13.2 oI the SubIranchisor Agreements provides that ComIort Dental
reserves the right to 'approve and/or designate, Irom time to time, manuIacturers, vendors,
distributors, suppliers, service providers and producers (collectively, 'Vendors), terms and
distribution methods Ior any services and products (which include, but are not limited to,
services, products, insurance, supplies, equipment and materials). |CDMO/CDET| shall
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purchase all oI the services and products required Ior the operation oI the SubIranchisor
Business . . . only Irom such approved Vendors under terms and in the manner designated by
|ComIort Dental| or any oI its aIIiliates. |CDMO Agreement 13.2; CDET Agreement 13.2|.
38. AIter execution oI the Agreements, ComIort Dental circulated a list oI approved
vendors which it mandated all its dentists use. Attached as Exhibit D is an example oI a list oI
ComIort Dental approved Vendors Irom February 22, 2014 and a print-out Irom ComIort
Dental`s private (subIranchisee only) Website identiIying Approved Vendors. See, Exhibit D.
39. Pursuant to Section 13.15 oI the SubIranchisor Agreements, CDMO and CDET
must 'create a regional advertising and marketing Iund Ior the beneIit oI the Dental OIIices
located within the Territory ('Regional Marketing Fund) in the manner set Iorth in the then
current Iorm oI the SubIranchise Agreement. CDMO and CDET`s SubIranchisees are required
to pay CDMO and CDET a Four Thousand Dollar ($4,000) marketing and promotion Iee, which
CDMO and CDET deposit in the Regional Marketing Fund, to be controlled by CDMO and
CDET and over which CDMO and CDET have sole discretion and the right to use the Regional
Marketing Fund Ior the 'production and placement oI media advertising within the Territory.
|CDMO Agreement at 13.15; CDET Agreement at 13.15|.
40. ComIort Dental requires in the SubIranchisor Agreements that 'SubIranchisor
shall comply with all applicable Iederal, state and local laws and regulations relating to the
oIIering and sale oI subIranchise opportunities within the Territory. |CDMO Agreement at
13.5; CDET Agreement at 13.5|. The SubIranchisor Agreements Iurther state that CDMO
and CDET 'shall ensure that all SubIranchisees in the Territory secure and maintain in Iorce all
required licenses, permits and certiIicates relating to the operation oI the Dental OIIices and shall
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operate the Dental OIIices in Iull compliance with the Manual, all applicable laws, ordinances
and regulations, including, without limitation, all government regulations relating to health and
saIety, occupational hazards and health, workmen`s compensation insurance, unemployment
insurance and withholding and payment oI Iederal and state income taxes, social security taxes
and sales and use taxes. Id.
41. The SubIranchisor Agreements also contain a covenant not to compete. |CDMO
Agreement 17.6; CDET Agreement 17.6|. The covenant not to compete provides, in part, as
Iollows:
Upon termination or expiration oI this Agreement or consummation oI a transIer
(as deIined in Section 15), SubIranchisor (and its shareholders, oIIicers, directors,
owners, members, managers, or partners and the spouses oI these individuals and
SubIranchisor (collectively, 'Bound Parties)) agrees that, Ior three (3) years
commencing on the later oI the eIIective date oI termination or expiration or the
date on which SubIranchisor and all Bound Parties begin to comply with this
Section, neither SubIranchisor nor any Bound Party shall:
(a) PerIorm in any capacity Sales Services, Site Services, Support Services
or other related services Ior any Competitive Business located in any territory in
which Master Franchisor or its aIIiliates or subIranchisors conduct business at the
later oI the time oI termination or expiration or the date on which SubIranchisor
and all Bound Parties begin to comply with this Section;
(b) divert or attempt to divert any business related to, or any customer or
account oI, the SubIranchisor Business, Master Franchisor`s business, Dental
OIIices or any business oI any other ComIort Dental Group, Inc. subIranchisor or
subIranchisee, by direct inducement or otherwise, or divert or attempt to divert the
employment oI any employee oI Master Franchisor or its aIIiliates, oI any
subIranchisor or subIranchisee to any Competitive Business; or
(c) directly or indirectly solicit or employ any person who is employed by
Master Franchisor or its aIIiliates.
42. The SubIranchisor Agreements each include an Exhibit II, described as a
'Non-Disclosure/Non-Competition Agreement.
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43. Pursuant to paragraph 7 oI Exhibit II (attached to both the CDMO and the CDET
SubIranchisor Agreements), the parties agreed as Iollows:
Ancillary to the agreement providing AIIiliates with ComIort Dental Trade
Secrets and in Iurther consideration Ior the disclosure oI ComIort Dental Trade
Secrets and to protect the uniqueness oI the System, AIIiliates agree that during
the time they are owners or managers oI SubIranchisor or are employed by
SubIranchisor and Ior three (3) years Iollowing the later oI their termination oI
their ownership or management positions or their employment by SubIranchisor,
the AIIiliates will not without the prior written consent oI ComIort Dental:
7.01 Either directly or indirectly, Ior themselves, or through, on behalI
oI, or in conjunction with any individual, or entity, own, maintain, operate,
engage in, be employed by, or have any interest in any competing business.
7.02 Divert or attempt to divert any business or client oI any Iranchised
business under the System to any competitor, by direct or indirect inducement or
otherwise, or do or perIorm, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the System and the trademarks and
other commercial symbols used in the System;
7.03 Employ or seek to employ any person who is at that time employed
by ComIort Dental or by any other SubIranchisor oI ComIort Dental, or otherwise
directly or indirectly induce such person to leave his or her employment.
44. The SubIranchisor Agreements recite that virtually all inIormation provided by
ComIort Dental or created during the parties` relationship is 'ConIidential InIormation,
including an Operations Manual and the Lean and Mean system. |CDMO Agreement, 11.1;
CDET Agreement, 11.1|
45. None oI the materials reIerenced in the Agreements is a trade secret. The Manual
Ior subIranchisees is a summary oI the 'Lean and Mean system. The 'Lean and Mean system
is a number oI publicly available lectures given by Dr. Kushner.
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46. The 'Lean and Mean system is available to the general public, and has not been
the subject oI reasonable eIIorts to maintain its conIidentiality. The 'Lean and Mean system is
available on the ComIort Dental website. See, Exhibit E.
47. ComIort Dental does not require those purchasing the Lean and Mean system
Irom the ComIort Dental website to sign any agreement oI conIidentiality. The computer disks
that contain the 'Lean and Mean system contain no shrink-wrap, click-wrap, or other agreement
obligating the purchaser to maintain the 'Lean and Mean system in conIidence. Neither the
computer disks nor the containers Ior them, nor any accompanying materials contain any notice
or request to treat the content oI the 'Lean and Mean disks as conIidential, and the disks
themselves do not address conIidentiality.
48. ComIort Dental presents the 'Lean and Mean system to Iranchise candidates
with no expressed or implied requirement oI conIidentiality, and the system is used both as a
marketing tool as well as a guide to operations.
49. ComIort Dental`s prospective Iranchisees who review the Lean and Mean lectures
are not required to sign any agreement regarding conIidentiality, nor asked to keep anything
conIidential. On inIormation and belieI, the Lean and Mean System materials have been
communicated and widely used by persons who have never been bound by any covenants oI
conIidentiality.
50. Individuals purchasing the 'Lean and Mean system disks Irom the ComIort
Dental website, Ior at least a decade, have done so without any restrictions or requirements as to
conIidentiality. On inIormation and belieI, the 'Lean and Mean lectures were available Ior
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purchase upon request prior to their availability on the ComIort Dental website, without any
covenants oI conIidentiality.
51. CDMO and CDET have complied in all material respects with all material terms
and conditions oI the SubIranchisor Agreements throughout the existence oI the SubIranchisor
Agreements.
52. ComIort Dental has implemented and continues to implement and attempt to
enIorce certain terms oI the SubIranchisor Agreements in a manner which is unlawIul and
contrary to public policy, and in addition has materially breached the SubIranchisor Agreements.
Comfort Dental`s Improper Enforcement of its Mandatory Laboratory Referral Program
(MLRP)
53. In enIorcing the Mandatory Laboratory ReIerral Program ('MLRP) described in
Section 13 oI the SubIranchisor Agreements, ComIort Dental has mandated that all ComIort
Dental dentists utilize its ComIort Dental Labs, which are owned and controlled by ComIort
Dental`s principals and reIerenced to in SubIranchisor Agreements as 'aIIiliated labs.
54. Budget Dental Lab, LLC is a Colorado corporation based in Lakewood, Colorado
and owned by M`KNIB Company, which in turn, is owned by ComIort Dental CEO Rick
Kushner, Barry Kushner, Roy Martin, Neil Norton, C. Michael Bloss, and Bruce Irick.
55. Premier Labs is a trade name registered by Budget Dental Lab to do business in
Colorado Springs, Colorado. This trade name expired February 1, 2010.
56. A dental laboratory manuIactures or customizes various products to assist in the
treatment oI dental patients, and the provision oI oral health care by a licensed dentist, and is
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integral to the patients` oral health and physical comIort. Products manuIactured or customized
by dental laboratories include dentures, bridges, crowns, and other dental devices.
57. Pursuant to Section 13.2 oI the SubIranchisor Agreements, ComIort Dental
mandates that all ComIort Dental dentists reIerin all 11 statesall dental laboratory work to
the ComIort Dental Labs.
58. ComIort Dental has continually demanded that all ComIort Dental dentists reIer
all laboratory work to the ComIort Dental Labs.
59. ComIort Dental has repeatedly emphasized that mandated lab reIerrals and
revenues Irom the ComIort Dental Labs are critical to the ComIort Dental business, and that
ComIort Dental 'does not survive without the lab|s|.
60. On inIormation and belieI, ComIort Dental Iorced the departure Irom the ComIort
Dental system oI at least three ComIort Dental dentists who used non-ComIort Dental Labs
which were, in those dentists` independent proIessional judgment, superior to the ComIort
Dental Labs in treating their patients.
61. On multiple occasions, ComIort Dental has sent written directives and warnings
to CDMO and CDET and/or aIIiliated dentists in which ComIort Dental demanded that all lab
reIerrals go to the ComIort Dental Labs, and has regularly threatened and intimidated dentists
who sought to exercise their own independent judgment by reIerring to another, higher quality
laboratory. For example, on July 31, 2012, Dr. Kushner wrote:
'I was recently made aware oI your franchise violation regarding sending
unapproved lab work out oI the organization. I expect that the violation
was relatively minor|.| Nevertheless, I would like to add my
disappointment in your actions. It always saddens and concerns me when
a ComIort partner acts like any other hot dog` dentist and Ieels he/she can
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act independently oI the organization . . . I am conIident that all oI our
parties understand that ComIort`s mandatorv in-house lab concept is one
of a tinv few massive difference makers for us . . . In addition to the legal
penalties Ior your violation, I Ieel an obligation to show this example to all
oI our partners Ior their ediIication. Additionally, your partnership will be
scrutinized going Iorward Ior additional Iranchise violations.
See, Exhibit E-1.
62. On August 30, 2012, Graig Bears, corporate counsel Ior ComIort Dental, warned
ComIort Dental dentists as Iollows: '|R|ight now the corporate oIIice is dealing with an oIIice
that has been using a non-Budget/Premier dental lab. It is not a one-time or even sporadic use
but rather continued, extensive use. The punishment is going to be severe. Please, iI any oI you
are using an outside lab, stop now. The money saved is not worth losing vour franchise. See,
Exhibit F.
63. ComIort Dental has continually threatened to terminate the Iranchise oI any
dentist who reIers to a dental laboratory which, in the dentist`s independent proIessional
judgment, provides higher quality service Ior his patients than the ComIort Dental Labs.
64. ComIort Dental`s mandate that only ComIort Dental Labs be used has continued
throughout 2013 and 2014, as have the threats made by ComIort Dental that Iailure to abide by
this requirement could lead to the termination oI the Iranchise or other adverse actions.
65. As recently as February 21, 2014, ComIort Dental CEO Kushner e-mailed
CDMO, CDET and their dentists to demand reIerrals ('February Kushner Letter) to the
ComIort Dental Labs:
'|I|n order to avoid violating your Iranchise agreement and the
enIorcement that would have to Iollow, vou must continue to honor all of
vour obligations, including use of the labs, Gold Plan and accounting
services Ior your business.
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(emphasis added) See, Exhibit G.
66. Under the SubIranchisor Agreements, ComIort Dental may terminate the
Agreement, without any notice or right to cure, iI all lab services are not reIerred to the ComIort
Dental Labs.
67. CDMO, CDET and/or their dentists have expressed to ComIort Dental and
CDMO that, in the exercise oI their independent clinical judgment, they would preIer to use
other, higher quality labs. Indeed, the Missouri dentists, among others, have stated their
preIerence to use other local laboratories Ior their work.
68. CDMO, CDET and/or their dentists have inIormed ComIort Dental that there
have been signiIicant quality issues with ComIort Dental Labs, and that other labs would be
superior in their independent proIessional judgment.
69. CDMO, CDET and/or their dentists have advised ComIort Dental that the
ComIort Dental Labs pose signiIicant risks oI harm to dental patients, including through
excessive delays in delivery oI dental laboratory devices, the inIerior quality oI such devices, and
the risk oI repeat procedures when a deIective device Iails.
70. The inIerior quality oI dental devices made by the ComIort Dental Labs has
required some dentists to spend signiIicant time repairing the devices themselves, and the use oI
such inIerior or deIective devices has damaged dentists` proIessional relationships with their
patients.
71. Despite the quality issues with the ComIort Dental Labs, ComIort Dental not only
has threatened, intimidated and/or terminated dentists Ior exercising independent judgment
regarding lab services, ComIort Dental also penalizes, and threatens to penalize, dentists who
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return in excess oI 10 oI deIective work perIormed by the ComIort Dental Labs to be remade.
ComIort Dental reIers to this penalty as a 'remake Iine. See, Exhibit H (E-mail Irom
Dr. Kushner dated October 6, 2010).
72. Indeed, Dr. Kushner stated as Iollows: 'Please see the enclosed remake report and
my message oI July, 2010. As you can see, two (2) oIIices . . . Iailed to meet my remake
requirement oI 12 Ior the third quarter. ThereIore, thev are subfect to a 10 penaltv on their
lab bill Ior October, November and December. Other oIIices, as you can see, were very close to
being penalized. This penalty will be billed . . . under lab penalty`. |T|hese ridiculous remake
levels will no longer be tolerated. You were warned and apparently some oI you ignored me.
73. In December 2013, ComIort Dental`s Executive Vice President warned all
ComIort Dental dentists about 'record remake percentages and that '21 oIIices exceeded the
10 remake limit set by RK |Rick Kushner|. You are all Ilirting with FIRE . . . II you don`t take
action, PENALTIES will ensue, and your liIe will continue to be Irustrating. Exhibit I.
74. On inIormation and belieI, ComIort Dental`s 'remake Iine is intended to
discourage and penalize ComIort Dental dentists Irom requesting remakes Irom the ComIort
Dental Labs, even whenin the proIessional judgment oI the dentistthe laboratory work was
inIerior or deIective and, taking into consideration the best interests oI their patients, should be
remade. On inIormation and belieI, discouraging and penalizing such remakes reduces expenses
Ior the ComIort Dental Labs and enhances their proIitability.
75. ComIort Dental`s mandated reIerrals oI laboratory services interIere with dentists`
independent proIessional judgment. ComIort Dental dentists may only use alternate labs, or
request remakes, at their peril, risking immediate termination oI their subIranchise agreements,
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IorIeiture oI their investments in their practices, remake penalties, and enIorcement oI a
three-year covenants against competition which could prevent them Irom practicing in their
current market and with patients with whom they enjoy a proIessional relationship.
76. Missouri dental practice laws prohibit licensed dentists Irom surrendering their
independent proIessional judgment, by contract or otherwise, to a person not licensed to practice
dentistry in the state. See Mo. Rev. Stat. 332.081(4) ('A dentist shall not enter into a contract
that allows a person who is not a dentist to inIluence or interIere with the exercise oI the dentist`s
independent proIessional judgment.).
77. Missouri law under which CDMO and its subIranchisees operate, provides, in
relevant part, that one who '|c|ontrols, inIluences, attempts to control or inIluence, or otherwise
interIeres with the dentist`s independent proIessional judgment regarding the diagnosis or
treatment oI a dental disease, disorder, or physical condition engages in the practice oI
dentistry. Mo. Rev. Stat. 332.071.
78. Indiana dental practice laws, under which a CDET subIranchisee operates,
likewise provide that a person or entity engages in the prohibited, unlicensed practice oI dentistry
by directing or controlling the use oI dental equipment or dental material while the equipment or
material is being used to provide dental services or directs, controls, or otherwise interIeres with
a dentist`s clinical judgment. Ind. Code 25-14-1-23(11) and (12).
79. Kentucky law, under which a second CDET subIranchisee operates, also operates
to prohibit corporations or other non-licensed persons Irom attempting to dictate or inIluence
dentists` independent medical judgment and clinical practice.
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80. The mandates imposed by ComIort Dental under its MLRP attempt to
impermissibly interIere with the dentists` independent proIessional judgment and medical
treatment oI their patients and, as such, are contrary to the laws oI Missouri, Indiana, and
Kentucky.
81. As such, ComIort Dental`s threatened enIorcement oI the Mandatory Lab ReIerral
Program, threats to terminate the subIranchise and threats to 'Iine or 'penalize them, all seek
to coerce and intimidate CDMO, CDET and their dentists into surrendering their independent
proIessional judgment Ior the Iinancial beneIit oI ComIort Dental.
82. ComIort Dental`s economic coercion and improper threats potentially expose
CDMO and CDET and their dentists to unacceptable legal or regulatory risks.
83. ComIort Dental has continually attempted to exercise control over the
independent clinical judgments oI its dentists by mandating that they reIer specialized dental
services only to ComIort Dental orthodontists, and not reIer to specialists who are unaIIiliated
with ComIort Dental, without regard Ior the dentists` proIessional judgment.
84. ComIort Dental continually attempts to exercise control over its dentists by
mandating that they reIer all endontics supplies, including rotary and hand Iiles, Iilling materials
and other clinical supplies only to ComIort Dental`s preIerred vendors, without regard Ior the
dentists` proIessional judgment.
85. ComIort Dental`s implementation oI the SubIranchisor Agreements renders the
Agreements contrary to law and public policy.
86. ComIort Dental`s ongoing and continued attempts to exercise control over the
practice oI dentistry in Missouri, Indiana, and Kentucky are unlawIul and contrary to public
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policy because, among other things, such attempts constitute the unlicensed practice oI dentistry
in Missouri and unlawIully interIere with the dentists` clinical judgment in violation oI the laws
oI Missouri, Kentucky, and Indiana.
87. ComIort Dental`s mandating use oI its own labs and imposition oI Iines to
discourage remakes oI inIerior or deIective dental devices and appliances is against public policy
in that it interIeres with the dentists` medical judgment, and places the Iinancial interests oI
ComIort Dental above the best interests oI individual patients.
88. As a result oI ongoing concerns and objections to the MLRP, CDMO and CDET
on December 13, 2013 Iormally notiIied ComIort Dental and its subIranchisees oI these concerns
and advised that they would not seek to enIorce provisions oI the SubIranchisee Agreements
which could interIere with dentists` independent judgment. See Exhibit J.
89. In the letters included in Exhibit J, CDMO and CDET set Iorth their concerns
with the MLRP, with the extra-contractual 'remake Iines and other compliance issues, and
advised that they would not require compliance with the improper enIorcement demands made
by ComIort Dental but would, instead, choose to abide by those provisions oI the SubIranchisor
Agreements which require compliance with Iederal and state laws. See, Exhibit J.
90. Even aIter ComIort Dental received the December 13, 2013 letter Irom CDMO
and CDET, ComIort Dental has continued to demand compliance with its demands that dentists
reIer all laboratory work to the ComIort Dental Labs.
Improper Demands to Market the Gold Plan
91. ComIort Dental oIIers, and directs CDMO, CDET and their dentists to oIIer and
sell a 'Gold Plan to its dental patients. The Gold Plan, as set Iorth on ComIort Dental`s website
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and in a Iorm Gold Member Agreement is described as 'reduced Iee dental membership plans
that allow individuals and groups to receive quality dental care at reduced prices. See,
Exhibit K (screen shot).
92. On inIormation and belieI, in partial response to CDMO`s stated concerns,
ComIort Dental changed its website description oI the Gold Plan in February 2014 and, in March
2014, required that its dentists remove Irom their oIIice Iramed Gold Plan advertising posters
previously distributed by ComIort Dental.
93. Under the Gold Plan, members pay a monthly Iee in exchange Ior Iree dental
examinations, the provider`s lowest Iee rate, and a capitation.
94. ComIort Dental mandates that CDMO, CDET and their dentists in all states in
which they operate, sell and advertise the Gold Plan to their patients using only approved
advertising copy, all oI which has been prepared by ComIort Dental and all oI which includes
inIormation about the Gold Plan.
95. On inIormation and belieI, ComIort Dental`s proIits Irom the Gold Plan are
estimated to be in excess oI $3 million annually.
96. ComIort Dental directs CDMO, CDET and ComIort Dental dentists to sell the
Gold Plan by various written and oral demands, which come in the Iorm oI direct e-mail or other
written communications, through oIIice visits, and through demands that Gold Plan materials be
included in all advertising copy.
97. Beginning in 2013, CDMO and CDET requested that ComIort Dental provide
assurances that it had determined the Gold Plan could properly be marketed and sold under the
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laws oI the various states in which ComIort Dental demanded that CDMO and CDET, and their
dentists, oIIer and sell it.
98. In December 2013, CDMO and CDET speciIically asked ComIort Dental`s
general counsel, Graig Bears, to provide assurances that ComIort Dental`s Gold Plan could
properly be sold and marketed in Missouri, and in addition provided ComIort Dental suggested
revisions to the Gold Plan Member Agreement. See, Exhibit J.
99. Despite Iurther requests to Mr. Bears, neither he nor ComIort Dental have to date,
provided any such assurances.
100. On February 21, 2014, ComIort Dental circulated to CDMO, CDET and other
ComIort Dental dentists a letter reviewing the Gold Plan which had been prepared by its legal
counsel, Brent Haden ('Haden Letter). See, Exhibit G.
101. In the Haden Letter, Mr. Haden stated that ComIort Dental is 'currently in
discussions with the Missouri Department oI Insurance regarding the appropriate registration
classiIication Ior the Gold Plan. The Haden letter continued: 'The Gold Plan will now be
registered as a discount medical plan` under state law, per our discussions with the Department
oI Insurance`s regulators. Id. The Haden Letter stated ComIort Dental was working to submit
all inIormation to Missouri by the end oI February, but conceded that the Gold Plan had not been
registered in Missouri during the time ComIort Dental had been requiring it be marketed. It did
not indicate whether the Gold Plan had been registered in any other state, nor did it or ComIort
Dental advise whether the Gold Plan conIormed with Indiana or Kentucky law. Id.
102. In an e-mail message transmitting the Haden Letter, Dr. Kushner, on February 21,
2014, demanded in writing that CDMO, CDET and all ComIort Dental dentists continue selling
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the Gold Plan, Iailure to do so being cited as a Iranchise violation that would have adverse
consequences. Id.
103. On February 24, 2014, Dr. Craig Bahr, on behalI oI CDMO and CDET,
responded to the Kushner Demand Letter, again inquiring whether and when the Gold Plan
would be registered in any state.
104. As oI March 24 2014, neither ComIort Dental nor Mr. Haden has inIormed
PlaintiIIs whether the Gold Plan has been registered in Missouri or any other state.
105. As oI March 24, 2014, on inIormation and belieI, the Gold Plan is not registered
as a discount medical plan in Missouri, Kentucky or Indiana. By continuing to demand that
CDMO, CDET and their dentists to oIIer such a plan, ComIort Dental continues to demand the
sale oI unregistered insurance or discount plan products in potential violation oI state and Iederal
laws.
106. ComIort Dental continues to warn all oI its dentists that Iailure to sell this
unregistered product violates the relevant subIranchise agreements, and threatens 'enIorcement
oI same.
Comfort Dental`s Failure to Provide Support and Services
107. ComIort Dental is contractually obligated to provide support to CDMO and
CDET in their business oI recruiting, selling, and managing subIranchisees and in the operation
oI the subIranchises. |CDMO Agreement 8; CDET Agreement 8|.
108. For example, ComIort Dental is contractually required to loan CDMO and CDET
an Operations Manual ('Manual) containing the mandatory and suggested speciIications,
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standards, and operating procedures Ior SubIranchisors prescribed Irom time to time by ComIort
Dental.
109. ComIort Dental is also contractually obligated to provide CDMO and CDET
consulting services.
110. ComIort Dental has Iailed to provide any Manual Ior CDMO and CDET`s use in
their respective roles as subIranchisors, and has provided only an outdated and deIicient
operations manual Ior subIranchisees.
111. ComIort Dental has Iurther Iailed to provide consulting and compliance services
to CDMO or CDET, despite repeated requests Irom both, including as recently as February 2014,
when CDMO and CDET again inquired regarding ComIort Dental`s regulatory Compliance
Program ('Program) and how ComIort Dental would address the Iact the Gold Plan had been
unregistered.
112. Despite repeated requests Ior advice regarding how to market and promote the
Dental OIIices with ad copy that did not include advertising Ior the unregistered Gold Plan,
ComIort Dental remained silent, leaving CDMO, CDET, and their subIranchisees to their own
devices, with no support or guidance whatsoever, and leaving CDMO, CDET and their dentists
at potential risk.
113. In response to repeated requests Irom CDMO and CDET in February 2014,
ComIort Dental Iailed to Iurnish to CDMO, CDET, or, to the knowledge oI CDMO and CDET,
any oI their dentists, with the regulatory compliance program that ComIort Dental represented to
PlaintiIIs and numerous ComIort Dental dentists that it had developed. On inIormation and
belieI, no such program exists. II it does exist, it has never been shared with any oI the
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PlaintiIIs, the persons to whom this program was promised pursuant to the SubIranchisor
Agreements.
114. Despite repeated requests, ComIort Dental has never shared with CDMO or
CDET any compliance program documents, materials, policies or regulatory compliance
training. It has Iailed and reIused to identiIy its compliance committee or compliance oIIicer, or
any other details regarding the compliance program it claims to have. It has Iailed to provide any
compliance guidance relating to the dental practice laws or insurance laws (relating to the Gold
Plan) in any states in which CDMO and CDET operate.
115. Regulatory compliance programs are typically provided by health care
organizations such as ComIort Dental. ComIort Dental represented it would provide regulatory
compliance assistance to CDMO and CDET, and represented that it had a compliance program.
116. Rather than support CDMO and CDET as it is contractually obligated to do,
ComIort Dental has consistently and continually undermined and disparaged CDMO, CDET, and
their shareholders Ior inquiring about or attempting to ensure regulatory compliance, and has
Iailed to support CDMO and CDET in their endeavors as subIranchisors.
Regional Marketing Fund
117. The SubIranchisor Agreements (both CDMO and CDET) provide that the
Regional Marketing Fund shall be managed by the subIranchisor (CDMO or CDET, as
appropriate), and the subIranchisees are required to make these payments to CDMO or CDET, as
appropriate. |CDMO Agreement 13.15; CDET Agreement 13.15, and SubIranchisee
Agreement 4.1(c)|.
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118. The purpose oI the Regional Marketing Fund, per the terms oI the SubIranchisor
Agreements and the SubIranchisee Agreements, is to promote regional marketing Ior the beneIit
oI the subIranchisees in the respective regions.
119. In contravention oI these contractual provisions regarding the Regional Marketing
Fund, in January 2013, ComIort Dental unilaterally and without any the consent oI or any
discussion with CDMO or CDET, directed all subIranchisees to deliver all marketing Iunds
contractually payable to the Regional Marketing Fund to the care, custody, and management oI
ComIort Dental.
120. ComIort Dental, in continuing breach oI the SubIranchisor Agreements and
SubIranchisee Agreement, continued to require that payment oI the Regional Marketing Fund be
made to ComIort Dental Irom February 2013 until November 2013.
121. The subIranchisees were Iurther inIormed that 'corporate is taking over marketing
management and CDMO and CDET were directed to 'make no Iurther marketing
commitments, and direct media inquiries to ComIort Dental.
122. Such direction was in direct violation oI the SubIranchisor Agreements. |CDMO
Agreement 13.15; CDET Agreement 13.15|.
123. In Iurther violation oI the Agreements, when ComIort Dental began receiving the
Regional Marketing moneys, ComIort Dental improperly and in violation oI the contractual
purpose oI the Regional Marketing Fund used the Fund to engage in national advertising and
marketing Ior ComIort Dental, rather than Ior regional marketing, as required by the
Agreements.
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124. To the extent ComIort Dental did attempt to use the Fund Ior regional marketing,
it did so negligently and with little regard Ior the continued successIul business oI CDMO,
CDET or their dentists.
125. For example, in Missouri, ComIort Dental spent $100,000 Irom the Fund on a
sponsorship oI the Kansas City Royals baseball team. For Iour months (February May), the
toll-Iree telephone number was listed incorrectly and interIered with opportunities with
prospective patients, converting them Irom likely patients to disappointed and Irustrated callers.
126. ComIort Dental Iurther used the Fund Ior radio advertisements in Kentucky and
Indiana Ior orthodontic services, despite the Iact ComIort Dental does not have any orthodontic
services in Kentucky or Indiana. At least one potential patient complained to a CDET
subIranchisee about this advertising and made a Iormal complaint to ComIort Dental.
127. ComIort Dental`s advertising on its website also included marketing Ior the Gold
Plan even though ComIort Dental`s attorney admitted that the Gold Plan should have been, yet
has not been, registered in Missouri. Despite repeated requests, ComIort Dental has provided no
inIormation demonstrating that the Gold Plan may be properly sold or marketed in Missouri,
Indiana or Kentucky and has ignored requests Irom CDMO and CDET regarding such
registration.
128. ComIort Dental`s demands and threats that the Gold Plan be marketed under these
circumstances are improper and against public policy and inconsistent with the terms oI the
SubIranchisor Agreements.
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COUNT I
DECLARATORY 1UDGMENT - AGREEMENTS VOID FOR ILLEGALITY
129. PlaintiIIs incorporate paragraphs 1 - 128 as though Iully repled and restated
herein.
130. When PlaintiIIs entered into the SubIranchisor Agreements with ComIort Dental,
they reasonably believed ComIort Dental`s enIorcement and implementation oI the agreements
would be in compliance with all applicable Iederal and state laws.
131. Contrary to PlaintiIIs` expectations, ComIort Dental has interpreted and enIorced
material provisions oI the SubIranchisor Agreements in a manner which violates the law and
public policy in the Iollowing ways:
a. By requiring use oI the ComIort Dental Labs Ior all lab and other work
when such mandate interIeres with the dentists` independent proIessional judgment, and
places the Iinancial interests oI ComIort Dental over the best interests oI dental patients;
b. By improperly threatening PlaintiIIs and ComIort Dental dentists with
extra-contractual 'Iines or 'penalties Ior ordering remakes oI deIective materials
provided by the ComIort Dental Labs, thereby seeking to interIere with dentists`
independent proIessional judgment and creating potential harm to dentists` patients and
to the proIessional relationship between such dentists and their patients;
c. By requiring CDMO, CDET and their dentists to oIIer and sell the 'Gold
Plan to their patients when, on inIormation and belieI, it has not been properly registered
under state law, and prior to receiving any assurances that the Gold Plan and sales oI
same comply with applicable law; and
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d. By generally attempting to exert excessive and improper control over the
practice oI dentistry in a manner that improperly interIeres with the dentists` independent
proIessional judgment.
132. By seeking to control the dentists` independent proIessional judgment and
treatment oI their patients, ComIort Dental is unlawIully engaged in the practice oI dentistry in
Missouri, Indiana, Kentucky and other states.
133. By requiring CDMO, CDET, and their dentists to oIIer the Gold Plan, without
properly registering the Gold Plan under state law, ComIort Dental is improperly demanding that
PlaintiIIs potentially violate state law by oIIering or selling an unregistered and/or unlicensed
product.
134. As such, ComIort Dental`s interpretation, implementation and enIorcement render
the SubIranchisor Agreements illegal.
135. While CDMO and CDET have repeatedly notiIied ComIort Dental oI their
concerns, and requested that these practices be ceased, ComIort Dental has reIused to change its
practices, and continues to demand that CDMO and CDET enIorce these illegal requirements.
136. As recently as February 21, 2014, in the Kushner Demand Letter, ComIort Dental
CEO Dr. Kushner Iormally renewed his demand that all ComIort Dental dentists continue
reIerring all laboratory work to the ComIort Dental Labs, and to continue selling the Gold Plan.
|See, Exhibit G|.
137. On February 24, 2014, CDMO and CDET again inquired in writing regarding the
registration oI the Gold Plan and regarding ComIort Dental`s alleged compliance program.
ComIort Dental has never responded to this recent inquiry Irom CDMO and CDET.
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138. As such, CDMO and CDET were Iorced to notiIy their subIranchisees that
CDMO/CDET would not require them to comply with ComIort Dental`s unlawIul enIorcement
demands.
139. CDMO and CDET remain at risk that ComIort Dental will declare them in
violation oI the SubIranchisor Agreements (as previously threatened) Ior reIusing to enIorce
ComIort Dental`s illegal implementation, enIorcement and interpretation oI the SubIranchisor
Agreements.
140. CDMO, CDET and their dentists are placed, by ComIort Dental`s actions and
insistence on its MLRP, in the untenable position oI being ordered to sacriIice their patients` best
interests and disregard state licensure laws, on the one hand, or on the other hand, Iace certain
Iinancial ruin at the hands oI ComIort Dental through termination oI the SubIranchisor
Agreements without cure or advance notice, triggering a three-year covenant against
competition.
141. ComIort Dental`s illegal implementation and enIorcement oI the SubIranchisor
Agreements risks irreparable harm to the PlaintiIIs, including potential risks to their proIessional
licenses, to their reputations, their credibility within the proIession, to their existing and
prospective business relationships with patients and subIranchisees, and with their ability to earn
a living.
142. An actual, present, and justiciable controversy exists between PlaintiIIs and
ComIort Dental regarding the validity and enIorceability oI the SubIranchisor Agreements.
143. The SubIranchisor Agreements, as implemented, interpreted and enIorced should
be declared illegal and void in their entirety.
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144. Alternatively, ComIort Dental should be permanently enjoined Irom enIorcing the
SubIranchisor Agreements in an illegal manner, and speciIically enjoined Irom mandating that
PlaintiIIs reIer dental laboratory services to the ComIort Dental Labs, Irom mandating that
PlaintiIIs enIorce such provisions in contracts entered into pursuant to the SubIranchisor
agreements and Irom mandating that PlaintiIIs market and/or sell the Gold Plan.
COUNT II
DECLARATORY 1UDGMENT - AGREEMENTS VOID
AS AGAINST PUBLIC POLICY
145. PlaintiIIs incorporate paragraphs 1 - 144 as though Iully repled and restated
herein.
146. When PlaintiIIs entered into their respective SubIranchisor Agreements with
ComIort Dental, they reasonably believed ComIort Dental`s interpretation and implementation oI
the Agreements would be consistent with public policy.
147. Contrary to PlaintiIIs` expectations, ComIort Dental has interpreted and enIorced
material provisions oI the SubIranchisor Agreements in a manner which violates public policy in
the Iollowing ways:
a. By requiring use oI the ComIort Dental Labs when such mandate
interIeres with the dentists` independent proIessional judgment;
b. By improperly threatening PlaintiIIs and ComIort Dental dentists with
extra-contractual 'Iines or 'penalties Ior ordering remakes oI deIective materials
provided by the ComIort Dental Labs, thereby seeking to interIere with dentists`
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independent proIessional judgment and creating potential harm to dentists` patients and
to the proIessional relationship between such dentists and their patients;
c. By requiring ComIort Dental dentists to market the Gold Plan when, on
inIormation and belieI, it has not been properly registered and/or licensed in Missouri,
Kentucky or Indiana, and when ComIort Dental has reIused to conIirm whether it has
been properly registered; and
d. By generally attempting to exert excessive and improper control over the
practice oI dentistry by improperly interIering with the dentists` independent
medical/clinical/proIessional judgment.
148. By controlling the dentists` independent proIessional judgment, ComIort Dental is
interIering with their independent proIessional judgment, contrary to public policy and placing
CDMO and CDET in the untenable position oI having to choose between, on the one hand,
enIorcing an unlawIul contract and perhaps risking the proIessional licenses oI subIranchisees
and, on the other hand, breaching the SubIranchisor Agreements.
149. As such, ComIort Dental`s implementation oI the SubIranchisor Agreements
renders the implementation oI the Agreements contrary to public policy.
150. CDMO and CDET have repeatedly notiIied ComIort Dental oI its violation oI
applicable law and public policy, but ComIort Dental has reIused to change its practices or even
acknowledge the problem. Instead, ComIort Dental has chosen to disparage CDMO, CDET, and
its principals, to continue to demand that CDMO and CDET enIorce these improper
requirements.
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151. As such, CDMO and CDET have been Iorced to notiIy their subIranchisees that
CDMO and CDET would not seek to enIorce provisions oI the SubIranchisee Agreements which
interIere with their independent medical/clinical/proIessional judgment.
152. CDMO and CDET remain at risk that ComIort Dental will declare them in
violation oI the SubIranchisor Agreements (as previously threatened) Ior reIusing to enIorce
provisions which are contrary to applicable law and public policy.
153. ComIort Dental`s illegal implementation and enIorcement oI the SubIranchisor
Agreements risks irreparable harm to the PlaintiIIs including potential risks to their proIessional
licenses, to their reputations, their credibility within the proIession, their existing and prospective
business relationships with patients and subIranchisees, and their ability to earn a living, and
termination oI the SubIranchisor Agreements immediately triggering covenants against
competition.
154. An actual, present, and justiciable controversy exists between PlaintiIIs and
ComIort Dental regarding the validity oI the respective SubIranchisor.
155. The SubIranchisor Agreements, as implemented and enIorced, should be declared
void as against public policy.
156. Alternatively, ComIort Dental should be permanently enjoined Irom enIorcing the
SubIranchisor Agreements in an illegal manner, and speciIically enjoined Irom mandating that
PlaintiIIs and/or their dentists reIer dental laboratory services solely to the ComIort Dental Labs,
Irom mandating that PlaintiIIs enIorce such provisions in contracts entered into pursuant to the
SubIranchisor Agreements and mandating that PlaintiIIs market and sell the Gold Plan.
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COUNT III
DECLARATORY 1UDGMENT - COVENANTS NOT TO COMPETE ARE VOID
157. PlaintiIIs incorporate paragraphs 1 - 156 as though Iully repled and restated
herein.
158. PlaintiIIs` respective agreements contain various covenants not to compete as
more Iully set Iorth above.
159. The covenants not to compete are void and unenIorceable Ior the Iollowing
reasons:
a. The covenants not to compete are void and unenIorceable because the
entire SubIranchisor Agreements are void and unenIorceable because the implementation
oI the Agreements by ComIort Dental is illegal and contrary to public policy.
b. The covenants not to compete are void pursuant to Co. St. 8-2-113;
c. The covenants not to compete are unreasonable in scope;
d. The covenants not to compete do not protect any trade secrets oI ComIort
Dental in that there are no trade secrets associated with the ComIort Dental system; and
e. The covenants not to compete are void because ComIort Dental has
materially breached the SubIranchisor Agreements and, as such, PlaintiIIs are excused
Irom perIormance under their Agreements and speciIically excused Irom compliance
with the covenant not to compete.
160. The SubIranchisor Agreements, including the covenants not to compete, should
be declared null and void.
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37
161. An actual, present, and justiciable controversy exists between PlaintiIIs and
ComIort Dental regarding the validity oI the covenants not to compete.
COUNT IV
FRAUDULENT INDUCEMENT
162. PlaintiIIs incorporate paragraphs 1 - 161 as though Iully repled and restated
herein.
163. ComIort Dental misrepresented and/or omitted material Iacts to CDMO and
CDET to induce them into entering into agreements with ComIort Dental to act as
SubIranchisors Ior ComIort Dental.
164. SpeciIically, ComIort Dental misrepresented and/or omitted the Iollowing
material Iacts to PlaintiIIs:
a. That PlaintiIIs, and Iranchisees in general, could deduct, Ior tax purposes,
the purchase price Ior the Iranchises, because the documents named them as 'consulting
payments.
b. That CDMO and CDET and their dentists would be Iree to exercise their
own independent medical judgment in treating patients;
c. That CDMO and CDET and their dentists would be Iree to interview and
use vendors other than those approved by ComIort Dental in territories outside oI
Colorado;
d. That CDMO and CDET would be provided the marketing latitude and
Iunds to advertise and recruit subIranchisees within its territories, while Iailing to
disclose the Iact that CDMO and CDET would be required to market ComIort Dental`s
Case l:l4-cv-0087l Document l Filed 03/25/l4 USDC Colorado Page 37 of 44
38
discount medical plans, and reIer all laboratory services to ComIort Dental Labs, Ior the
sole beneIit oI ComIort Dental and its owners;
e. That ComIort Dental would provide substantial operational support,
including regulatory compliance guidance, to CDMO and CDET, and their
subIranchisees; and
I. That ComIort Dental Iailed to provide CDMO and CDET proper or
accurate disclosures, including through FDDs, in connection with the SubIranchisor
Agreements.
165. ComIort Dental owed a duty to PlaintiIIs to make truthIul representations and
aIIirmatively to disclose material inIormation, including through timely FDDs, necessary to
ensure its representations were accurate.
166. ComIort Dental owed a duty to PlaintiIIs to comply with state laws governing the
practice oI dentistry.
167. ComIort Dental owed a duty to PlaintiIIs to comply with state and Iederal
Iranchise laws in oIIering Iranchises to PlaintiIIs.
168. PlaintiIIs relied upon ComIort Dental`s misrepresentations in making the decision
to enter into their respective Agreements with ComIort Dental.
169. PlaintiIIs` reliance on ComIort Dental`s misrepresentations was justiIiable under
the circumstances.
170. As a result oI PlaintiIIs` justiIiable reliance on ComIort Dental`s material
misrepresentations and/or omissions, PlaintiIIs have suIIered damages including, but not limited
to, the Iees paid by PlaintiIIs pursuant to their respective Agreements.
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171. As a result oI ComIort Dental`s material misrepresentations and/or omissions to
PlaintiIIs, PlaintiIIs have suIIered damages in an amount to be determined at trial, and are also
entitled to rescission oI the SubIranchisor Agreements with ComIort Dental.
COUNT V
BREACH OF CONTRACT
172. PlaintiIIs incorporate paragraphs 1 - 171 as though Iully repled and restated
herein.
173. CDMO and CDET entered into SubIranchisor Agreements with ComIort Dental.
174. The SubIranchisor Agreements impose several obligations upon ComIort Dental.
175. ComIort Dental has materially breached each oI the SubIranchisor Agreements at
issue in this litigation by:
a. Continually Iailing to provide support to CDMO and CDET, including
support regarding regulatory compliance;
b. Failing to provide a copy oI the Operations Manual Ior subIranchisor
operations to CDMO and CDET;
c. Continually Iailing to provide adequate consulting services, including
regulatory compliance services, to PlaintiIIs;
d. Controlling and using the Regional Marketing Fund in a manner contrary
to the purpose and intent oI the Regional Marketing Fund, including by demanding that
PlaintiIIs market and sell the Gold Plan;
e. Implementing the MLRP in a manner that is both illegal and contrary to
public policy; and
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I. Requiring CDMO, CDET and their dentists to oIIer the 'Gold Plan,
which, on inIormation and belieI, is not properly registered in several states.
176. PlaintiIIs have Iully complied with all oI their obligations under the SubIranchisor
Agreements.
177. As a result oI ComIort Dental`s material breaches oI the SubIranchisor
Agreements, CDMO and CDET have been damaged in an amount to be determined at the trial oI
this matter but at least $1 million, constituting the Iranchise Iees, transIer Iees, and royalties paid
to ComIort Dental since entering into the respective agreements Ior services ComIort Dental has
Iailed to provide.
COUNT V
BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING
178. PlaintiIIs incorporate paragraphs 1 - 177 as though Iully repled and restated
herein.
179. CDMO and CDET entered into SubIranchisor Agreements with ComIort Dental.
180. The SubIranchisor Agreements each contain an implied covenant oI good Iaith
and Iair dealing, requiring ComIort Dental to perIorm its contractual obligations in good Iaith
and in a reasonable manner.
181. ComIort Dental has materially breached such implied covenant oI good Iaith and
Iair dealing by:
a. Continually Iailing to provide support to CDMO and CDET;
b. Failing to provide a copy oI the Operations Manual Ior subIranchisor
operations to CDMO and CDET;
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c. Continually Iailing to provide adequate consulting services including
regulatory compliance services, to PlaintiIIs;
d. Continually disparaging CDMO and CDET and undermining their ability
to recruit and contract with subIranchisees;
e. Controlling and using the Regional Marketing Fund in a manner contrary
to the purpose and intent oI the Regional Marketing Fund;
I. Implementing the MLRP in a manner that is both illegal and contrary to
public policy;
g. Requiring CDMO, CDET and their dentists to oIIer the 'Gold Plan,
which is not properly registered under state law, and imposing other extra-contractual and
improper obligations on PlaintiIIs.
182. As a result oI ComIort Dental`s material breaches oI the Agreements, CDMO and
CDET have been damaged in an amount to be determined at the trial oI this matter, but at least
$1 million, constituting the Iranchise Iees, transIer Iees, and royalties paid to ComIort Dental
since entering into the respective Agreements Ior services ComIort Dental has Iailed to provide.
WHEREFORE, PlaintiIIs pray Ior the Iollowing relieI Irom the Court:
(a) For injunctive relieI:
(i) Which prohibits ComIort Dental Irom requiring PlaintiIIs to
enIorce or abide by the provisions oI the SubIranchisor Agreements which
are illegal as implemented by ComIort Dental;
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(ii) Which prohibits ComIort Dental Irom requiring PlaintiIIs to
enIorce or abide by the provisions oI the SubIranchisor Agreements which
are contrary to public policy as implemented by ComIort Dental;
(iii) Which prohibits ComIort Dental Irom requiring PlaintiIIs to
market or sell the Gold Plan; and
(iv) Which prohibits ComIort Dental Irom enIorcing the covenants not
to compete contained in both SubIranchisor Agreements as void under
Colorado law.
(b) For a declaration Irom this Court that ComIort Dental`s implementation oI
the SubIranchisor Agreements renders them illegal and void under Colorado law. In the
alternative, PlaintiIIs seek a declaration Irom the Court that the Mandatory Lab ReIerral
Program and Gold Plan marketing program as implemented by ComIort Dental are illegal
and that CDMO and CDET need not comply with the mandates oI ComIort Dental or the
SubIranchisor Agreements regarding these programs;
(c) For a declaration Irom this Court that ComIort Dental`s implementation oI
the SubIranchisor Agreements renders the Agreements in violation oI public policy and
void under Colorado law. In the alternative, PlaintiIIs seek a declaration Irom the Court
that the Mandatory Lab ReIerral Program and Gold Plan marketing program as
implemented by ComIort Dental are contrary to public policy and that CDMO and CDET
need not comply with the mandates oI ComIort Dental regarding these programs;
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(d) For a declaration that the covenants not to compete in the SubIranchisor
Agreements are void and unenIorceable and that PlaintiIIs are not obligated to comply
with the covenants not to compete;
(e) That this Court rescind the SubIranchisor Agreements between ComIort
Dental and CDMO and ComIort Dental and CDET because ComIort Dental Iraudulently
induced PlaintiIIs to enter into these agreements;
(I) That the Court hold ComIort Dental has materially breached the
SubIranchisor Agreements, including the implied covenant oI good Iaith and Iair dealing,
and that PlaintiIIs are, as a result, excused Irom Iurther perIormance under the
Agreements, and Ior damages in an amount to be determined at trial caused by ComIort
Dental`s breach oI contract;
(g) For PlaintiIIs` attorneys` Iees, costs, and any and all other relieI deemed
equitable and Iair by this Court.
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Dated this 25
th
day oI March, 2014.
RespectIully Submitted
By: /s/ Neil L. Arnev
Neil L. Arney
KUTAK ROCK LLP
1901 CaliIornia Street, Suite 3000
Denver, CO 80202
(303) 297-2400
Thomas J. Kenny, NE Bar #20022
Edward M. Fox, II, NE Bar #24601
KUTAK ROCK LLP
The Omaha Building
1650 Farnam Street
Omaha, NE 68102-2186
(402) 346-6000
Attorneys Ior PlaintiIIs CDMO, INC. and
CDET, INC.
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TABLE OF CONTENTS
Page

i
00665057.DOC:7
ARTICLE I INTERPRETATION.................................................................................................. 2
1.1 Definitions............................................................................................................... 2
(a) Agreement................................................................................................... 2
(b) Dental Office .............................................................................................. 2
(c) Gross Collections........................................................................................ 2
(d) Manual ........................................................................................................ 2
(e) Marks .......................................................................................................... 2
(f) Original Works............................................................................................ 2
(g) Owner ......................................................................................................... 3
(h) Parties ......................................................................................................... 3
(i) Premises....................................................................................................... 3
(j) System ......................................................................................................... 3
(k) Term............................................................................................................ 3
1.2 Exhibits ................................................................................................................... 3
ARTICLE II GRANT AND SCOPE OF OPERATIONS.............................................................. 4
2.1 Grant of Subfranchise and Scope of Operations..................................................... 4
2.2 Rights Reserved by Master Franchisor and Subfranchisor..................................... 4
2.3 Renewal................................................................................................................... 5
(a) Compliance With Agreements. ...................................................................... 5
(b) Payment of Obligations.................................................................................. 5
(c) Default ............................................................................................................ 5
(d) Breach............................................................................................................. 5
(e) Renovation...................................................................................................... 5
(f) Subfranchise Agreement ................................................................................. 5
(g) Premises ......................................................................................................... 5
(h) Release ........................................................................................................... 6
2.4 Exercise of Renewal ............................................................................................... 6
ARTICLE III PREMISES............................................................................................................... 6
3.1 Selection and Sublease of the Premises .................................................................. 6
3.2 Acknowledgment of Subfranchisee ........................................................................ 6
3.3 Development of the Premises ................................................................................. 7
(a) Zoning and Permits......................................................................................... 7
(b) Equipment ...................................................................................................... 7
(c) Construction and Equipping of Premises ....................................................... 7
(d) Liens ............................................................................................................... 7
3.4 Dental Office Opening............................................................................................ 7
3.5 Failure to Open the Dental Office........................................................................... 8
ARTICLE IV SUBFRANCHISORS OBLIGATIONS................................................................. 8
4.1 Obligations of Subfranchisor .................................................................................. 8
(a) Training .......................................................................................................... 8
(b) Operations Manual ......................................................................................... 8
(c) Advertising ..................................................................................................... 9
(d) Advice and Guidance ................................................................................... 11
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00665057.DOC:7
(e) Operating Supplies ....................................................................................... 11
4.2 Subfranchisee Default ........................................................................................... 12
ARTICLE V SUBFRANCHISEES OBLIGATIONS................................................................. 12
5.1 Use of the Premises............................................................................................... 12
5.2 Quality Control ..................................................................................................... 12
(a) Standards, Specifications and Inspections.................................................... 12
(b) Restrictions on Services and Products ......................................................... 12
(c) Approved Vendors........................................................................................ 13
(d) Request for Change in Vendor ..................................................................... 13
5.3 Business Operations.............................................................................................. 13
(a) Goodwill ....................................................................................................... 13
(b) Approval of Advertising and Compliance ................................................... 14
(c) Telephone Listings ....................................................................................... 14
(d) Compliance with Laws and Good Business Practices ................................. 14
(e) Renovation.................................................................................................... 15
(f) Management of the Dental Office and Conflicting Interests ........................ 15
(g) Insurance ...................................................................................................... 16
(h) Subfranchisee Meetings ............................................................................... 17
(i) Continued Operations.................................................................................... 17
5.4 Confidentiality ...................................................................................................... 18
(a) Confidential Information.............................................................................. 18
(b) Violation of Confidentiality Covenants ....................................................... 18
5.5 Non-Competition During Term............................................................................ 19
(a) Subfranchisee Acknowledgment and Covenants ......................................... 19
(b) Other Persons ............................................................................................... 19
(c) Violation of Covenant Not to Compete........................................................ 19
5.6 Reports and Records ............................................................................................. 20
(a) Reports.......................................................................................................... 20
(b) Records, Inspection and Audit Rights.......................................................... 20
(c) Payments and Reimbursements.................................................................... 21
(d) Accuracy and Completeness ........................................................................ 21
5.7 Training................................................................................................................. 21
ARTICLE VI FEES AND CONTRIBUTIONS ........................................................................... 22
6.1 Initial Franchise Fee.............................................................................................. 22
6.2 Furniture, Fixtures, Equipment and Supplies ....................................................... 22
6.3 Royalty Fees.......................................................................................................... 22
6.4 Consulting Fees..................................................................................................... 22
6.5 Overdue Amounts and Late Charge...................................................................... 22
6.6 Deferral, Waiver and Payment by Subfranchisor of Certain Subfranchisee
Obligations............................................................................................................ 23
6.7 Application of Payments....................................................................................... 23
ARTICLE VII BUSINESS RELATIONSHIP.............................................................................. 23
7.1 Independent Businessperson................................................................................. 23
7.2 Indemnification..................................................................................................... 24
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ARTICLE VIII PROPRIETARY RIGHTS.................................................................................. 24
8.1 Use of Certain Proprietary Rights......................................................................... 24
8.2 Modification.......................................................................................................... 25
8.3 Registration and Marking ..................................................................................... 25
8.4 Use by Master Franchisor, Subfranchisor and Others .......................................... 26
8.5 Business Name...................................................................................................... 26
8.6 Defense of Marks and Original Works ................................................................. 26
8.7 Prosecution of Infringers....................................................................................... 27
ARTICLE IX DEFAULT AND TERMINATION....................................................................... 27
9.1 By Subfranchisor .................................................................................................. 27
(a) Effective Upon Notice.................................................................................. 27
(b) Thirty (30) Days Notice ............................................................................... 29
(c) Termination of Individual Owners Of Subfranchisee .................................. 30
9.2 By Master Franchisor............................................................................................ 31
9.3 By Subfranchisee .................................................................................................. 31
9.4 Obligations of Subfranchisee Upon Termination or Expiration........................... 31
(a) Cessation of Operations and Representations .............................................. 31
(b) Vacate the Premises ..................................................................................... 31
(c) Payment of Obligations ................................................................................ 31
(d) Non-Use of Confidential Information and Non-Affiliation ......................... 32
(e) Return of Manual and Proprietary Materials................................................ 32
(f) Cancellation of Assumed Name.................................................................... 32
(g) Telephone Listings ....................................................................................... 32
(h) Payment of Damages and Expenses............................................................. 32
(i) Compliance with Surviving Covenants......................................................... 32
(j) Guarantor Obligations................................................................................... 33
(k) Evidence of Compliance .............................................................................. 33
9.5 Post-Termination Covenant Not to Compete........................................................ 33
(a) Subfranchisee and Affiliates......................................................................... 33
(b) Other Persons ............................................................................................... 33
(c) Violation of Covenants................................................................................. 34
9.6 Cross Default and Termination............................................................................. 34
9.7 Continuing Obligations and Other Relief ............................................................. 34
9.8 Purchase by Subfranchisor.................................................................................... 35
ARTICLE X TRANSFER ............................................................................................................ 36
10.1 Transfer by Subfranchisee .................................................................................... 36
10.2 Pre-Conditions to Subfranchisees Transfer ......................................................... 36
10.3 Subfranchisors Approval of Transfer .................................................................. 38
10.4 Transfer by Subfranchisor..................................................................................... 38
10.5 Transfer Upon Death or Total Disability.............................................................. 39
(a) Process.......................................................................................................... 39
(b) Right to Operate ........................................................................................... 39
ARTICLE XI DISPUTES............................................................................................................. 39
11.1 Governing Law and Selection of Forum............................................................... 39
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11.2 Waiver of Jury Trial.............................................................................................. 40
11.3 Limitation of Claims ............................................................................................. 40
ARTICLE XII MISCELLANEOUS............................................................................................. 41
12.1 Invalidity and Construction................................................................................... 41
12.2 Entire Agreement .................................................................................................. 41
12.3 Modification.......................................................................................................... 41
12.4 Costs and Attorneys Fees .................................................................................... 42
12.5 Titles ..................................................................................................................... 42
12.6 Injunctive Relief and Remedies ............................................................................ 42
12.7 Right of Offset ...................................................................................................... 43
12.8 No Waiver............................................................................................................. 43
12.9 Binding Nature and Survival ................................................................................ 43
12.10 Delegation and Third Party Beneficiary ............................................................... 43
12.11 Notices .................................................................................................................. 43
12.12 Consideration........................................................................................................ 44
12.13 Signatures and Authority ...................................................................................... 44
12.14 Voluntary Execution ............................................................................................. 44
12.15 Receipt .................................................................................................................. 44
12.16 Acknowledgment .................................................................................................. 44

EXHIBITS
Exhibit I Premises and the Territory
Exhibit II Consulting Agreement
Exhibit III Sublease Agreement
Exhibit IV Non-Disclosure/Non-Competition Agreement
Exhibit V Guaranty Agreement
Exhibit VI Buy and Sell Agreement
Exhibit VII Promissory Note
Exhibit VIII Security Agreement and Financing Statement
Exhibit IX Subfranchisee Ownership Interests
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SUBFRANCHISE AGREEMENT
THIS SUBFRANCHISE AGREEMENT (Agreement) is entered into between
___________, a corporation organized under the laws of __________________
(Subfranchisor) with principal offices located at ____________________ and the person(s)
listed as Subfranchisee on the signature block of this Agreement with principal offices located at
_____________ (Subfranchisee), as of the date signed by Subfranchisor and set forth below
Subfranchisors signature on this Agreement (the Effective Date).
RECITALS
WHEREAS, Comfort Dental Group, Inc. (Master Franchisor) has developed a System
for establishing, operating, developing and promoting Dental Offices providing full dental
services to the general public, which includes the use and license of certain valuable trade names,
trademarks and service marks, including Comfort Dental and related Marks, licensed to Master
Franchisor or one of its affiliates, as well as Master Franchisors plans and processes for
establishing, operating, developing and promoting the Dental Offices and related licensed
methods of doing business;
WHEREAS, the System also includes: (i) uniform identification utilizing the Marks in
various promotional and advertising programs and other identification schemes; (ii) uniform
standards, specifications and procedures for operations; (iii) consistency and uniformity of
services and products offered; (iv) training and assistance; and (v) procedures for quality control,
all of which may be changed, improved and further developed by Master Franchisor from time to
time in its sole discretion;
WHEREAS, Master Franchisor has licensed the right to Subfranchisor to grant
subfranchises throughout the Territory (as described in Exhibit I), with certain rights and
interests as follows: (i) the Comfort Dental name and related Marks for use in connection with
the development of Dental Offices and (ii) the System for the operation of the Dental Offices;
WHEREAS, Subfranchisee understands the importance and necessity of Master
Franchisors uniform standards of high quality, appearance and service, and the importance of
operating its Dental Office in conformity with the System in order to maintain and increase
Master Franchisors identity and goodwill with the public;
WHEREAS, Subfranchisee represents that it has the necessary education, professional
license, skill, experience and financial ability to operate a Dental Office; and
WHEREAS, Subfranchisee recognizes and acknowledges the benefits to be derived from
being identified and associated with Master Franchisor and the right to utilize the System and the
Marks, and therefore Subfranchisee desires to obtain a subfranchise in conjunction with the
operation of a Dental Office, in accordance with the terms and conditions of this Agreement.
FOR AND IN CONSIDERATION of the foregoing Recitals, which are incorporate
herein, the mutual covenants expressed herein and other valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
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ARTICLE I
INTERPRETATION
1. 1 Defi ni ti ons.
Wherever used in this Agreement, the following terms shall have the respective meaning
ascribed to them as follows:
(a) Agreement means this agreement entitled Subfranchise Agreement and the
Exhibits attached hereto, as amended;
(b) Dental Office or Dental Offices means a dental office or dental offices,
including the one operated by Subfranchisee hereunder, providing full dental services under the
name Comfort Dental, or a similar name, in accordance with the System and utilizing the Marks;
(c) Gross Collections means the aggregate of Subfranchisees sales of any kind for
all services and products from or through the Dental Office, actually collected by Subfranchisee,
including any sale of services and products made for cash or upon credit, or partly for cash and
partly for credit, regardless of collection of charges for which credit is given, and regardless of
whether such sale is conducted in compliance with or in violation of the terms of this Agreement,
but exclusive of discounts, sales taxes or other similar taxes and credits. Gross Collections also
include the fair market value of any services or products actually received by Subfranchisee in
barter or exchange for any services and products, and all insurance proceeds actually received by
Subfranchisee for loss of business due to a casualty to or similar event at the Premises;
(d) Manual means collectively the operations manual and all books, pamphlets,
memoranda, bulletins, directives, instructions and other written materials or tangible (e.g.,
computer software) materials establishing the standards, methods, procedures, techniques and
specifications of operating and marketing a Dental Office, all of which may be amended by
Master Franchisor from time to time;
(e) Marks means the trademarks, trade names, service marks, logotypes, insignias,
trade dress, designs, graphics and other commercial symbols as Master Franchisor may expressly
authorize from time to time in connection with the establishment, promotion, development and
operation of Dental Offices, including without limitation, the trademark Comfort Dental;
(f) Original Works means the Manual and other original works of authorship of
Master Franchisor or its affiliates;
(g) Owner means any general partner, limited partner, shareholder, member, trustee
and any other person owning an interest in Subfranchisee;
(h) Parties means Subfranchisor and Subfranchisee when referred to collectively,
and Party means either of them;
(i) Premises means the specific physical location, approved by Subfranchisor, to be
utilized by Subfranchisee for the operation of Subfranchisees Dental Office only, as described
by a specific street address in Exhibit I;
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(j) System means the uniform standards, processes, methods, procedures,
specifications, identification and materials including the Manual, the Marks, trade secrets,
advertising, sales practices, policies, control systems, accounting techniques and other methods
developed by Master Franchisor and as may be added to, changed, modified, withdrawn or
otherwise revised by Master Franchisor from time to time, for the establishment, operation and
promotion of the Dental Offices; and
(k) Term means the fifteen (15) year primary term (except for certain continuing
obligations referred to herein) from the Effective Date, and any ten (10) year renewal term(s),
unless sooner terminated pursuant to the provisions herein.
1. 2 Exhi bi ts
The following Exhibits are annexed hereto and form a part of this Agreement:
Exhibit I Premises and the Territory
Exhibit II Consulting Agreement
Exhibit III Sublease Agreement
Exhibit IV Non-Disclosure/Non-Competition Agreement
Exhibit V Guaranty Agreement
Exhibit VI Buy and Sell Agreement
Exhibit VII Promissory Note
Exhibit VIII Security Agreement and Financing Statement
Exhibit IX Subfranchisee Ownership Interests
ARTICLE II
GRANT AND SCOPE OF OPERATIONS
2. 1 Grant of Subfranchi se and Scope of Operati ons.
Subfranchisor grants to Subfranchisee, and Subfranchisee accepts from Subfranchisor,
the right to use the System and the Marks in connection with establishing and operating one (1)
Dental Office at, and only at, the location described in Exhibit I, upon the terms and subject to
the provisions herein during the Term. Subfranchisee agrees to use the System and the Marks as
they are changed, improved and further developed by Master Franchisor and its affiliates from
time to time. Subfranchisee agrees at all times to faithfully, honestly and diligently perform its
obligations under this Agreement, to use its best efforts to promote the Dental Office, to utilize
the System and the Marks to operate all aspects of the Dental Office and not to engage in any
other business or activity that conflicts with the operation of the Dental Office. The Dental
Office shall offer all services and products designated by Master Franchisor, and Subfranchisee
shall implement any additions and changes to the services and products required by Master
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Franchisor from time to time. Subfranchisee shall not provide or cause to be provided any
services and products outside of the Premises.
2. 2 Ri ghts Reserved by Master Franchi sor and Subfranchi sor.
Subfranchisee acknowledges that the subfranchise granted under this Agreement is
nonexclusive, that Subfranchisee has no territorial protection and that Master Franchisor,
Subfranchisor and their affiliates reserve certain rights (without compensation or obligation
whatsoever to Subfranchisee, unless specifically set forth herein) as set forth below:
The following rights are reserved for Master Franchisor: (a) to use, and to grant others the
right to use, the System and the Marks to establish or operate Dental Offices at any location other
than the Premises; (b) to establish at anytime businesses specializing in orthodontics or
pedodontics (e.g., Comfort Smile Center, Comfort Dental Braces or Comfort Kids) at any
location; and (c) to sell and use the services and products utilizing the Marks, other trademarks
and commercial symbols, through other channels of distribution including mail order, catalog
sales, telemarketing, television, internet sales, newspaper advertising or any other distribution
medium, and pursuant to any terms and conditions it deems appropriate, inside or outside of the
Territory.
The following rights are reserved for Subfranchisor: to use, and to grant others the right
to use, the System and the Marks for the operation of Dental Offices at any location within the
Territory other than the Premises.
2. 3 Renewal
Subfranchisee shall have the option to renew this Agreement for two (2) renewal terms of
ten (10) years each, to take effect upon the expiration of the primary term or first renewal term,
as applicable, provided that each of the following conditions have been fulfilled:
(a) Compliance With Agreements. Subfranchisee has fully complied during the
Term with all provisions of this Agreement, the Manual and any other agreement between the
Parties or their affiliates, as well as any other agreement between Subfranchisee and any third
party, relating to the Dental Office or the operation thereof;
(b) Payment of Obligations Subfranchisee shall have satisfied all monetary
obligations to Master Franchisor, Subfranchisor and their affiliates (including the payment of
Royalty Fees and other fees) and must have timely met such obligations throughout the Term;
(c) Default. Subfranchisee is not in default or under notification of breach of this
Agreement, or any other agreement between the Parties or their affiliates, at the time it gives
Notice of its intent to renew this Agreement;
(d) Breach. Subfranchisee has not received notice from Subfranchisor of a breach of
this Agreement, or any other agreement between the Parties or their affiliates, more than three
(3) times during the Term;
(e) Renovation. Subfranchisee shall have made all capital expenditures at its sole
expense to update, renovate, refurbish, remodel, redecorate and modernize the Premises as
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prescribed during the Term, and so as to reflect the standards and specifications for new Dental
Offices under the then-current Manual;
(f) Subfranchise Agreement. Subfranchisee shall, if requested by Subfranchisor,
execute Subfranchisors then-current form of subfranchise agreement and all other agreements,
instruments and documents then customarily used by Subfranchisor in the granting of
subfranchises, any of which may contain terms materially different from those in this
Agreement, including terms changing the Royalty Fees and other fee amounts, but Subfranchisee
shall not be required to pay a new Initial Franchise Fee;
(g) Premises. Subfranchisee shall have secured the right to remain in possession of
the Premises or another location acceptable to Subfranchisor throughout the Term; and
(h) Release. Subfranchisee (together with its Owners and guarantors, if any) executes
a general release, in a form prescribed by Master Franchisor, of any and all claims against Master
Franchisor, Subfranchisor and their affiliates and their respective officers, directors, partners,
agents and employees arising out of or relating to this Agreement or the Parties relationship.
2. 4 Exerci se of Renewal
Subfranchisee may exercise an option to renew by providing Subfranchisor with Notice
of such exercise at least 120 days and not more than 180 days prior to the expiration of the
primary term or first renewal term, as applicable. Subfranchisee must also pay to Subfranchisor
a renewal fee (Renewal Fee) of Ten Thousand Dollars ($10,000) concurrently with the
execution of the general release to cover Subfranchisor's expenses related to reviewing
Subfranchisee's operations and approving the renewal. If Subfranchisee fails to comply with any
of the conditions listed above (other than execution of the new subfranchise agreement or
payment of the Renewal Fee), Subfranchisor shall give notice to that effect to Subfranchisee no
later than ninety (90) days before expiration of the primary term or first renewal term, as
applicable.
ARTICLE III
PREMISES
3. 1 Sel ecti on and Subl ease of the Premi ses
The Parties acknowledge that it is essential for the Premises selected for the operation of
the Dental Office to conform to standards developed by Master Franchisor and Subfranchisor
and otherwise comply with the Systems specifications. Subfranchisor or one of its affiliates will
either own the Premises or lease the Premises from the third-party owner. Subfranchisee must
sublease the Premises from Subfranchisor or one of its affiliates utilizing either the form of
Sublease Agreement attached hereto as Exhibit III (Sublease) or the sublease agreement as is
provided by such third-party owner.
3. 2 Acknowl edgment of Subfranchi see
Subfranchisee acknowledges and warrants that the selection or approval by Master
Franchisor, Subfranchisor or their affiliates of the Premises, and any information imparted to
Subfranchisee from same regarding the Premises, does not constitute a guaranty, representation,
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recommendation or endorsement of any kind, express or implied, as to the suitability of the
Premises for a Dental Office or for any other purpose, and that the success of the Dental Office
to be operated at the Premises depends upon Subfranchisees abilities as an independent
businessperson. Subfranchisee further acknowledges and warrants that its acceptance of the
Premises for the operation of the Dental Office is based on its own independent investigation of
the suitability thereof, and that Master Franchisor, Subfranchisor and their affiliates shall not be
responsible for the Premises failure to meet expectations as to potential revenue. In addition,
Subfranchisee acknowledges that the Sublease does not constitute a guaranty or warranty by
Master Franchisor, Subfranchisor or their affiliates, express or implied, of the successful
operation or profitability of the Dental Office operated at the Premises.
3. 3 Devel opment of the Premi ses
Subfranchisor and/or its affiliates shall, within one hundred eighty (180) days of full
execution of this Agreement by the Parties, perform the initial development, construction and
build-out of the Premises and outfit, equip and decorate it with the required equipment and
supplies, all in conformity with the plans, drawings, standards, specifications and requirements
approved by Master Franchisor. All costs and expenses associated with, arising from, as a result
of or relating to the obligations in this Article 3 shall be borne solely by Subfranchisor and/or its
affiliates. Specifically, such obligations include the following:
(a) Zoning and Permits. Ensuring compliance with, and acquisition of, all required
zoning changes and all required building, utility, health, sanitation and sign permits, and any
other required permits;
(b) Equipment. Purchasing or leasing all of the equipment, fixtures, furniture and
signs required to operate the Dental Office;
(c) Construction and Equipping of Premises. Constructing the Premises, as well as
decorating and equipping it with all necessary dental equipment and initial supplies; and
(d) Liens. Acquiring all customary contractors sworn statements and partial and
final waivers of lien for construction, decorating and installation services.
3. 4 Dental Offi ce Openi ng
Immediately upon Subfranchisors completion of construction of the Premises as set forth
above, and after receipt of Subfranchisors written consent, Subfranchisee shall commence
operation of the Dental Office and open for business to the public. Subfranchisors consent will
not be unreasonably withheld, but shall not be granted until Subfranchisor has approved the
Premises and Subfranchisee has: (1) successfully completed the initial, mandatory training
program and passed all training exams; (2) paid all fees and other amounts then due to Master
Franchisor, Subfranchisor and their affiliates; (3) furnished copies of all insurance policies
required by this Agreement or the Manual; and (4) otherwise completed all other pre-opening
tasks as reasonably required by Master Franchisor, Subfranchisor or their affiliates.
Subfranchisor shall, as it deems necessary, provide on-site guidance, advice and aid in opening
the Dental Office, including the hiring and training of the employees.
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3. 5 Fai l ure to Open the Dental Offi ce
If Subfranchisee is unable to open and commence operation of the Dental Office due to
circumstances beyond Subfranchisees reasonable control, other than Subfranchisees inability to
commence as a result of financial difficulties, Subfranchisor, in its sole discretion, may grant
Subfranchisee such additional time to commence its operations as may be reasonably required.
ARTICLE IV
SUBFRANCHISORS OBLIGATIONS
4. 1 Obl i gati ons of Subfranchi sor
During the Term, Subfranchisor agrees to provide Subfranchisee with the following
services:
(a) Training. Prior to commencing operation of the Dental Office, Subfranchisee and
each of its Owners shall be required to attend and successfully complete, to Master Franchisors
and Subfranchisors satisfaction, an initial training program. The initial training program may
consist of any or all the following tasks: (i) read the Manual, various newsletters and other
written materials, (ii) review instructional CDs, DVDs or videos, (iii) participate in on-the-job
training for at least one (1) day in Master Franchisors affiliates lab, (iv) accompany/observe an
existing Dental Office franchisee for at least two (2) days, (v) receive a passing grade on the
training examinations and (vi) any other initial training as required by Master Franchisor,
Subfranchisor or their affiliates from time to time. Portions of the initial training program may
be completed at Subfranchisees home or office, but the hands-on portions shall be completed at
the location of Master Franchisors affiliate, Budget Dental Lab, and at a Dental Office
designated by Subfranchisor. Subfranchisor may also require Subfranchisee to take the tests at a
facility operated by Subfranchisor or its affiliate, at test facilities operated by independent third
parties or online, and any costs related to taking such tests, including test administration fees
charged by third parties, will be borne by Subfranchisee. Subfranchisee shall be responsible for
any and all travel, food and living expenses incurred in connection with attending the training
programs, as well as wages or salaries, if any, of the person(s) receiving training or undergoing
testing.
(b) Operations Manual. During the Term, Subfranchisor will loan to Subfranchisee a
copy of the Manual. The Manual is the sole property of Master Franchisor, but is to be used by
Subfranchisee during the Term. As the primary means by which uniform standards of quality
and service are maintained, the Manual sets forth certain specifications and operating procedures
prescribed by Master Franchisor, and information relative to other obligations of Subfranchisee
and the operation of the Dental Office. Subfranchisee agrees that it shall comply with the
Manual, as revised during the Term, as an essential part of its obligations under this Agreement.
The specifications, standards and operating procedures in the Manual, or otherwise
communicated to Subfranchisee in writing, shall be an integral part of this Agreement as if fully
set forth herein.
Master Franchisor reserves the right to revise the Manual from time to time as it deems
necessary, to update operating and marketing techniques or standards and specifications;
however, no such addition or modification shall alter Subfranchisees fundamental status and
rights under this Agreement. Subfranchisee shall in turn update its copy of the Manual as
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instructed by Master Franchisor or Subfranchisor, and promptly conform its operations with the
updates and ensure that its Owners, employees and all persons under its control comply with the
revised Manual in all respects. Subfranchisee acknowledges that the master copy of the Manual
maintained by Master Franchisor at its principal office controls in the event of a dispute over its
contents.
At Master Franchisors option, it may communicate updates regarding the Manual via
written newsletters or electronic mail and/or post some or all of the Manual on a restricted
Website, intranet or extranet to which Subfranchisee will have access. (For purposes of this
Agreement, Website means an interactive electronic document contained in a network of
computers linked by communications software, including, without limitation, the Internet and
World Wide Web home pages.) If Master Franchisor does so, Subfranchisee agrees to regularly
read the newsletters, monitor and access its electronic mail account, the Website, intranet and
extranet for updates to the Manual. Any password or other digital identification necessary to
access same will be deemed to be Confidential Information, subject to Article 5.
The Manual is confidential and very valuable. Therefore, Subfranchisee agrees not to
copy, duplicate, record or otherwise reproduce the Manual in any way, or to disclose its contents
to persons other than those who need to know its contents for the operation of the Dental Office
and who have executed the Non-Disclosure/Non-Competition Agreement in the form attached
hereto as Exhibit IV, as amended (NDA). Subfranchisee further agrees to return the Manual to
Subfranchisor immediately upon the expiration, termination or transfer of this Agreement.
(c) Advertising. Subfranchisor or its affiliate has created a regional advertising and
marketing fund for the benefit of the Dental Offices located within the Territory (Regional
Marketing Fund). Subfranchisee agrees to pay to Subfranchisor or its designee (which may be
one or more of Subfranchisor's affiliates), in addition to Royalty Fees, marketing and promotion
fees ("Marketing Fees") equal to Four Thousand and no/100 Dollars ($4,000) per month, which
shall be paid by Subfranchisor into the Regional Marketing Fund.
The Marketing Fees shall be paid monthly by check made payable to Subfranchisor,
concurrently with the payment of the Royalty Fees. Upon request, Subfranchisee shall execute
such forms that Subfranchisor and its affiliates require to allow the preauthorized payment of
Marketing Fees by electronic transfer of funds from Subfranchisee's bank account into the
account designated by Subfranchisor. Any Marketing Fees collected by or for Subfranchisor will
be deposited in one (1) or more separate accounts comprising the Regional Marketing Fund. The
Marketing Fees will be subject to the same late charges as the Royalty Fees. The Regional
Marketing Fund is not audited. Upon written request by Subfranchisee, Subfranchisor will make
available to Subfranchisee, no later than one hundred twenty (120) days after the end of each
calendar year, an annual unaudited financial statement for the Regional Marketing Fund which
indicates how deposits have been spent in the most recently concluded calendar year (the
Regional Marketing Fund, however, did not exist prior to 2010). Subfranchisor and its affiliates
may contribute to the Regional Marketing Fund but are not obligated to do so. Subfranchisor
and its affiliates have the right to deposit into the Regional Marketing Fund any advertising,
marketing or similar allowances paid by any Vendor (defined herein) who deal with the Dental
Offices in the Territory and with whom Subfranchisor and its affiliates have agreed that they will
(or if Subfranchisor and its affiliates otherwise choose to) so deposit such allowances. Dental
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Offices that Subfranchisor or its affiliates own are not required to contribute to the Regional
Marketing Fund.
The Regional Marketing Fund will be administered and controlled by Subfranchisor or its
designated representatives (which may be one or more of Subfranchisor's affiliates) and
Subfranchisor shall have sole discretion over all matters relating to the Regional Marketing Fund
including, but not limited to, its management, all financial matters, expenditures, receipts and/or
investments, timing of expenditures, media placement and the allocation thereof. The Regional
Marketing Fund may be used for the production and placement, within the Territory, of media
advertising, direct response literature, commercials, direct mailings, brochures, signage,
collateral advertising material, surveys of advertising effectiveness and other advertising or
public relations expenditures relating to advertising the services and products, the development
of creative concepts, market research (including tests and surveys), providing and/or employing
professional services or agencies, materials and personnel to support the marketing function, and
creating, producing and implementing Websites for Subfranchisor and/or its subfranchisees.
Subfranchisor may also, in the exercise of its reasonable business judgment, arrange for services,
goods and otherwise to be provided to the Regional Marketing Fund by Subfranchisor, any
affiliate and/or their employees or agents (such as an in-house advertising agency).
The Regional Marketing Fund will be accounted for separately from Subfranchisors
other funds and will not be used to defray any of Subfranchisors general operating expenses,
except Subfranchisor may reimburse itself or its representatives for administrative costs,
independent audits, reasonable accounting, bookkeeping, reporting, and legal expenses, taxes
and other reasonable direct and indirect expenses incurred by Subfranchisor or its representatives
in connection with the campaigns and programs funded by the Regional Marketing Fund. The
Regional Marketing Fund will not be Subfranchisor's asset. Subfranchisor and its representatives
will not be liable for any act or omission that is consistent with this Agreement and done in good
faith. Subfranchisor and its representatives may spend in any calendar year more or less than the
aggregate contribution to the Regional Marketing Fund in that year, and the Regional Marketing
Fund may borrow from Subfranchisor or others (including Subfranchisor's affiliates) to cover
deficits or invest any surplus for future use. All interest earned on monies contributed to the
Regional Marketing Fund will be used to pay advertising costs before other assets of the
Regional Marketing Fund are expended. Subfranchisor may cause the Regional Marketing Fund
to be incorporated or operated through a separate entity at such time as Subfranchisor deems
appropriate, and such successor entity, if established, will have all rights and duties specified in
this Article 4. Subfranchisor and its representatives undertake no obligation to ensure that the
Regional Marketing Fund benefits each Dental Office in the Territory in proportion to its
respective Marketing Fees, and some may have different marketing contribution obligations than
those in this Agreement. The Regional Marketing Fund's primary purpose is to support sales and
build brand identity within the Territory. The Regional Marketing Fund will not be used for
advertising principally directed at the sale of Dental Office franchises or subfranchises.
Subfranchisee agrees to participate in any promotion campaigns and advertising programs that
the Regional Marketing Fund periodically establishes.
Subfranchisor and its representatives have the right, but no obligation, at anytime to (i)
use collection agents and institute legal proceedings to collect Marketing Fees at the Regional
Marketing Funds expense; (ii) forgive, waive, settle and compromise all claims by or against the
Regional Marketing Fund; and (iii) defer or reduce Marketing Fees of any subfranchisee in the
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Territory and, upon thirty (30) days' prior written notice to Subfranchisee, suspend Marketing
Fees and operations for one (1) or more periods of any length and terminate (and, if terminated,
reinstate) the Regional Marketing Fund. If the Regional Marketing Fund is terminated, all
unspent monies will be distributed to the contributors in proportion to their respective
contributions during the preceding twelve (12) month period.
(d) Advice and Guidance. Upon and after the commencement of operations of the
Dental Office, and pursuant to the terms of the Consulting Agreement attached hereto as Exhibit
II (Consulting Agreement), Subfranchisor or its affiliates shall provide Subfranchisee up to
twenty-five (25) hours of consulting services per month. The consulting services consist of
advice, guidance and assistance on issues including the following: (i) the continued operation
and management of the Dental Office; (ii) advertising, marketing and promotions; (iii)
appointment control; (iv) invoicing and collection procedures; (v) financial analysis; (vi) case
presentation; (vii) purchasing procedures and dealing with any Vendors; (viii) patient relations;
(ix) employee relations; (x) ongoing updates of information and programs related to the dental
industry; and (xi) overall quality control. The consulting services shall be in the form of the
Manual, telephonic conversations and/or in-person consultations. Subfranchisor may conduct
inspections and will advise Subfranchisee of any operating problems in the form of direct
feedback or reports. Subfranchisor will make no charge to Subfranchisee other than the
Consulting Fees (defined herein) for such services, except that Subfranchisor may make
reasonable additional charges for operating assistance made necessary in its judgment as a result
of Subfranchisees failure to comply with any provision of this Agreement. If requested by
Subfranchisee and upon the concurrence of Subfranchisor, Subfranchisor will provide additional
consulting services, guidance and operating assistance at Subfranchisors then-current rates.
Subfranchisor may from time to time offer guidance and suggestions to Subfranchisee
related to the prices of the services and products that in its judgment constitutes good business
practice. Subfranchisee will have the sole right to determine the prices and fees to be charged by
the Dental Office, except that Master Franchisor and Subfranchisor may, to the greatest degree
permitted by applicable law, specify maximum prices above which Subfranchisee will not sell or
otherwise provide any services or goods, and Subfranchisee will comply with all such maximum
prices.
(e) Operating Supplies. Upon completion of construction of the Premises and as set
forth in Article 6, Subfranchisor shall provide Subfranchisee with the initial furniture, fixtures,
equipment and supplies necessary for the operation of the Dental Office, including an estimated
one (1) month supply of consumable, basic dental supplies, such as instruments, gloves and
masks.
4. 2 Subfranchi see Defaul t
Subfranchisors obligations to Subfranchisee shall be suspended during any period of
time that Subfranchisee is in default or under notification of breach of this Agreement, or any
other agreement between the Parties or their affiliates.
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ARTICLE V
SUBFRANCHISEES OBLIGATIONS
5. 1 Use of the Premi ses
Subfranchisee shall use the Premises solely and exclusively for the operation of the
Dental Office in compliance with all of the Systems standards for operations, including those
related to layout, design and appearance.
5. 2 Qual i ty Control
(a) Standards, Specifications and Inspections. Master Franchisor will establish, and
Subfranchisee shall comply with, standards and specifications for all of the services and products
offered at or through the Dental Office and the uniforms, techniques, materials, forms and
supplies used in connection with the Dental Office. Master Franchisor and its affiliates reserve
the right, from time to time, to change such standards and specifications, and Subfranchisee
agrees to promptly comply with the changes as they are communicated.
Master Franchisor, Subfranchisor and their representatives (which may be one or more of
their affiliates) shall have the right to conduct inspections, interview customers, examine the
Dental Office and examine or copy its books, records and documents, including, without
limitation, the uniforms, materials, forms and supplies, to ensure compliance with all standards
and specifications set by Master Franchisor. Such inspections may be conducted without prior
notice to Subfranchisee and Subfranchisee shall cooperate with the inspectors by rendering
assistance as they may reasonably request; and, upon notice from the inspectors and without
limiting such inspectors other rights under this Agreement, shall take such steps as may be
necessary to correct immediately any deficiencies detected during any such inspection,
including, without limitation, immediately desisting from the further use of any equipment,
advertising materials, products, supplies or other items that do not conform to Master
Franchisors then-current specifications, standards or requirements.
(b) Restrictions on Services and Products. Subfranchisee is prohibited from offering
or selling any services or products from or through the Dental Office that have not been
previously approved by Master Franchisor. However, if Subfranchisee proposes to offer,
conduct or utilize any services, products, materials, forms, items or supplies in connection with
or for sale through the Dental Office that are not approved by Master Franchisor, Subfranchisee
shall first notify Master Franchisor in writing requesting approval. Master Franchisor may
withhold such approval for any reason in its sole discretion; however, in order to make such
determination, Master Franchisor may require submission of specifications, information or
samples of such services, products, materials, forms, items or supplies. Master Franchisor will
advise Subfranchisee within a reasonable time whether such sample satisfies its specifications.
A charge not to exceed the actual cost of the review may be made by Master Franchisor and shall
be promptly paid by Subfranchisee. If Master Franchisor determines that Subfranchisee fails to
meet Master Franchisors standards and specifications in connection with the provision of any
service or product, Master Franchisor or Subfranchisor may permanently or temporarily
terminate Subfranchisees right to offer such service and product, provided that nothing
contained herein shall be deemed a waiver of any termination rights as provided under Section
9.1.
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(c) Approved Vendors. Master Franchisor and its affiliates reserve the right to
approve and/or designate, from time to time, manufacturers, vendors, distributors, suppliers,
service providers and producers (collectively, "Vendors"), terms and distribution methods for
any services and products (which include, but are not limited to, services, products, insurance,
supplies, equipment and materials). Subfranchisee shall purchase all of the services and products
required for the operation of the Dental Office only from such approved Vendors under terms
and in the manner designated by Master Franchisor or any of its affiliates. Subfranchisee
acknowledges and agrees that (i) there may be only one approved Vendor for any given service
or product, (ii) such sole approved Vendor for any given service or product may be Master
Franchisor, Subfranchisor, any of their affiliates, or any other approved Vendor, and (iii) Master
Franchisor, Subfranchisor and any of their affiliates may derive revenue or profit from such
transactions, and may use such revenue or profit without restriction. If Master Franchisor or any
of its affiliates designates any services or products are to be purchased through approved and/or
designated third party distributors, then Subfranchisee shall purchase such services and products
from such distributors pursuant to the terms and in the manner approved by Master Franchisor or
its affiliates.
(d) Request for Change in Vendor. In the event Subfranchisee desires to purchase
equipment, furniture, products, services, supplies or materials from manufacturers, suppliers or
distributors other than an approved Vendor, Franchisee shall, prior to purchasing any such
equipment, furniture, products, services, supplies or materials, give Master Franchisor a written
request to change supplier. Master Franchisor shall notify Subfranchisee in writing of the
approval or rejection of the proposed supplier within a reasonable time after completion of the
investigation of the proposed supplier. Master Franchisor and its affiliates may, for any reason
whatsoever at its or their sole discretion, elect to withhold approval of the manufacturer, supplier
or distributor; however, in order to make such determination, Master Franchisor and its affiliates
may require that samples from a proposed new supplier be delivered for testing prior to approval
and use. A charge not to exceed the actual cost of the test may be made by Master Franchisor
and shall be promptly paid by Subfranchisee. Subfranchisee acknowledges that Master
Franchisor and its affiliates are likely to reject Subfranchisee's request for a new supplier without
conducting any investigation if Master Franchisor and its affiliates already have designated an
approved and/or exclusive Vendor for the equipment, furniture, products, services, supplies or
materials proposed to be offered by the new supplier, as permitted in Section 5.2(c) above.
5. 3 Busi ness Operati ons
(a) Goodwill. Subfranchisee acknowledges that it is solely responsible for the
successful operation of the Dental Office and that its continued operation depends on, among
other things, Subfranchisee's strict compliance with this Agreement and the Manual. The
reputation and goodwill of Master Franchisor and the Dental Office are based upon, and can be
maintained and enhanced only by, the professional conduct of the staff, Subfranchisee providing
high quality dental services and the continued satisfaction of the customers. For example,
Subfranchisee shall: (i) maintain a clean and safe Dental Office, and otherwise operate it so as
not to detract from or adversely reflect upon the name, reputation or goodwill of Master
Franchisor or the Marks; (ii) use the standard forms and reports; and (iii) follow the required
procedures for the preparation and retention of records.
(b) Approval of Advertising and Compliance. Subfranchisee shall obtain
Subfranchisor's prior written approval of all advertising, marketing or promotional items not
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previously approved by Subfranchisor regarding the Dental Office, including, without limitation,
newspaper ads, flyers, brochures, coupons, direct mail pieces, specialty and novelty items, radio
and television advertising, Internet and Website ads and home pages and/or domain names on
any common carrier electronic delivery system. Any proposed uses not previously approved
Subfranchisor specifically with respect to Subfranchisee or the Dental Office shall be submitted
to Subfranchisor or its affiliate at least twenty (20) days prior to publication, broadcast or use.
Subfranchisee acknowledges that advertising and promoting the Dental Office in accordance
with Master Franchisors and Subfranchisors standards and specifications are essential aspects
of the System, and Subfranchisee agrees to comply with all advertising standards and
specifications, including ensuring that all advertising and promotional materials, signs,
decorations, paper goods (including all forms and stationery used in the Dental Office) bear the
Marks in the manner prescribed by Subfranchisor. Subfranchisee also agrees to participate in
any grand opening, promotion, local store marketing campaigns and other programs established
by Master Franchisor, Subfranchisor or their affiliates.
(c) Telephone Listings. Subfranchisee agrees to prominently advertise the Dental
Office at Subfranchisees expense in the white pages and classified section (yellow pages) of all
local telephone directories. The Dental Office shall only be advertised under the Marks in such
directories and not under Subfranchisees name. In all cases, Subfranchisee shall pay for all
costs and expenses associated with such listings. Subfranchisee acknowledges that Master
Franchisor has the exclusive rights to all such numbers and listings (including the right to
transfer them) and Subfranchisees acknowledgment is conclusive evidence of such rights.
(d) Compliance with Laws and Good Business Practices. Subfranchisee shall secure
and maintain in force all required licenses, permits and certificates relating to the operation of the
Dental Office and shall operate the Dental Office in full compliance with all applicable laws,
ordinances and regulations, including, without limitation, all government regulations relating to
health and safety, occupational hazards and health, workmens compensation insurance,
unemployment insurance and withholding and payment of federal and state income taxes, social
security taxes and sales and use taxes. Upon request, Subfranchisee shall supply Subfranchisor
with a copy of all required licenses, permits and certificates relating to the operation of the
Dental Office. Subfranchisee shall maintain the Dental Office at the highest level of sanitation,
repair and condition, and in connection therewith shall operate it in such a manner so as to
promote a good public image in the business community and to enhance the goodwill of Master
Franchisor, the System, the Dental Offices and the Marks. Subfranchisee shall make such minor
additions, alterations, repairs and replacements thereto (but no others without Subfranchisors
prior written consent) as may be required for that purpose, including, without limitation, such
periodic repairs to or repainting or replacement of obsolete signs, furnishings, equipment and
decor as Subfranchisor may reasonably direct. Subfranchisee agrees to refrain from any business
or advertising practice that may be injurious to Master Franchisor, Subfranchisor, the System, the
Dental Offices and/or the Marks. Subfranchisee shall (i) furnish to Subfranchisor, within five (5)
days after receipt thereof, a copy of any violation or citation which indicates Subfranchisees
failure to maintain state or local health, safety or dental practice standards in the operation of the
Dental Office, and (ii) notify Subfranchisor in writing within five (5) days of the commencement
of any action, suit or proceeding, and of the issuance of any order, writ, injunction, award or
decree of any court, agency or other governmental instrumentality, which may adversely affect
the operation or financial condition of Subfranchisee or the Dental Office.
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(e) Renovation. Subfranchisee agrees to renovate, refurbish, remodel, redecorate or
replace, at its own expense, the real and personal property and equipment used in operating the
Dental Office when reasonably required by Subfranchisor (which shall not be more often than
once every three (3) years) in order to comply with the image, design, trade dress, color schemes,
standards of operation and performance capability established by Master Franchisor,
Subfranchisor or the Manual from time to time. If Master Franchisor changes its image or
standards of operation, it shall provide Subfranchisee a reasonable period of time within which to
comply with such changes.
(f) Management of the Dental Office and Conflicting Interests. Subfranchisee shall
at all times during the Term own and control the Dental Office, and the Dental Office shall
always be under the direct supervision of Subfranchisee or its Owners. Upon request of
Subfranchisor, Subfranchisee shall promptly provide satisfactory proof of such ownership.
Subfranchisee represents that the Subfranchisee Ownership Interests provided in Exhibit IX,
attached hereto, is true, complete, accurate and not misleading. Subfranchisee shall promptly
provide Subfranchisor with written notification if it wishes to change any of the information
contained therein and shall also comply with the applicable Transfer (defined herein) provisions
contained herein. Subfranchisee acknowledges that, if Subfranchisee is other than an
individual(s), Subfranchisor may require the individual Owners of Subfranchisee to guarantee
the performance of Subfranchisee and sign the Guaranty Agreement attached hereto as Exhibit
V. Subfranchisee and its Owners shall continuously exert their best efforts to promote and
enhance the Dental Office and will not engage in any other business or activity that may conflict
with their obligations hereunder. Subfranchisee shall comply, except as otherwise approved in
writing by Subfranchisor, with the following requirements throughout the Term:
(1) Subfranchisee shall furnish Subfranchisor with its partnership agreement,
other organizational and governing documents and any other documents Subfranchisor may
reasonably request, including any amendments thereto;
(2) Subfranchisee shall confine its activities, and its organizational and
governing documents shall at all times provide that its activities are confined, exclusively, to
operating the Dental Office; and
(3) Subfranchisee shall maintain stop transfer instructions against the transfer
on its records of any equity securities or other ownership interests, and shall issue no securities
or other evidence of ownership interest upon the face of which the following printed legend, or
language substantially similar thereto, does not legibly and conspicuously appear:
The transfer of this certificate and the ownership interests
represented hereby is subject to the terms and conditions of
one or more franchise agreements with Comfort Dental
Group, Inc. and a buy and sell agreement between the
franchisee and the owners. Reference is made to the
provisions of the said franchise agreement(s), buy and sell
agreement and to the organizational and governing
documents of this entity.
(g) Insurance. Subfranchisee agrees to purchase prior to commencing operations of
the Dental Office, such policies of insurance of the types, in the minimum amounts and with
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such minimum terms and conditions as Subfranchisor from time to time prescribes in the Manual
or otherwise. Such policies shall include all risk insurance for all property of the Dental Office
with coverage on a replacement cost basis, professional malpractice, product liability, business
interruption, employee honesty and liability and comprehensive general liability insurance for
and in respect of the Dental Office. Subfranchisee shall also carry insurance coverage to at least
provide (i) an all risk floater for the replacement value of signs, fixtures, furnishings, equipment
and stock in the minimum amount of $500,000 (ii) fire and extended coverage insurance on the
Premises in an amount sufficient to prevent the application of any co-insurance clauses and, in
any event, in an amount not less than eighty-five percent (85%) of the then full insurance value,
(iii) property, operations liability and comprehensive business liability with a minimum of
$1,000,000 per occurrence, $3,000,000 aggregate, (iv) professional malpractice insurance
covering all persons performing professional dental services with a minimum limit of $1,000,000
per occurrence, $3,000,000 aggregate, (v) business interruption insurance to fully insure a three
(3) month interruption of business, and (vi) unemployment and workers compensation insurance
with broad form all-states endorsement coverage sufficient to meet the requirements of
applicable law. If no such law exists, Subfranchisee must obtain such unemployment and
workers compensation insurance as required by Subfranchisor. Subfranchisee shall also carry
primary automobile liability insurance with a minimum limit of $100,000 bodily injury per
person, $500,000 per occurrence (including, but not limited to, owned automobiles, titled or
leased in the name of Subfranchisee or its Owners and used at any time, whether principally or
occasionally in the operation of the Dental Office, hired and non-owned coverage). All
insurance policies must be issued by an insurance carrier rated A or better by Alfred M. Best &
Company, Inc. Subfranchisee acknowledges that, by establishing required minimum insurance,
Subfranchisor is not advising Subfranchisee that such minimum insurance is sufficient or all that
Subfranchisee needs or should procure for its the Dental Office. Subfranchisee agrees to seek
the advice of its insurance advisor with respect to the sufficiency of such insurance.
In all of the above policies, Master Franchisor, Subfranchisor and their affiliates shall be
named as additional insureds, the policies shall provide for thirty (30) days written Notice to
Subfranchisor prior to cancellation, termination, expiration, modification or reduction in
coverage and the policies shall contain a waiver of subrogation rights against Master Franchisor,
Subfranchisor and their affiliates. Subfranchisee agrees to provide Subfranchisor with
certificates of insurance on an annual basis showing such policies to be in full force and effect,
and evidence that such policies have been renewed and premiums paid prior to expiration, and
shall promptly notify Subfranchisor of all current claims thereunder and for the previous year.
Upon thirty (30) days written notice to Subfranchisee, Subfranchisor may reasonably increase
the minimum protection requirements of any policy and require different or additional kinds of
insurance at any time, including excess liability (umbrella) insurance, to reflect inflation,
identification of special risks, changes in law or standards of liability, higher damage awards or
other relevant changes in circumstances. If Subfranchisee at any time fails or refuses to maintain
in effect any insurance coverage required by Subfranchisor, or to furnish satisfactory evidence
thereof, Subfranchisor, at its option and in addition to its other rights and remedies hereunder,
may, but need not, obtain such insurance coverage on behalf of Subfranchisee, and
Subfranchisee shall promptly execute any applications or other forms or instruments required to
obtain any such insurance and pay to Subfranchisor, on demand, any costs, fees, service charges
and premiums incurred by Subfranchisor. In addition to all other remedies, Subfranchisor may
demand that Subfranchisee cease operation of the Dental Office until coverage is reinstated.
Subfranchisees obligation to obtain and maintain the insurance described herein shall not be
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limited in any way by reason of any insurance maintained by Subfranchisor, nor shall
Subfranchisors performance of such obligations relieve Subfranchisee of any obligations under
the indemnification provisions of this Agreement.
(h) Subfranchisee Meetings. Subfranchisee shall attend all regular meetings of
subfranchisees called by Subfranchisor or committees thereof and all special meetings which
Subfranchisor in its sole discretion deems necessary.
(i) Continued Operations. During the Term, Subfranchisee and each of its Owners
shall promote and continually operate the Dental Office, and shall keep it open and operating for
such hours and days as directed by Master Franchisor or Subfranchisor, or as otherwise specified
in the Manual. In the event Subfranchisee or any of its Owners is absent from the Premises at
any time during the Term for a period greater than twenty-eight (28) consecutive calendar days
for any reason other than illness or maternity leave, Subfranchisor shall have the right, at its
option, to require Subfranchisee to sell its interest, including the Assets (defined herein), in the
Dental Office to Subfranchisor under the terms and conditions per Section 9.8.
5. 4 Confi denti al i ty
(a) Confidential Information. Master Franchisor and Subfranchisor possess certain
confidential information, including all information comprising the System and the Manual,
relating to methods, techniques, specifications, standards, procedures, data, systems, knowledge
of and experience in the operation of a Dental Office (the Confidential Information).
Additionally, any and all information, knowledge, trade secrets, know-how and techniques that
Master Franchisor or Subfranchisor designates as confidential shall be deemed Confidential
Information for purposes of this Agreement, without any other proof of trade secrecy (under
common law, statute or otherwise) required to be made. Master Franchisor and Subfranchisor
will be disclosing certain of the Confidential Information to Subfranchisee during the Term.
Subfranchisee understands and acknowledges that it will not acquire any interest in the
Confidential Information other than the right to utilize it in the development and operation of the
Dental Office, and that the use or duplication of the Confidential Information in any other
business endeavor would constitute an unfair method of competition. Subfranchisee
acknowledges, and shall ensure that each of the Bound Parties (defined below) acknowledges,
that the Confidential Information is proprietary, includes trade secrets of Master Franchisor and
is disclosed to Subfranchisee solely on the condition that Subfranchisee ensures each of the
Bound Parties agrees that it: (i) will exercise the highest degree of diligence and effort to
maintain the absolute confidentiality of the Confidential Information during and after the Term;
(ii) will not copy, duplicate, record or otherwise reproduce the Confidential Information in whole
or in part nor otherwise make the same available to any unauthorized person; (iii) will disclose
Confidential Information only to Subfranchisees Owners, partners, employees or agents who
must have access to it in connection with the operation of the Dental Office or their employment
and who have executed the NDA; (iv) will not during the Term or thereafter, communicate or
divulge any Confidential Information to, or use for the benefit of, any other person or in any
manner not specifically authorized in writing by Master Franchisor or Subfranchisor; and (v) will
adopt and implement all reasonable procedures prescribed from time to time by Master
Franchisor or Subfranchisor to prevent the unauthorized use or disclosure of any Confidential
Information. Subfranchisee agrees that it will be completely responsible for maintaining the
secrecy and confidentiality of the Confidential Information disclosed to Subfranchisee and will
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be responsible in this regard for the actions and activities of all of its Owners, partners,
employees, agents and others working for it. Subfranchisee further agrees that it is its intent that
the provisions of this Article 5 be construed as broadly as possible to maximize the protection
afforded Master Franchisor and Subfranchisor.
(b) Violation of Confidentiality Covenants. Subfranchisee acknowledges that any
failure to comply with these confidentiality requirements will be deemed to be a material event
of default under this Agreement; will cause Master Franchisor, Subfranchisor and their affiliates
irreparable injury with respect to which money damages will not compensate them; and
Subfranchisee agrees to pay all court costs and other expenses (including reasonable attorneys
fees) incurred by Master Franchisor, Subfranchisor and their affiliates in obtaining specific
performance of, or an injunction against violation of, the requirements of this Agreement
concerning confidentiality.
5. 5 Non-Competi ti on Duri ng Term
(a) Subfranchisee Acknowledgment and Covenants. Subfranchisee acknowledges
that Subfranchisee will receive valuable specialized training and Confidential Information,
including, without limitation, information regarding the operational, sales, promotional and
marketing methods and techniques of Master Franchisor and the System, and that the value of
the Confidential Information arises not only from the time, effort and money which went into its
compilation but also from the usage by all subfranchisees. Subfranchisee therefore covenants
that during the Term, except as otherwise approved by Master Franchisor in writing,
Subfranchisee and its Owners, officers, directors, shareholders, members, employees, partners,
spouses and family members (collectively, Bound Parties) will not, either directly or
indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, or legal
entity:
(1) own, operate, be employed by, engage in, advise, assist, invest in,
franchise, make loans to or have any other direct or indirect interest in any Competitive Business
(defined herein) or any other business involving in significant part the sale, licensing, or
distribution of services or products similar, identical to or competitive with the Dental Offices
services and products;
(2) divert or attempt to divert any business or customer of the Dental Office to
any competitor, by direct inducement or otherwise, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with the Marks or the System; or
(3) employ or seek to employ any person who is at that time employed by
Subfranchisor or by any other subfranchisee, or otherwise directly or indirectly induce such
person to leave his or her employment.
(b) Other Persons. Subfranchisee shall require and obtain execution of covenants
similar to those set forth in Section 5.5(a) above from any or all of the following:
(1) personnel employed by Subfranchisee who have received or will receive
any Confidential Information; and
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(2) all Bound Parties and any other persons holding comparable managerial
or controlling positions or having any record or beneficial ownership interest in Subfranchisee.
Every such covenant must be in a form designated by Subfranchisor, including, without
limitation, specific identification of Master Franchisor, Subfranchisor and their affiliates as third-
party beneficiaries of such covenants with the independent right to enforce them. Failure by
Subfranchisee to obtain execution of these covenants will constitute a default under this
Agreement. Subfranchisee is responsible for ensuring that such persons comply with the
covenants.
(c) Violation of Covenant Not to Compete. Subfranchisee acknowledges that any
violation of the terms of the covenants not to compete will result in irreparable injury to Master
Franchisor, Subfranchisor and/or their affiliates for which no adequate remedy at law may be
available, and Subfranchisee accordingly consents to the issuance of a permanent injunction
prohibiting any conduct by Subfranchisee in violation of the terms of the covenants not to
compete. Subfranchisee agrees to pay all court costs and other expenses (including reasonable
attorney fees) incurred by Master Franchisor, Subfranchisor or their affiliates in obtaining
specific performance of, or an injunction against violation of, the requirements of such
covenants.
5. 6 Reports and Records
(a) Reports. Subfranchisee shall use Master Franchisors or Subfranchisors
approved accounting, record keeping and financial reporting systems (including forms and
format) as they may exist from time to time, book keeping and accounting service providers, and
shall retain all receipts, print-outs, invoices, payroll records, check stubs, sales tax records and
returns, and, in particular, Subfranchisee shall submit to Subfranchisor:
(1) within ten (10) days of the end of each month, a complete and accurate
income statement and written statement of the Gross Collections for such month and for the
fiscal year to date, and calculations of Royalty Fees and other payments, designated by
Subfranchisor and containing such warranties and representations from Subfranchisee as
prescribed by Subfranchisor;
(2) within thirty (30) days after the end of each calendar quarter, a cumulative
balance sheet and income statement, copies of applicable state sales and/or use tax reports, all
quarterly Federal Tax Form 941s as well as quarterly federal and state tax returns;
(3) within ninety (90) days after the end of each calendar year, all annual
federal and state tax returns including, but not limited to, 1099 Forms;
(4) within ten (10) days after receipt, copies of all regulatory agency reports
related to the services and products of the Dental Office; and
(5) any other report, data or information reasonably requested by
Subfranchisor from time to time (including, without limitation, daily and weekly reports of
service and product sales).
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(b) Records, Inspection and Audit Rights. Subfranchisee shall maintain all books and
records for the Dental Office in accordance with generally accepted accounting principles
(GAAP) consistently applied and preserve such records, including cash register tapes, if any,
shift reports, weekly operating summaries and sales tax returns, for at least three (3) years after
the calendar year to which they relate. Subfranchisee shall maintain all books and records for the
Dental Office separate from any other business operated by Subfranchisee. Subfranchisor has
the right, at any time during business hours and without prior notice to Subfranchisee, to inspect
the books and records prepared and maintained by Subfranchisee and inspect and audit, or cause
to be audited, the books, records, reports, tax returns, statements, information and supporting
data of the Dental Office and the books and records of the partnership or other legal entity which
holds the Dental Office. Subfranchisor and its affiliates may collect the books, records and
other information for review in any form or manner they reasonably determine, including,
without limitation, requiring Subfranchisee to send documents to Subfranchisors office.
Subfranchisor or its authorized agents and representatives shall be allowed to make extracts from
or copies of any such records, books of account, tax returns, documents and materials.
(c) Payments and Reimbursements. Subfranchisee must pay to Subfranchisor, within
fifteen (15) days after receipt of the inspection or audit report, the Royalty Fees and other
amounts due Subfranchisor, plus interest on any understatement as calculated in the manner set
forth in Article 6. Such inspections and audits will be conducted at Subfranchisors expense.
However, if an audit is made necessary by Subfranchisees failure to furnish accurate reports,
records, financial statements or other information required by this Agreement, or failure to
furnish such information on a timely basis, or if an understatement of Gross Collections for any
period is determined by any inspection or audit to be greater than three percent (3%),
Subfranchisee must reimburse Subfranchisor for all costs of the inspection and/or audit
including, but not limited to, the charges of any independent certified public accountant and the
travel expenses, room and board and compensation of Subfranchisor or its employees. In the
event Subfranchisee disputes the results of any audit conducted by Subfranchisor or its
representatives, Subfranchisee will have the right to have the results verified by an independent
certified public accounting firm selected by Subfranchisors accountants. The expense of this
further audit will be borne by Subfranchisee (unless this further audit discloses that no deficiency
is due, in which case Subfranchisor will be obligated to pay for the audit) and the results will be
binding on the Parties. Subfranchisee must pay any deficiencies within fifteen (15) days after
receipt of the final audit.
(d) Accuracy and Completeness. The determination of the amount of Royalty Fees,
as well as determinations about the condition of the business and possible areas of weakness, is
based upon the books and records of the Dental Office. Therefore, Subfranchisee hereby
expressly warrants the accuracy and completeness of all reports, financial statements, books,
records and other documents submitted or made available to Master Franchisor, Subfranchisor
and their affiliates.
5. 7 Trai ni ng
Subfranchisee shall complete all training required under Article 4, and any subsequent
prospect for ownership of Subfranchisee shall complete Subfranchisors then-applicable training
program prior to becoming an Owner. From time-to-time, Subfranchisor may at its discretion
elect to present additional seminars and continuing training programs to discuss relevant business
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trends and share new information for the benefit of its subfranchisees, to be held at locations
designated by Subfranchisor. Attendance at any such seminars and programs may be
recommended or mandatory, but in any event, Subfranchisee shall be responsible for all travel,
food and living expenses associated with the attendance of its Owners and staff at any such
seminars or programs.
ARTICLE VI
FEES AND CONTRIBUTIONS
6. 1 Ini ti al Franchi se Fee
Subfranchisee agrees to pay to Subfranchisor, concurrently with signing this Agreement,
an initial franchise fee of ________________________________ (Initial Subfranchisee Fee).
The Initial Franchise Fee is due and payable in full, and deemed fully earned, upon execution of
this Agreement. At the option of Subfranchisee, the Initial Franchise Fee is refundable without
interest and this Agreement shall terminate in the event that Subfranchisor or its affiliates fail to
construct, equip and decorate the Premises within one year of the execution of this Agreement.
6. 2 Furni ture, Fi xtures, Equi pment and Suppl i es
Subfranchisee agrees to pay to Subfranchisor, concurrently with signing this Agreement,
the sum of ___________________________________ to cover the costs of the furniture,
fixtures, equipment and initial supplies used in the operation of the Dental Office (FF&E Fee).
The FF&E Fee is due and payable in full, and is deemed fully earned, upon execution of this
Agreement. At the option of Subfranchisee, the FF&E Fee is refundable without interest and this
Agreement shall terminate in the event that Subfranchisor or its affiliates fail to construct, equip
and decorate the Premises within one year of the execution of this Agreement.
6. 3 Royal ty Fees
Subfranchisee shall pay to Subfranchisor on a monthly basis continuing royalty fees
(Royalty Fees) equal to _____________ percent (_____%) of the total amount of Gross
Collections generated from or through the Dental Office payable on or before the seventh (7th)
day of the following month. After ten (10) years, the Royalty Fees will increase to eight percent
(8%). On or before 5pm EST of each Tuesday for the preceding Monday through Sunday
period, Subfranchisee shall report by telephone, electronic means or in written form, as
Subfranchisor directs, the total amount of Gross Collections generated from or through the
Dental Office and such additional information requested by Subfranchisor. Subfranchisor shall
have the right to verify such Gross Collections reports as it deems necessary in any reasonable
manner.
6. 4 Consul ti ng Fees.
Subfranchisee shall pay to Subfranchisor fees (Consulting Fees) for providing regular
advice and guidance in the operation of the Dental Office. The Consulting Fees will be paid
pursuant to the Consulting Agreement and subject to all of the terms and conditions therein. If
required under the Consulting Agreement, Subfranchisee shall also execute Subfranchisors
forms of Promissory Note and Security Agreement and Financing Statement, which are attached
hereto as Exhibits VII and VIII, respectively.
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6. 5 Overdue Amounts and Late Charge
Any amount owed to Master Franchisor, Subfranchisor or their affiliates by
Subfranchisee pursuant to this Agreement or otherwise shall bear a late charge from the due date
until paid in full at the greater of (i) the highest applicable legal rate for open account business
credit, or (ii) one and one-half percent (1! %) per month, calculated and payable weekly, with
interest on overdue interest at the same rate. Such rate shall be determined on each interest
payment date and shall be applicable to all amounts owing at such date from Subfranchisee. In
addition to the foregoing, Subfranchisee shall pay the sum of Fifty and no/100 Dollars ($50.00)
for each of Subfranchisees checks which, for any reason, are returned or not honored by
Subfranchisees bank, which amount shall be payable by Subfranchisee as compensation for the
expenses incurred in connection with the dishonored or returned check and not as a penalty.
Subfranchisee acknowledges that this section shall not constitute Master Franchisors or
Subfranchisors agreement to accept payments after the same are due or a commitment to extend
credit to, or otherwise finance, Subfranchisees operations. The acceptance by Master
Franchisor or Subfranchisor of any late charge payment shall not be construed as a waiver by
Master Franchisor or Subfranchisor of their rights in respect of the default giving rise to such late
charge payment, and Subfranchisee acknowledges that such acceptance shall be without
prejudice to any right to terminate this Agreement.
6. 6 Deferral , Wai ver and Payment by Subfranchi sor of Certai n
Subfranchi see Obl i gati ons
In the event that the Dental Office is unable to generate sufficient revenues during the
first three (3) months of operations to pay the expenses associated with such operations
(exclusive of any direct or indirect compensation or other payments to the Owners),
Subfranchisor will for three (3) months, forgive payment of the Marketing Fees and/or rental
payments under the Sublease payments equal to such deficiency. At the option of Subfranchisee,
Subfranchisor will also defer payment of the Consulting Fees for the initial six (6) months of the
operation of the Dental Office. If Subfranchisee elects such option, then Subfranchisor will
recompute the monthly Consulting Fees to include, as additional principal, the deferred principal
and interest that would have been paid without the deferral. Subfranchisee will then begin
paying the recomputed monthly Consulting Fees in the seventh (7th) month of operations.
6. 7 Appl i cati on of Payments
Notwithstanding any designation Subfranchisee might make, Master Franchisor,
Subfranchisor and their affiliates may apply any payments by Subfranchisee to any of
Subfranchisees past due indebtedness for Royalty Fees, Marketing Fees, Consulting Fees,
purchases from Master Franchisor, Subfranchisor or their affiliates, interest or any other amounts
due from Subfranchisee.
ARTICLE VII
BUSINESS RELATIONSHIP
7. 1 Independent Busi nessperson
The Parties agree that each of them is an independent businessperson and that their only
relationship is by virtue of this Agreement. Nothing contained in this Agreement shall be
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construed so as to create a partnership, joint venture, agency or fiduciary relationship between
the Parties. Neither Party shall be liable or responsible for the others debts or obligations, nor
shall either Party be obligated for any damages directly or indirectly arising out of the operation
of the other Partys business. The Parties further agree that neither of them will hold itself out to
be the agent, employer or partner of the other and that neither has the authority to bind or incur
liability on behalf of the other (unless expressly provided in this Agreement). Subfranchisee
agrees to conspicuously identify itself in all dealings with customers, Vendors, suppliers,
contractors, public officials and the general public as a subfranchisee of Subfranchisor and shall
place other notices of ownership on such forms, stationery, advertising and other materials as
Subfranchisor may require from time to time.
Subfranchisor shall have no liability for Subfranchisee's obligations to pay any third
parties, including, without limitation, any Vendors, or for any sales, use, service, occupation,
excise, gross receipts, income, property or other taxes levied upon Subfranchisee, any part of the
Dental Office or Subfranchisor in connection with the operation of the Dental Office by
Subfranchisee (except any taxes Subfranchisor is required by law to collect from Subfranchisee
with respect to purchases, if any, from Subfranchisor and Subfranchisor's income taxes).
Subfranchisee shall promptly reimburse Subfranchisor for any taxes that Subfranchisor must pay
to any state taxing authority on account of either Subfranchisees operation or payments that
Subfranchisee makes to Subfranchisor.
7. 2 Indemni fi cati on
Subfranchisee agrees to indemnify, defend, and hold harmless Master Franchisor,
Subfranchisor and their affiliates, and their respective members, managers, shareholders,
directors, officers, employees, agents, successors and assignees (the ''Indemnified Parties"),
against, and to reimburse them for, all claims, obligations and damages described below, any and
all third party obligations described herein, and any and all claims and liabilities directly or
indirectly arising out of the operation of the Dental Office or the use of the Marks and the
System in any manner, including, without limitation, those alleged to be or found to have been
caused by the Indemnified Party's negligence or willful misconduct, unless (and then only to the
extent that) the claims and liabilities are determined to be caused solely by the Indemnified
Party's gross negligence or willful misconduct in a final, unappealable ruling issued by a court or
arbitrator with competent jurisdiction. For purposes of this indemnification, claims shall mean
and include all obligations, actual and consequential damages, and costs reasonably incurred in
the defense of any claim against the Indemnified Parties, including, without limitation,
reasonable accountants', attorneys' and expert witness fees, costs of investigation and proof of
facts, court costs, other litigation expenses, and travel and living expenses. Each Indemnified
Party shall have the right in its sole discretion to (i) use counsel of its choice to control and
defend any such claim against it at Subfranchisee's expense and (ii) agree to settlements or take
any other remedial, corrective or other actions. This indemnity shall continue in full force and
effect subsequent to and notwithstanding the expiration or termination of this Agreement.
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ARTICLE VIII
PROPRIETARY RIGHTS
8. 1 Use of Certai n Propri etary Ri ghts
Subfranchisee acknowledges that Master Franchisor and/or one or more of its affiliates
have the sole right to license and control Subfranchisee's use of the System and the Marks, and
that the System and the Marks shall remain under the sole and exclusive ownership and control
of Master Franchisor and/or one or more of its affiliates. Subfranchisee acknowledges that it
does not acquire any right, title or interest in the System or the Marks except that Subfranchisee
is hereby authorized to use the System and the Marks in the operation of the Dental Office at the
Premises as set forth herein and in the Manual. Subfranchisee shall not use the System or the
Marks at any other location or for any other purpose, except where such other use is approved in
writing by Master Franchisor. Subfranchisee shall display the Marks prominently at its Dental
Office, including in connection with the forms, advertising and marketing, all in the manner
Master Franchisor or Subfranchisor prescribes and approves. Subfranchisee further agrees that
no Mark other than "Comfort Dental" or such other Marks specified by Master Franchisor shall
be used in the marketing, promotion, identification or operation of the Dental Office, except with
Master Franchisor's prior written consent. It is expressly agreed that the ownership of all
goodwill created by Subfranchisees operation of the Dental Office shall belong solely to Master
Franchisor. Subfranchisee also agrees that all original works of authorship, new concepts,
processes or improvements, and any associated copyrights, in the operation or promotion of the
Dental Office, created or originated by Subfranchisee or any of its Owners, shall be deemed a
work made for hire for the benefit of the System and shall belong solely to Master Franchisor.
Subfranchisee shall not at anytime (i) develop, create, generate, own, license or use in
any manner any computer or electronic medium (including Internet home page, Website, bulletin
board, newsgroup or other Internet-related medium) which in any way uses or displays the
Marks, in whole or in part or (ii) cause or allow the Marks to be used or displayed, in whole or in
part, as an Internet domain name, or on or in connection with any Internet home page, Website,
bulletin board, newsgroup or other Internet-related activity, without Master Franchisors express
prior written consent, with may be withheld in Master Franchisors sole discretion, and then only
in such manner and in accordance with such procedures, policies, standards and specifications as
Master Franchisor may establish.
8. 2 Modi fi cati on
It is understood by the Parties that Master Franchisor or its affiliate may at anytime
decide to discontinue the use of a Mark or develop and adopt new or modified Marks,
proprietary materials or information to enhance or strengthen the System. Should Master
Franchisor or its affiliate develop or adopt modified Marks, proprietary materials or information,
or revise any existing Mark, proprietary materials or information, then Subfranchisee shall,
within a reasonable time after receipt of notice of such acts, take such action, at Subfranchisee's
sole expense, necessary to comply with such discontinuation or modification. Master Franchisor
and its affiliates need not reimburse Subfranchisee for its direct expenses of changing the Dental
Office's signs, for any loss of revenue due to any discontinued or modified Mark or for its
expenses of promoting a modified Mark. Subfranchisee agrees to adopt, use and display any
such modifications as if they were part of this Agreement at the time of execution hereof.
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In the event that Subfranchisee shall be prevented from using any of the Marks, including
but not limited to Comfort Dental by reason of such Mark(s) infringing the proprietary rights
of any third party, Subfranchisee shall promptly cease the use of such Mark(s) and modify any
and all signs, banners, displays, stationary and all other items bearing such Mark(s) upon receipt
of notice from Master Franchisor or Subfranchisor, in the manner prescribed in such notice.
8. 3 Regi strati on and Marki ng
Master Franchisor has a license to the Marks and they have been filed and registered with
the United States Patent and Trademark Office. Subfranchisee acknowledges that Master
Franchisor has a prior and superior right to the Marks, and Subfranchisee agrees not to register or
attempt to register such Marks (or any portion thereof) in Subfranchisees name or that of any
other person or entity. Subfranchisee agrees at all times to badge all of its advertising materials,
literature and supplies with registration and other symbols as instructed by Master Franchisor or
Subfranchisor.
8. 4 Use by Master Franchi sor, Subfranchi sor and Others
Subfranchisee acknowledges that its subfranchise is non-exclusive and that it does not
have any right whatsoever to deny use of the Marks by Master Franchisor, Subfranchisor or any
other franchisee employing the System. In the event Subfranchisee uses the Marks or Original
Works in a manner which has the effect of restricting their use by Master Franchisor,
Subfranchisor or any other franchisee, then Subfranchisee shall execute all necessary documents
and take all necessary action to correct the use and/or allow such others to have full use of the
Marks and Original Works.
8. 5 Busi ness Name
Subfranchisee agrees that the Dental Office shall be operated under the Mark Comfort
Dental with no other suffix or prefix attached thereto, and will bear signs, advertising and
slogans in compliance with the Manual. No other name shall be used in the operation of the
Dental Office, nor shall any logo or other identifying symbol not previously approved in writing
by Master Franchisor be used in connection with the Dental Office. Subfranchisee shall not
license, register or purchase vehicles, supplies or equipment, or perform any other activity or
incur any obligation or indebtedness except in its individual, partnership, corporate or other
business name. Subfranchisee will not use any Marks as part of its corporate or entity name,
without the written approval of Master Franchisor. When this Agreement is terminated,
Subfranchisee will execute any assignment or other documents Master Franchisor requires to
transfer to Master Franchisor any rights Subfranchisee may possess in the Marks. If
Subfranchisee does not execute such assignment or other documents, Master Franchisor may
execute in Subfranchisees name, on Subfranchisees behalf and at Subfranchisees expense, any
and all assignments and documents necessary in Master Franchisors reasonable judgment to
terminate and cause the discontinuance of Subfranchisees use of the Marks. Master Franchisor
is hereby irrevocably appointed and designated as Subfranchisees attorney-in-fact coupled with
an interest to do so.
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8. 6 Defense of Marks and Ori gi nal Works
In the event Subfranchisee is notified or informed of any claim, suit or demand against
Subfranchisee on account of an alleged infringement, unfair competition or similar matter related
to Subfranchisees use of the Marks or Original Works in accordance with the terms herein,
Subfranchisee shall promptly notify Master Franchisor and Subfranchisor of such claim, suit or
demand. Thereupon, Master Franchisor shall take such action (if any) as it deems necessary, in
its sole discretion. Subfranchisee shall not settle or compromise any claim by a third party
without the prior written consent of Master Franchisor. Master Franchisor shall have the
complete control over the action with the sole right to defend, compromise or settle any such
claim, using counsel of Master Franchisors own choosing. Subfranchisee agrees to cooperate
fully with Master Franchisor and Subfranchisor in connection with the defense or settlement of
any such claim. Subfranchisee may participate at its own expense in such defense or settlement,
but Subfranchisee agrees that (a) it shall execute any and all documents and do such acts and
things as may, in the opinion of counsel for Master Franchisor, be necessary to carry out the
defense or settlement and (b) Master Franchisors decisions with regard to such defense and
settlement shall be final. In any event, Master Franchisor is not obligated by this Agreement or
otherwise to indemnify Subfranchisee against, or reimburse Subfranchisee for, any damages,
costs, expenses or fees (including legal fees) arising out of Subfranchisees use of the Marks and
Original Works.
8. 7 Prosecuti on of Infri ngers
If Subfranchisee is notified or informed, or learns, of any possible infringement of a Mark
or use by others of a trademark confusingly similar to the Marks, Subfranchisee shall promptly
notify Master Franchisor and Subfranchisor of the facts related to such alleged infringement.
Subfranchisee acknowledges that Master Franchisor and its affiliates shall then determine, in
their sole discretion, whether any action will be taken in response to any possible infringement,
and Subfranchisee shall not have any right to make any demand or prosecute any claim against
the alleged infringer.
ARTICLE IX
DEFAULT AND TERMINATION
9. 1 By Subfranchi sor
(a) Effective Upon Notice. Subfranchisor shall have the right, at its option, in its sole
discretion and upon delivery to Subfranchisee of a termination notice, to thereupon immediately
terminate this Agreement, without affording Subfranchisee an opportunity to cure the default
(subject to any state law to the contrary, in which case state law will prevail). In the event of
such termination, Subfranchisor shall also have the right, at its option and in its sole discretion,
to (i) return any fee received hereunder and/or (ii) repurchase Subfranchisees Assets. If
Subfranchisor elects to repurchase any Assets, the payment terms and prices shall be as provided
in Section 9.8 below. Termination under this Section 9.1(a) shall be effective upon delivery to
Subfranchisee of a termination notice, upon the occurrence of any of the following events:
(1) Subfranchisee becomes insolvent or is adjudicated as bankrupt; or if any
action or petition is filed by Subfranchisee, or by others against Subfranchisee, under any
insolvency, bankruptcy or reorganization act (this provision might not be enforceable under
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federal bankruptcy law, 11 U.S.C. 101 et seq.); or if Subfranchisee makes an assignment for
the benefit of creditors; or if a receiver is appointed for Subfranchisee; or if a bill in equity or
other proceeding for the appointment of a receiver of Subfranchisee or other custodian for the
Dental Office or assets is filed and consented to by Subfranchisee; or if proceedings for a
composition with creditors under any state or federal law is instituted by or against
Subfranchisee; or if any material judgment (or several judgments which in the aggregate are
material) is obtained against Subfranchisee and remains unsatisfied for thirty (30) days or longer
(unless a supersedeas or other appeal bond has been filed); or if execution is levied against the
Dental Office or any of the property used in operating the Dental Office and is not discharged
within five (5) days; or if the real or personal property of the Dental Office shall be sold after
levy by any sheriff, marshal or constable;
(2) Subfranchisee, at any time without the written consent of Subfranchisor,
(i) begins operating the Dental Office without having obtained Subfranchisors prior written
consent, as required by Article 3 or operates the Dental Office outside of the prescribed normal
business hours; (ii) ceases to operate the Dental Office or otherwise abandons the Dental Office
for a period of three (3) consecutive days, or any shorter period that indicates in Subfranchisors
sole determination an intent by Subfranchisee to discontinue operation of the Dental Office or
(iii) otherwise forfeits the right to do or transact business in the Territory where the Dental Office
is located, unless and only to the extent that full operation of the Dental Office is suspended or
terminated due to fire, flood, earthquake or other similar causes beyond Subfranchisees control
and not related to the availability of funds to Subfranchisee;
(3) Subfranchisee fails to satisfy any financial benchmark per the Manual
and/or fails to add additional Owners at the required financial level;
(4) one or more of Subfranchisees Owners has their license to practice
dentistry suspended, revoked or rejected for renewal under (i) the laws or regulations of the state
in which the Dental Office is located or (ii) the rules and regulations of any applicable board or
professional association;
(5) Subfranchisee fails to see emergency patients or receives three (3) patient
complaints during any twelve (12) month period;
(6) Subfranchisee or any person under Subfranchisees control intentionally or
negligently discloses to any unauthorized person, or copies or reproduces, the contents of any
part of the Manual or any other trade secrets or Confidential Information of Master Franchisor,
Subfranchisor or their affiliates;
(7) Subfranchisee commits fraud or makes a material misrepresentation in
connection with the purchase or operation of the Dental Office or otherwise engages in conduct
that violates applicable law or, in the sole judgment of Subfranchisor, fails to demonstrate
qualities necessary for success, or impairs or may impair the goodwill associated with the Marks
or otherwise subjects the Marks, the Dental Office, Master Franchisor, Subfranchisor or the
System to ridicule, scandal, reproach, scorn or indignity;
(8) Subfranchisee fails to purchase all items (e.g., furniture, fixtures,
equipment, dental supplies and lab services) necessary for the proper operation of the Dental
Office from approved Vendors, including Budget Dental Lab;
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(9) Subfranchisee, for a reason other than demonstrable clerical error (the
proof of which shall be Subfranchisees obligation), understates the Gross Collections for any
period, or by reason of such clerical error, understates the Gross Collections for any period by
more than three percent (3%) during any reporting period;
(10) Subfranchisee (i) maintains false books or records, (ii) submits any false
report to Subfranchisor or (iii) submits any report containing an inaccurate warranty or
representation required by Subfranchisor to be made by Subfranchisee in any such report;
(11) one (1) or more of the Owners of Subfranchisee (or any of its affiliates) is
convicted of or pleads nolo contendere to a felony, a crime involving moral turpitude or any
crime or offense reasonably likely, in the sole opinion of Master Franchisors or Subfranchisor,
to unfavorably affect the Dental Office, the System, Master Franchisor, the Marks or the
goodwill and reputation associated therewith;
(12) Subfranchisee fails to pay any fee or amount due Master Franchisor,
Subfranchisor or their affiliates within ten (10) days after delivery of notice that such fee or
amount is overdue, or if Subfranchisee pays the incorrect amount for any fee more than once in
any twelve (12) month period;
(13) Subfranchisee (or any of its Owners, managers or any other party required
by Subfranchisor to complete training) is discovered to be cheating at any training program or
fails to complete any training program to Subfranchisors satisfaction;
(14) Subfranchisee misuses or fails to follow Master Franchisors or
Subfranchisors directions and guidelines concerning use of the Marks, and fails to correct the
misuse or failure within ten (10) days after delivery of notice from Master Franchisors or
Subfranchisor;
(15) Subfranchisee has received two (2) notices of default from Master
Franchisor or Subfranchisor within a twelve (12) month period, regardless of whether the
defaults were cured by Subfranchisee;
(16) Subfranchisee loses the right to occupy the Premises because of its default
under any lease, Sublease or any other agreement related to the use or operation of the Dental
Office;
(17) Subfranchisee sells, transfers or otherwise assigns the subfranchise, an
interest in the subfranchise or Subfranchisee entity, license, the Dental Office, a substantial
portion of the Assets of the Dental Office or this Agreement without complying with the
provisions of Article 10;
(18) Subfranchisee creates or allows to exist any condition in or at the Dental
Office, or on or about the Premises, in violation of applicable law or which Subfranchisor
reasonably believes presents health or safety concerns for the Dental Office employees,
customers or the general public;
(19) Subfranchisor or any of its affiliates issues a notice of termination with
respect to any other agreement (including a subfranchise agreement) between Subfranchisor or
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any such affiliate and Subfranchisee (or any other legal entity in which Subfranchisee, or any of
its Owners, is the sole owner or managing owner) governing the operation of another Dental
Office; or
(20) Subfranchisee commits a default under any loan from or equipment lease
with Master Franchisor, Subfranchisor or any of their affiliates or a third party, and fails to cure
that default by the date specified by the lender or equipment lessor.
(b) Thirty (30) Days Notice. Subfranchisor shall have the right, at its option, in its
sole discretion and in the manner set forth below, to terminate this Agreement (subject to any
state law to the contrary, in which case state law will prevail), effective upon delivery of thirty
(30) days prior written notice to Subfranchisee, if Subfranchisee breaches any other provision of
this Agreement, including, but not limited to, the Manual, and fails to cure the default during
such thirty (30) day period. In that event, this Agreement will terminate without further notice to
Subfranchisee, effective upon expiration of the thirty (30) day period. In the event of such
termination, Subfranchisor shall also have the right, at its option and in its sole discretion, to (i)
return any fee received hereunder and/or (ii) repurchase Subfranchisees Assets. If
Subfranchisor elects to repurchase any Assets, the payment terms and prices shall be as provided
in Section 9.8. By way of example, but not limitation, defaults under this Section 9.1(b) include
the following:
(1) Subfranchisee defaults under the Consulting Agreement or the Sublease;
(2) Subfranchisee fails to comply with the Manual or any confidentiality and
non-competition provisions of this Agreement, or engages in any business or markets any
product or service under a name or mark which, in Master Franchisors or Subfranchisors
reasonable opinion, is confusingly similar to any Mark;
(3) the Dental Office is unable to generate sufficient revenues at the end of the
first three (3) months of operations to pay the expenses associated with such operations, or the
expenses attributed to an individual Owner (exclusive of any direct or indirect compensation or
other payments to Subfranchisees Owners);
(4) Subfranchisee receives a complaint from any applicable board or
professional association;
(5) Subfranchisee fails, refuses or neglects to (i) comply with all state, federal,
and local laws, rules and regulations, or (ii) immediately provide Notice to Subfranchisor of any
action, suit, claim or proceeding which could adversely affect the operation and financial
condition of Master Franchisor, Subfranchisor or the Dental Office; or
(6) Subfranchisee fails, refuses or neglects to submit when due accurate
financial statements, reports, data, information or supporting documents required under this
Agreement.
(c) Termination of Individual Owners Of Subfranchisee. Should Subfranchisor
determine that an individual Owner of Subfranchisee was responsible for one or more of the
events of termination set forth above, then Subfranchisor may, at its option, terminate only the
individual Owners interest in the Subfranchisee, Dental Office and this Agreement. Such
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termination of an individual Owner shall be in conformance with the termination provisions set
forth in this Article 9. Should such termination of an individual Owner occur in a two-Owner
Subfranchise, then Subfranchisor shall have the right to replace the terminated Owner with a
contract dentist of Subfranchisors choice until Subfranchisor can locate a substitute Owner.
9. 2 By Master Franchi sor
Subfranchisor shall be primarily responsible for the enforcement of any right, remedy or
termination for a default as set forth in Section 9.1. However, Master Franchisor retains the right
to independently enforce any such right, remedy or termination under Section 9.1 as an intended
third party beneficiary thereunder.
9. 3 By Subfranchi see
If Subfranchisee is in full compliance with the terms of this Agreement, Subfranchisee
shall have the right to terminate this Agreement if Subfranchisor materially fails to comply with
this Agreement and fails to cure its default within thirty (30) days after receipt of written notice
of the default from Subfranchisee. Notwithstanding the foregoing, if the breach is curable but is
of a nature which cannot reasonably be cured within such thirty (30) day period, and
Subfranchisor has commenced and is continuing to make good faith efforts to cure the breach,
Subfranchisor shall be given an additional reasonable period of time to cure same, and this
Agreement shall not terminate.
9. 4 Obl i gati ons of Subfranchi see Upon Termi nati on or Expi rati on
Upon termination or expiration of this Agreement, Subfranchisee shall undertake each of
the actions set forth below:
(a) Cessation of Operations and Representations. Subfranchisee must immediately
cease operating the Dental Office, and must not thereafter, directly or indirectly, represent to the
public or hold itself out as a present or former Subfranchisee, licensee or dealer of Subfranchisor
or otherwise associated with Master Franchisor or Subfranchisor. All accounts receivable
uncollected on the date of termination of this Agreement shall become the property of
Subfranchisor;
(b) Vacate the Premises. The lease (or Sublease) agreement with Subfranchisor for
the Premises shall immediately terminate and Subfranchisee must vacate the Premises within two
(2) days of the termination date;
(c) Payment of Obligations. Subfranchisee must pay to Master Franchisor,
Subfranchisor and their affiliates all Royalty Fees, Consulting Fees, Marketing Fees, amounts
owed for services and products purchased by Subfranchisee from or through Master Franchisor,
Subfranchisor or their affiliates, other fees, any and all amounts or accounts payable then owed
and unpaid pursuant to this Agreement, or any dealings between Master Franchisor,
Subfranchisor or their affiliates, within five (5) calendar days of the termination. In the event of
termination for any default by Subfranchisee, these sums will include all damages, costs and
expenses including reasonable attorneys fees incurred by Master Franchisor, Subfranchisor or
their affiliates as a result of the default;
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(d) Non-Use of Confidential Information and Non-Affiliation. Subfranchisee must
immediately and permanently cease to use, in any manner whatsoever, any Confidential
Information including confidential methods, procedures and techniques associated with the
System and must not directly or indirectly at any time or in any manner identify itself or any
business as a current or former Dental Office, or as a subfranchisee, licensee or dealer of or
otherwise associated with Master Franchisor or Subfranchisor, or use the Marks, Original Works,
any colorable imitation thereof, signs, advertising materials, slogans, symbols, displays,
stationary, forms or other indicia of a Dental Office in any manner or for any purpose;
(e) Return of Manual and Proprietary Materials. Subfranchisee must immediately
deliver to Subfranchisor all manuals, including the Manual, records, files, instructions,
correspondence and materials including, without limitation, brochures, agreements, patient lists
and records, all Original Works, Confidential Information, signs, signfaces, catalogues,
advertising materials, equipment, fixtures, furnishings, movable leasehold improvements,
inventory, invoices, supplies, displays, stationary, forms and other materials bearing any Mark,
containing any Original Works, and any and all other materials relating to the operation of the
Dental Office in Subfranchisees possession, and all copies thereof. Subfranchisee shall retain
no copy or record of any of the foregoing except Subfranchisees copy of this Agreement and
any correspondence between the Parties;
(f) Cancellation of Assumed Name. Subfranchisee must take such action as may be
necessary to cancel any fictitious or assumed name or equivalent registration relating to the
Marks;
(g) Telephone Listings. Subfranchisee must promptly provide Notice to the
telephone company and all listing agencies of the termination or expiration of Subfranchisees
right to use any telephone number and any regular, classified or other telephone directory listings
associated with any of the Marks and to authorize transfer of same to or at the direction of
Subfranchisor;
(h) Payment of Damages and Expenses. Subfranchisee must pay to Master
Franchisor and Subfranchisor all damages, costs, and expenses, including reasonable attorneys
fees, incurred by Master Franchisor or Subfranchisor subsequent to the termination or expiration
of this Agreement in obtaining injunctive or other relief for the enforcement of any of the
provisions described herein;
(i) Compliance with Surviving Covenants. Subfranchisee and the other individuals
and entities required by Subfranchisor to execute this Agreement must comply with all of the
provisions of this Agreement which may survive the termination of this Agreement, including
but not limited to the provisions relating to Subfranchisees covenant not to compete and the
covenants relating to confidentiality. Any other person required to execute similar covenants
must also comply with same;
(j) Guarantor Obligations. All individuals and entities executing the Guaranty
Agreement attached to this Agreement as Exhibit V agree to adhere to the requirements of their
guaranty of Subfranchisees obligations under this Agreement; and
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(k) Evidence of Compliance. Subfranchisee must furnish to Subfranchisor, within ten
(10) days after the effective date of termination or expiration, evidence satisfactory to
Subfranchisor of Subfranchisees compliance with the provisions and obligations set forth above.
Should Subfranchisor terminate only an individual Owners interest in the Dental Office,
Subfranchisee and this Agreement, then such terminated Owner shall be obligated to do, or cease
to do, all appropriate and applicable activities set forth under this Article 9.
9. 5 Post-Termi nati on Covenant Not to Compete
(a) Subfranchisee and Affiliates. For a period of three (3) years from the effective
date of termination or expiration of this Agreement for any reason, or the date on which
Subfranchisee begins to comply with this Section 9.5, whichever is later, neither Subfranchisee
nor any affiliate or Owner shall have any direct or indirect interest as a disclosed or beneficial
owner, investor, partner, director, officer, employee, consultant, representative, agent or in any
other capacity in any Competitive Business located or operating within a five (5) mile radius of
Subfranchisees former Dental Office or within a five (5) mile radius of any other Comfort
Dental Dental Office existing on the later of the effective date of termination or expiration of
this Agreement or the date on which Franchisee begins to comply with this Section 9.5.
Subfranchisee and its affiliates and Owners expressly acknowledge that they possess skills and
abilities of a general nature and have other opportunities for exploiting such skills.
Consequently, enforcement of the covenants made in this Article 9 will not deprive them of their
personal goodwill or ability to earn a living. The term "Competitive Business" as used in this
Agreement shall mean any business operating, or granting franchises or subfranchises to others
to operate, a dental and/or orthodontics office or other business deriving more than ten percent
(10%) of its gross receipts from offering dental services (other than another Comfort Dental
Dental Office operated by Subfranchisee); provided, however, Subfranchisee shall not be
prohibited from owning securities in a Competitive Business if such securities are listed on a
stock exchange or traded on the over-the-counter market and represent five percent (5%) or less
of the total number of shares of that class of securities issued and outstanding. Subfranchisee
agrees that nothing in this Section 9.5 shall be construed to grant Subfranchisee any protected
territory. Nor shall Subfranchisee or any of its affiliates including, but not limited to, the persons
identified below solicit or induce any person to leave his/her employment with a Dental Office or
with Subfranchisor.
(b) Other Persons. Subfranchisee shall require and obtain execution of covenants
similar to those set forth in Section 9.5(a) above from any or all of the following:
(1) personnel employed by Subfranchisee who have received or will receive
any Confidential Information; and
(2) all Bound Parties and any other persons holding comparable managerial or
controlling positions or having any record or beneficial ownership interest in Subfranchisee.
Every such covenant must be in a form designated by Subfranchisor, including, without
limitation, specific identification of Master Franchisor, Subfranchisor and their affiliates as third-
party beneficiaries of such covenants with the independent right to enforce them. Failure by
Subfranchisee to obtain execution of these covenants will constitute a default under this
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Agreement. Subfranchisee is responsible for ensuring that such persons comply with the
covenants.
(c) Violation of Covenants. Any violation of the terms of the covenants not to
compete will result in irreparable injury to Master Franchisor, Subfranchisor and their affiliates
for which money damages will not completely compensate them, and Subfranchisee accordingly
consents to the issuance of a permanent injunction prohibiting any conduct by Subfranchisee in
violation of the terms of the covenants not to compete. The two (2) year period set forth in
Section 9.5(a) shall be tolled during the time of any violation of the terms of the covenants not to
compete. In addition to any other remedies or damages allowed under this Agreement, if
Subfranchisee breaches the covenants set forth in Sections 5.5 or 9.5, Subfranchisee shall pay
Master Franchisor a fee equal to Master Franchisor's then-current Initial Franchise Fee for each
Competitive Business or Branded Business opened in violation of the covenants, plus eight
percent (8%) of such business' gross sales until expiration of the noncompetition period set forth
herein.
9. 6 Cross Defaul t and Termi nati on
Any default by Subfranchisee under the terms of this Agreement, or under those of any
other agreement between Subfranchisee and Subfranchisor or their affiliates, shall be deemed a
default of each said agreement. Further, in the event of any termination of this Agreement or any
other agreement between Subfranchisee and Subfranchisor or their affiliates, Subfranchisor may,
at its option, terminate any or all said agreements.
9. 7 Conti nui ng Obl i gati ons and Other Rel i ef
All of the obligations of the Parties which expressly or by their nature survive the
expiration or termination of this Agreement shall continue in full force and effect subsequent to
and notwithstanding their expiration or termination until they are satisfied in full or by their
nature expire. Any termination under this Article 9 shall be without prejudice to any other rights
(including any right of indemnity), remedy or relief vested in or to which Master Franchisor or
Subfranchisor may otherwise be entitled against Subfranchisee. All moneys paid by
Subfranchisee to Subfranchisor under this Agreement shall be retained by Subfranchisor as
consideration for the rights and benefits previously conferred on Subfranchisee hereunder unless
specifically required to be returned by Subfranchisor according to this Agreement. The
foregoing remedy shall not exclude any of the remedies that Subfranchisor may have at law or in
equity, under the laws of Colorado, by reason of the default, breach or non-observance by
Subfranchisee of any provision hereof.
9. 8 Purchase by Subfranchi sor
Subfranchisor shall, in specific circumstances as set forth above, have the option of
purchasing the Assets (defined below) of the Dental Office. Within ten (10) days of notice of
Subfranchisors intent to purchase the Assets, Subfranchisee shall deliver to Subfranchisor, in a
form satisfactory to Subfranchisor, all bills of sale, assignments of accounts and other
intangibles, releases of liens and such other documents and instruments which Subfranchisor
deems necessary in order to transfer, and perfect, Subfranchisors title and possession in the
Assets and to meet the requirements of all taxing and other governmental authorities. Assets
includes all the equipment, supplies, inventory, furniture, fixtures, patient lists, accounts and
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files, leasehold interests and improvements and favorable rights and covenants of the Dental
Office. The purchase price for the Assets of the Dental Office shall be an amount equal to ten
percent (10%) of Subfranchisees Gross Collections for the previous twelve (12) months. In the
event that Subfranchisee has not been operating for twelve (12) months, the purchase price for
the Assets shall be an amount equal to ten (10%) of the average of the Gross Collections of the
months Subfranchisee has been operating multiplied by twelve (12). In the event Subfranchisor
terminates an individual Owner pursuant to this Article 9, the purchase price for its portion of the
Assets shall be an amount equal to ten (10%) of the individual Owners Gross Collections for the
previous twelve (12) months. The terms of Subfranchisors purchase of the Assets of the Dental
Office or an individual Owner, shall be twenty five percent (25%) of the purchase price paid at
closing, and the remaining balance paid in one hundred twenty (120) equal monthly payments,
with interest on the balance at either the prime interest rate charged by Subfranchisors primary
financial institution prevailing at the time of closing or ten percent (10%), at Subfranchisors
choice, with full privileges of prepayment of all or any part of the balance at any time without
penalty or bonus. In the event that Subfranchisor purchases the Assets of the Dental Office or an
individual Owner:
(a) Subfranchisor shall assume no liabilities whatsoever;
(b) In order to avoid interruption to the business, the Parties hereto expressly agree
that immediately upon Subfranchisors notice to purchase the Assets of the Dental Office,
Subfranchisor shall have the right to place its employees and agents on the Premises for the
purposes of continuing the operation of the business;
(c) Within twenty-four (24) hours of Subfranchisors notice to purchase the Assets of
the Dental Office, Subfranchisee shall deliver to Subfranchisor all patient files, records, invoices,
instructions, lists and related materials of whatever kind and character. Subfranchisee shall
retain no copy or record of any of the materials, except copies of any correspondence between
the Parties and of any other documents that Subfranchisee reasonably needs to comply with any
provision of law;
(d) Immediately after Subfranchisee receives notice of Subfranchisors intent to
purchase the Assets of the Dental Office, Subfranchisee shall also execute such Notices, letters
and confirmations to third parties that Subfranchisor shall require; and
(e) The transaction will be effected on Subfranchisors form purchase documents.
ARTICLE X
TRANSFER
10. 1 Transfer by Subfranchi see
Subfranchisee agrees that the rights and duties created by this Agreement are personal to
Subfranchisee (or its Owners, shareholders, partners or members if Subfranchisee is a
corporation, partnership, limited liability company, or other business entity) and that
Subfranchisor has entered into this Agreement in reliance upon Subfranchisor's perceptions of
the individual or collective character, skill, aptitude, attitude, business ability and financial
capacity of Subfranchisee (or its Owners, shareholders, partners or members). Accordingly,
without Subfranchisor's prior written consent, which will not be unreasonably withheld,
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Subfranchisee shall not Transfer (defined below) this Agreement (or any interest in this
Agreement), any part or all of the ownership of Subfranchisee, nor the Dental Office or all or a
substantial portion of its Assets. Any unauthorized Transfer is a breach of this Agreement, void
and of no effect. As used in this Agreement, the term Transfer includes Subfranchisee's (or an
Owner's) voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition of
any interest in: (i) this Agreement; (ii) the Subfranchisee entity; (iii) the Dental Office governed
by this Agreement; or (iv) all or a substantial portion of the Assets of the Dental Office. It also
includes an assignment of day-to-day operational responsibilities for the Dental Office pursuant
to the Manual, an operating agreement or otherwise. A Transfer of the Dental Office's
ownership, possession or control, or all or a substantial portion of its Assets, may be made only
with a Transfer of this Agreement. In addition, Subfranchisee may not assign or pledge this
Agreement or an ownership interest in Subfranchisee (other than to Subfranchisor) as additional
security for any loans or other financing. All Transfers are subject to the agreement entitled Buy
and Sell Agreement which is attached hereto as Exhibit VI and must be signed by each Owner of
record or beneficial interest in Subfranchisee.
10. 2 Pre-Condi ti ons to Subfranchi sees Transfer
Subfranchisee agrees that there may be no Transfers before the Dental Office has opened
for business. Subfranchisor shall not be obligated to approve a proposed Transfer unless
Subfranchisor determines that Subfranchisee (and its Owners) is in full compliance with this
Agreement and all other subfranchise agreements, if any, with Subfranchisor. The proposed
transferee and its owners must be individuals of good moral character and otherwise meet
Subfranchisor's then-applicable standards for subfranchisees.
If the proposed Transfer is of this Agreement and the Dental Office, day-to-day
operational responsibilities for the Dental Office, or a controlling interest in Subfranchisee, or is
one of a series of transfers (regardless of the time period over which these transfers take place)
which in the aggregate Transfer this Agreement and the Dental Office or a controlling interest in
Subfranchisee, all of the following conditions must be met before or concurrently with the
effective date of the Transfer:
(a) All amounts due and owing pursuant to this Agreement, other agreements or
otherwise (including under another subfranchise agreement) by Subfranchisee (or any other legal
entity in which Subfranchisee, or one of its Owners with at least a twenty-five percent (25%)
ownership interest in Subfranchisee, is an owner) to Master Franchisor, Subfranchisor, their
affiliates or third parties are paid in full;
(b) Subfranchisee has submitted all required reports and statements;
(c) Subfranchisee has not violated and is not in default under any provision of this
Agreement, the Sublease (or lease, as applicable) or any other agreement with Master Franchisor,
Subfranchisor or their affiliates (including another subfranchise agreement) during both the sixty
(60) day period before Subfranchisee requested Subfranchisor's consent to the Transfer and the
period between Subfranchisee's request and the effective date of the Transfer;
(d) The proposed transferee passes all required tests and satisfactorily completes the
initial training program, and the proposed transferee agrees to operate the Dental Office as a
Comfort Dental Dental Office, signs the then-current form of subfranchise agreement, the
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provisions of which may differ materially from any and all of those contained in this Agreement
and such other ancillary agreements as Subfranchisor may require for the Dental Office. The
new agreements will supersede this Agreement in all respects; provided, however, the transferee
will not be required to pay any Initial Franchise Fee and the Royalty Fees shall remain as seven
percent (7%) or eight percent (8%), as applicable, of the monthly Gross Collections;
(e) Subfranchisee provides Notice to Subfranchisor at least sixty (60) days prior to
the proposed effective date of the Transfer and includes information reasonably detailed to
enable Subfranchisor to evaluate the terms and conditions of the proposed Transfer, which at a
minimum includes a written offer from the proposed transferee;
(f) The proposed transferee provides information to Subfranchisor sufficient for
Subfranchisor to assess the proposed transferee's business experience, education, aptitude and
financial qualifications, and Subfranchisor approves the proposed transferee as a subfranchisee;
(g) Neither the transferee nor its owners or affiliates have an ownership interest in, or
perform services as a director, officer, manager, employee, consultant, representative, agent or
otherwise for, a Competitive Business;
(h) The proposed transferee agrees to renovate, refurbish, remodel or replace, at its
own cost, the real and personal property and equipment used in operating the Dental Office
within the timeframe specified by Subfranchisor in order to comply with Subfranchisor's and its
affiliates' then-current image, standards of operation and performance capability;
(i) Subfranchisor or Subfranchisee's landlord (if Subfranchisee has a direct lease with
the property owner) allows Subfranchisee to transfer the Dental Office's Sublease or lease to the
proposed transferee;
(j) If Subfranchisee or its Owners finance any part of the purchase price, such
financing, together with any third-party financing, either does not exceed the maximum debt
limits or debt service limits established from time to time by Master Franchisor or Subfranchisor
for the Dental Office or, to the extent it does exceed such maximum debt limits, the excess
portion of such financing is not secured by the Dental Office or its Assets. Subfranchisee and/or
its Owners further agree that all of the transferee's obligations under promissory notes,
agreements or security interests reserved in the Dental Office are subordinate to the transferee's
obligation to pay fees and other amounts due to Master Franchisor, Subfranchisor and their
affiliates and otherwise to comply with this Agreement;
(k) Subfranchisee, its Owners and guarantors execute a general release, in a form
prescribed by Master Franchisor, of any and all claims against Master Franchisor, Subfranchisor,
their affiliates, and their respective shareholders, officers, directors, employees and agents;
(l) Subfranchisee, its Owners and guarantors abide by all post-termination covenants,
including, without limitation, the covenants not to compete and covenants related to
confidentiality set forth herein; and
(m) Subfranchisee must remain liable for all obligations to Subfranchisor in
connection with the Dental Office prior to the effective date of the Transfer and must execute
any and all instruments reasonably requested by Subfranchisor to evidence such liability.
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If Subfranchisee is an individual transferring this Agreement and the Dental Office to an
entity wholly-owned by Subfranchisee, Subfranchisee agrees both to remain personally
responsible for the entity's performance of its obligations under this Agreement and to continue
to comply personally with all obligations under this Agreement. Neither the transferee nor its
owners may, without Subfranchisor's prior written consent, take over possession of the Dental
Office until the Transfer process has been completed. Subfranchisee acknowledges and agrees
that Subfranchisor may, but shall not be required to, release one or more guarantors of
Subfranchisees obligations upon Transfer.
If Subfranchisor approves the proposed Transfer, Subfranchisee or the proposed
transferee will pay Subfranchisor a transfer fee in an amount equal to: fifteen percent (15%) of
the total purchase price of such Transfer of all (or a part, as applicable) of its interest in the
Dental Office. Such transfer fee shall be paid according to the terms of the sale by promptly
paying fifteen percent (15%) of any initial lump sum payment at the time it is received and
fifteen percent (15%) of any additional payments when they are received by Subfranchisee. The
transfer fee shall include fifteen percent (15%) of any consulting fees received pursuant to any
Consulting Agreement agreed to as part of the Transfer, which fee is required to cover
Subfranchisor's reasonable expenses related to the Transfer, including training.
10. 3 Subfranchi sors Approval of Transfer
Subfranchisor has thirty (30) days from the date of Subfranchisees Notice to approve or
disapprove, in writing, the proposed transferee (assuming the conditions specified above have
been satisfied). Subfranchisee acknowledges that the proposed transferee shall be evaluated by
Subfranchisor based on the same criteria as those currently being used to assess new
subfranchisees and that the proposed transferee shall be provided with such disclosures required
by applicable law. Subfranchisor may review all information regarding the Dental Office that
Subfranchisee gives the transferee, and Subfranchisor may give the transferee copies of any
reports that Subfranchisee has given Subfranchisor, or that Subfranchisor has made regarding the
Dental Office.
10. 4 Transfer by Subfranchi sor
Subfranchisee represents that it has not signed this Agreement in reliance on any
shareholder, member, director, officer or employee remaining with Subfranchisor in that
capacity. Subfranchisor may change its ownership or form and/or assign this Agreement and any
other agreement without restriction. After Subfranchisors assignment of this Agreement to a
third party who expressly assumes the obligations under this Agreement, Subfranchisor no
longer will have any performance or other obligations under this Agreement.
10. 5 Transfer Upon Death or Total Di sabi l i ty
(a) Process. Upon the death or Total Disability of any Owner who practiced dentistry
at the Dental Office, the executor, administrator or personal representative of such deceased
Owner must transfer, within six (6) months after the date of death or the determination of Total
Disability, the Owners interest in Subfranchisee to an approved third party. If the interest is not
disposed of within the six (6) month period and this failure to dispose of the interest results in
there only being one (1) practicing Owner remaining, then Subfranchisor shall locate, with the
assistance of the remaining Owner, one (1) or more additional Owners acceptable to
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Subfranchisor. For purposes of this Agreement, Total Disability means any physical,
emotional or mental injury, illness or incapacity which would prevent the usual, active
participation of any Owner who was a licensed dentist practicing at the Dental Office, for at least
one hundred and eighty (180) consecutive days or, if the Owner maintains a disability insurance
policy, when such Owner is deemed to be totally disabled by the insurance company for
purposes of the disability insurance policy.
(b) Right to Operate. Upon the death or Total Disability of an Owner in a two (2)
dentist subfranchise, Subfranchisor, at its option, shall have the right to operate the Dental Office
for the account of the deceased or Totally Disabled Owner during the pendency of the Transfer
described above. Subfranchisor will be entitled to hire a contract dentist and to receive all
revenues from the contract dentists billings prior to the Transfer, and be obligated only for the
normal operating expenses incurred by the contract dentists patient workload. Subfranchisor
will only be obligated to exercise its reasonable supervision of the contract dentist and shall not
have any liability to Subfranchisee or creditors.
ARTICLE XI
DISPUTES
11. 1 Governi ng Law and Sel ecti on of Forum
Subfranchisee for itself and on behalf of its affiliates and the Bound Parties
acknowledges that Master Franchisor and its subfranchisors may grant numerous franchises and
other rights on terms and conditions similar to those set forth in this Agreement, and that it is of
mutual benefit that these terms and conditions be uniformly interpreted. Therefore, except to the
extent governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. 1051 et
seq.) or other federal law, this Agreement and all documents delivered hereunder shall be
interpreted under the laws of the State of Colorado, and any dispute between or among Master
Franchisor, the Parties, their affiliates or the Bound Parties, whether arising under this
Agreement or from any other aspect of their relationship, shall be governed by and determined in
accordance with the substantive laws of the State of Colorado, which laws shall prevail in the
event of any conflict of law. Master Franchisor and the Parties also agree for themselves and on
behalf of their affiliates and the Bound Parties that the exclusive forum for disputes between or
among them shall be in a court of general jurisdiction located in Denver, Colorado, and they each
waive any objection it might have to the personal jurisdiction of or venue in such courts.
11. 2 Wai ver of Jury Tri al
Master Franchisor, Subfranchisor, Subfranchisee and the Bound Parties each waive their
right to a trial by jury, and acknowledge that their waiver of jury trial rights provides the mutual
benefit of uniform interpretation of this Agreement and resolution of any dispute arising out of
this Agreement or any aspect of their relationship. Master Franchisor, Subfranchisor,
Subfranchisee and the Bound Parties acknowledge the receipt and sufficiency of mutual
consideration for such benefit.
11. 3 Li mi tati on of Cl ai ms
Subfranchisee and the Bound Parties agree not to bring any claim asserting that any of
the Marks are generic or otherwise invalid. Except with regard to Subfranchisee's obligation to
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pay Subfranchisor and its affiliates the Royalty Fees or any other fees or payments pursuant to
this Agreement or otherwise, any claims between or among Master Franchisor and the Parties
must be commenced within one (1) year from the date on which the Party (or Master Franchisor)
asserting the claim knew or should have known of the facts giving rise to the claim, or such
claim shall be barred. Master Franchisor and the Parties understand that such time limit might be
shorter than otherwise allowed by law. Subfranchisee and the Bound Parties agree that their sole
recourse for claims arising between Master Franchisor and the Parties shall be against Master
Franchisor, Subfranchisor or their successors and assigns. Subfranchisee and the Bound Parties
agree that the members, managers, shareholders, directors, officers, employees, and agents of
Master Franchisor, Subfranchisor and their affiliates shall not be personally liable nor named as a
party in any action between Master Franchisor, Subfranchisor, Subfranchisee and/or any Bound
Party. Master Franchisor, Subfranchisor, Subfranchisee and the Bound Parties further agree that,
in connection with any such proceeding, each must submit or file any claim which would
constitute a compulsory counterclaim (as defined by Rule 13 of the Federal Rules of Civil
Procedure) within the same proceeding as the claim to which it relates. Any such claim which is
not submitted or filed as described above will be forever barred. Master Franchisor and the
Parties agree that any proceeding will be conducted on an individual, not a class-wide, basis, and
that a proceeding between Master Franchisor, Subfranchisor, Subfranchisee and/or the Bound
Parties may not be consolidated with another proceeding between Master Franchisor or
Subfranchisor and any other person or entity, nor may any claims of another party or parties be
joined with any claims asserted in any action or proceeding between Master Franchisor,
Subfranchisor and Subfranchisee. Except for Subfranchisees obligation to indemnify Master
Franchisor, Subfranchisor and their affiliates, no Party will be entitled to an award of punitive or
exemplary damages (provided that this limitation shall not apply to statutory penalties such as
those set forth in 15 U.S.C. 1117(a)). Where litigation has been initiated regarding disputes
related to moneys due Master Franchisor or Subfranchisor, all payments required by this
Agreement shall be made by Subfranchisee pending a final decision in the matters being
litigated. No previous course of dealing shall be admissible to explain, modify or contradict the
terms of this Agreement. No implied covenant of good faith and fair dealing shall be used to
alter the express terms of this Agreement.
ARTICLE XII
MISCELLANEOUS
12. 1 Inval i di ty and Constructi on
If any provision of this Agreement is held invalid by any tribunal in a final decision from
which no appeal is or can be taken, such provision shall be deemed modified to eliminate the
invalid element, and, as so modified, such provision shall be deemed a part of this Agreement as
though originally included. The remaining provisions of this Agreement shall not be affected by
such modification. The language used in this Agreement shall be deemed to be language chosen
by both Parties to express their mutual intent, and no rule of strict construction against either
Party shall apply to any term, condition or provision of this Agreement.
12. 2 Enti re Agreement
This Agreement contains the entire agreement between the Parties and supersedes any
and all prior agreements concerning its subject matter. Subfranchisee agrees and understands
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that Subfranchisor shall not be liable or obligated for any oral representations or commitments
made prior to the execution of this Agreement or for claims of negligent or fraudulent
misrepresentation, and that no modifications of this Agreement shall be effective except those in
writing and signed by both Parties. Subfranchisor does not authorize and will not be bound by
any representation of any nature other than those expressed in this Agreement. Nothing
contained herein shall be deemed a waiver of any rights Subfranchisee may have to rely on
information contained in the franchise disclosure document. Subfranchisee further
acknowledges and agrees that no representations have been made to it by Subfranchisor or its
affiliates regarding projected sales volumes, market potential, revenues, profits of
Subfranchisees Dental Office or operational assistance other than as stated in this Agreement or
in any disclosure document provided by Subfranchisor or its representatives. Any policies that
Subfranchisor adopts and implements from time to time to guide it in its decision-making are
subject to change, are not a part of this Agreement and are not binding on Subfranchisor.
12. 3 Modi fi cati on
No amendment, waiver or modification of this Agreement shall be effective unless it is in
writing and signed by the Parties. Subfranchisee acknowledges that Master Franchisor or
Subfranchisor may modify the standards, specifications and operating and marketing techniques
set forth in the Manual unilaterally under any conditions and to the extent to which Master
Franchisor or Subfranchisor deem necessary to protect, promote or improve the Marks and the
System, as long as such modifications are not specifically prohibited by this Agreement.
Whenever Subfranchisor has reserved in this Agreement a right to take or to withhold an
action, or to grant or decline to grant Subfranchisee a right to take or omit an action,
Subfranchisor may, except as otherwise specifically provided in this Agreement, make its
decision or exercise its rights based on information readily available to Subfranchisor and its
judgment of what is in its and/or the System's best interests at the time Subfranchisor's decision
is made, without regard to whether Subfranchisor could have made other reasonable or even
arguably preferable alternative decisions or whether Subfranchisor's decision promotes its
financial or other individual interest. No field representative of Subfranchisor has the right or
authority to sign on behalf of Subfranchisor, or to make oral or written modifications to this
Agreement, and any such representations shall not be binding upon either Party hereto.
12. 4 Costs and Attorneys Fees
If either Party initiates a judicial or other proceeding, the prevailing Party will be entitled
to reasonable costs and expenses (including reasonable attorneys' fees incurred in connection
with such judicial or other proceeding).
12. 5 Ti tl es
The titles and subtitles of the various sections, paragraphs and subparagraphs of this
Agreement are inserted for convenience only and shall not be deemed to affect the meaning or
construction of any of the terms, conditions or provisions of this Agreement. The words
Subfranchisor and Subfranchisee herein shall be applicable to one or more parties, as the
case may be, the singular shall include the plural, and the masculine shall include the feminine
and neuter, and vice versa; and if there shall be more than one person referred to as the
Subfranchisee hereunder, then their obligations and liabilities herein shall be joint and several.
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12. 6 Injuncti ve Rel i ef and Remedi es
Subfranchisee acknowledges that its subfranchise is one of a number of subfranchises
using the Marks and style of conducting a Dental Office, and that the failure on the part of
Subfranchisee to comply with any of the terms of this Agreement could cause irreparable
damage to some or all of the other subfranchisees. Therefore, Subfranchisee agrees for itself and
on behalf of its affiliates that if Subfranchisee or its affiliates are in default of this Agreement, or
in the event of threatened breach by Subfranchisee or its affiliates of any of the provisions of this
Agreement, Master Franchisor and Subfranchisor shall have the immediate right, without notice
to Subfranchisee or its affiliates, to secure an order enjoining any such default or threatened
breach, and, if this Agreement has been terminated, Subfranchisee and its affiliates may be
enjoined from any continued operation of the Dental Office, or any other operation in violation
of this Agreement. This covenant shall be independent and severable and shall be enforceable,
notwithstanding any rights or remedies that Subfranchisor may have hereunder. Any specific
right or remedy set forth in this Agreement, legal, equitable or otherwise, shall not be exclusive,
but shall be cumulative upon the rights and remedies set forth herein, or allowed or allowable by
this Agreement or by law. The Parties agree that any claim for lost earnings or profits by
Subfranchisee shall be limited to a maximum amount equal to the net profits of the Dental Office
for the prior year as shown on Subfranchisee's federal income tax return. In the event this
Agreement is terminated by Subfranchisor based on Subfranchisees default, the Parties agree
that it would be difficult, if not impossible, to determine the amount of damages that
Subfranchisor would suffer. Therefore, the Parties agree that a reasonable estimate of damages
is the net present value of the Royalty Fees and all other fees that would have become due
following termination of this Agreement for the period this Agreement would have remained in
effect but for Subfranchisee's default. Royalty Fees and other fees for purposes of this provision
shall be calculated based on the Dental Office's average monthly Gross Collections for the
twelve (12) months preceding the termination date.
12. 7 Ri ght of Offset
Notwithstanding any other provision of this Agreement, upon the failure of
Subfranchisee to pay any sum of money due to Subfranchisor or its affiliates, as and when due,
Subfranchisor may, at its election, deduct all such sums remaining unpaid from any monies or
credit held by Subfranchisor for the account of Subfranchisee.
12. 8 No Wai ver
No waiver of any condition or covenant contained in this Agreement, or failure to
exercise a right or remedy, by the Parties shall be considered to imply or constitute a further
waiver by either Party of the same or any other condition, covenant, right or remedy.
12. 9 Bi ndi ng Nature and Survi val
The terms, conditions and provisions contained herein shall be binding upon and inure to
the benefit of the permitted heirs, executors, administrators other legal representatives,
successors and assigns of the Parties hereto. All of the Parties (and their Owners) obligations
which expressly or by their nature survive this Agreements expiration or termination will
continue in full force and effort subsequent to and notwithstanding its expiration or termination
and until they are satisfied in full or by their nature expire (including, without limitation, the
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post-termination restrictive covenant, dispute resolution and notice, and confidentiality
provisions).
12. 10 Del egati on and Thi rd Party Benefi ci ary
Subfranchisor shall have the right to delegate the performance of any portion or all of its
obligations and duties under this Agreement to third parties, whether the same are agents or
affiliates of Subfranchisor and/or independent contractors with which Subfranchisor has
contracted to provide such services. Subfranchisee agrees in advance to any such delegation by
Subfranchisor of any portion or all of its obligations under this Agreement to all such third
parties. Subfranchisee acknowledges and agrees that Subfranchisor may not be bound, and this
Agreement may not be modified, by any third party without Subfranchisor's prior written
consent. Subfranchisee acknowledges and agrees that any delegation of Subfranchisor's duties
and obligations to third parties does not assign or confer any rights under this Agreement upon
such third parties and that such third parties are not third party beneficiaries of this Agreement.
However, the Parties hereby intend, agree and acknowledge that Master Franchisor,
Comfort Dental Group, Inc. (and its affiliates), is an intended third-party beneficiary and shall
have the right, at its option, to independently enforce any term, condition or provision of this
Agreement, including but not limited to those dealing with the System, the Marks, proprietary
rights, confidentiality, non-competition, advertising, fees, modification, standards and
specifications, default and termination, and approved Vendors.
12. 11 Noti ces
Any notification Notice required to be given by Subfranchisee under this Agreement
shall be given in writing, by certified mail, return receipt requested, or by any delivery service
providing documentation of receipt, at the address set forth for Subfranchisor in the preamble of
this Agreement, or at such other address as Subfranchisor may designate from time to time, and
shall be deemed delivered on the date shown on the return receipt or in the courier's records as
the date of delivery.
12. 12 Consi derati on
The Parties acknowledge that the consideration given and to be given one to the other in
this Agreement is conclusively fair, adequate and sufficient;
12. 13 Si gnatures and Authori ty
The Parties represent and warrant that the signatures appearing below are their true,
genuine, original and undeniable signatures. Each Party further warrants that it has full authority
to sign and execute this Agreement on behalf of itself and its affiliates. The individuals
executing this Agreement on behalf of Subfranchisee warrant to Subfranchisor, both individually
and in their capacities as representatives of Subfranchisee, that all of the Owners of
Subfranchisee and their affiliates have read and approved this Agreement, including, but not
limited to, any restrictions which this Agreement places upon the right to Transfer their interests,
the non-competition and confidentiality covenants and the dispute resolution provisions.
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12. 14 Vol untary Executi on
The Parties represent and warrant that each has freely and voluntarily executed this
Agreement without duress, coercion, improper persuasion or other form of undue influence.
12. 15 Recei pt
Subfranchisee acknowledges that it has had a copy of the Franchise Disclosure Document
in its possession for not less than fourteen (14) full calendar days, during which time
Subfranchisee has had the opportunity to submit same for professional review and advice of
Subfranchisee's choosing prior to freely executing this Agreement.
12. 16 Acknowl edgment
BEFORE SIGNING THIS AGREEMENT, SUBFRANCHISEE SHOULD READ IT
CAREFULLY WITH THE ASSISTANCE OF LEGAL COUNSEL. SUBFRANCHISEE
ACKNOWLEDGES THAT:
(a) THE SUCCESS OF THIS BUSINESS VENTURE INVOLVES SUBSTANTIAL
RISKS AND DEPENDS UPON SUBFRANCHISEE'S ABILITY AS AN INDEPENDENT
BUSINESSPERSON AND ITS ACTIVE PARTICIPATION IN THE DAILY AFFAIRS OF
THE BUSINESS, AND
(b) SUBFRANCHISEE HAS NOT BEEN GIVEN ANY ASSURANCE OR
WARRANTY, EXPRESS OR IMPLIED, BY SUBFRANCHISOR OR ITS
REPRESENTATIVES AS TO THE POTENTIAL SUCCESS OF THE BUSINESS, THE
VIABILITY OF ANY BUSINESS LOCATION OR THE EARNINGS LIKELY TO BE
ACHIEVED FROM THE OPERATION OF THE BUSINESS, NOR HAS SUBFRANCHISEE
RELIED UPON ANY SUCH ASSURANCE OR WARRANTY IN EXECUTING THIS
AGREEMENT; AND
(c) NO STATEMENT, REPRESENTATION, OR OTHER ACT, EVENT, OR
COMMUNICATION, EXCEPT AS SET FORTH IN THIS DOCUMENT AND IN ANY
FRANCHISE DISCLOSURE DOCUMENT SUPPLIED TO SUBFRANCHISEE, IS BINDING
ON SUBFRANCHISOR IN CONNECTION WITH THE SUBJECT MATTER OF THIS
AGREEMENT.
[signature page to immediately follow]
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IN WITNESS WHEREOF, the Parties have executed this Subfranchise Agreement as of the
Effective Date stated below.
CDMO, Inc.

By:
Print Name:
Title:
*Date:
*(Effective Date of Subfranchise Agreement)

[Name of SUBFRANCHISEE]:
Sign here if you are taking the subfranchise as an Sign here if you are taking the subfranchise as a

INDIVIDUAL(S)
(Note: use these blocks if you marked in Exhibit IX
that you are an individual or a partnership but the
partnership is not a separate legal entity)
CORPORATION, LIMITED LIABILITY
COMPANY OR PARTNERSHIP

Signature

Print Name of Legal Entity
Print Name: By:
Date:
Signature
Print Name:
Title:
Signature
Date:
Print Name:
Date:


Signature

Print Name:
Date:


Signature

Print Name:
Date:

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E
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REDACTED - CONFIDENTIAL
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EXHIBIT
K
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