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HomeMy WebLinkAbout06-1556 THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA vs. - - No : ©G - / 5 S4 C6,;( /e SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants NOTICE You have been sued in court. If you wish to defend against the claims set forth in the following pages, you must take action within twenty (20) days after this Complaint and Notice are served, by entering a written appearance personally or by an attorney and filing in writing with the court your defenses or objections to the claims set forth against you. You are warned that if you fail to do so the case may proceed without you and a judgment may be entered against you by the court without further notice for any money claimed in the Complaint or for any other claim or relief requested by the Plaintiff. You may lose money or property or other rights important to you. YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO NOT HAVE A LAWYER OR CANNOT AFFORD ONE, GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW TO FIND OUT WHERE YOU CAN GET LEGAL HELP. Cumberland County Bar Association 32 South Bedford Street Carlisle, PA 17013 Telephone No.: (717) 249-3166 CPH 3709720 THOMAS SMARSH, D.C,, Plaintiff vs. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA No.: 0l:, - COMPLAINT Plaintiff, Thomas Smarsh, D.C., by and through his attorneys, Post & Schell, P.C., files this Complaint through which he seeks declaratory and equitable relief and, in support hereof, states as follows: Plaintiff, Thomas Smarsh, D.C. ("Dr. Smarsh"), is an adult individual and a doctor of chiropractic with a principal place of business at 3514 Trindle Road, Camp Hill, Pennsylvania. 2. Defendant is Spinal-Aid Centers of America, Inc. ("Spinal-Aid"), a Florida corporation with its principal business office at 44175 East Bay Drive, Suite 104, Clearwater, Florida. 3. Defendant Frank Liberti, D.C. ("Liberti") is, upon information and belief, the owner of Defendant Spinal-Aid with a business office address the same as Defendant Spinal-Aid. 4. At all times relevant hereto, Defendant Liberti worked in concert with and used Spinal-Aid for his individual, personal benefit. 5. This is an action for declaratory judgment pursuant to 42 Pa. C.S. §7531 et seq. to determine the respective rights and liabilities of the parties hereto under the laws of the Commonwealth of Pennsylvania. 6. This Court has jurisdiction over this matter pursuant to 42 Pa. C.S. §7531 et seq., 42 Pa. C.S. §931 and 42 Pa. C.S. §5322. 7. Venue is proper in this County pursuant to Pa. R. Civ. P. 2179(a)(2), (3), (4) and (5). FACTUAL BACKGROUND 8. Defendants purports to have developed and own a propriety business system under the trade name "Spinal-Aid Centers" that: enables qualified professionals including chiropractors, medical doctors and osteopaths to provide to patients, diagnostic, prescriptive deep compression-rehab neck and back programs, general medical services for prevalent ailments and offers therapeutic resolution of neuro-muscular skeletal problems using our proprietary intellectual properties including its trade secrets, confidential manuals, copyrighted materials, administrative systems, patient evaluation forms, management and billing control systems, marketing methods, advertising and promotional materials, training and supervision programs, layout and design specifications (collectively the "Proprietary Materials")." See Franchise Agreement attached hereto as Exhibit "A." 9. The Defendants permit qualified professionals to use the Proprietary Materials and certain purported proprietary marks by entering into a franchise agreement with the qualified professional. 10. The franchise agreement, together with a franchise offering circular, sets forth the rights granted to the franchisee-qualified professional by the Defendants and specifically sets -2- forth the obligations of the franchisee-quatified professional and closely regulates the use of the Proprietary Materials and the alleged proprietary marks. 11. As part of the Defendants' franchise system (the "Franchise System"), franchisees operate independently-owned Spinal-Aid Centers pursuant to the terms of the franchise agreement. 12. In the fall of 2005, Dr. Smarsh began negotiating with the Defendants, specifically in the person of Liberti, for a franchise agreement through which Dr. Smarsh could independently own and operate a Spinal-Aid Center. 13. In the fall of 2005, Defendants sent to Dr. Smarsh the standard franchise agreement, along with its franchise offering circular. 14. Dr. Smarsh did not sign that form franchise agreement. 15. Dr. Smarsh attempted to negotiate with Defendants, through Liberti, over certain terms and provisions that were set forth in the form franchise agreement, including the amount of the initial franchise fee. 16. With respect to the initial franchise fee, at some point Dr. Smarsh was advised that the purchase price discount was $24,995.00. 17. Dr. Smarsh continued to negotiate with Defendants concerning the initial franchise fee. 18. Ultimately, Dr. Smarsh believed that he reached an agreement with Defendants that the initial franchise fee would be $22,500.00. 19. Dr. Smarsh tendered a check to Defendants in the amount of $22,5000.00. 20. Defendants cashed the check for said sum of money. - 3 - 21. Unknown to Dr. Smarsh, at this same point in time, and continuing for a period of several months thereafter, Liberti and Spinal-Aid were negotiating with another doctor of chiropractic for the same franchise rights in the same zip code area as that which Dr. Smarsh believed he would secure.. 22. In addition to negotiating the amount of the initial franchise fee, Dr. Smarsh also attempted to negotiate certain changes to other terms and provisions of the franchise agreement. 23. Specifically, Dr. Smarsh demanded changes to Sections: 3.02; 4.03; 4.06; 6.05; 7.06; 7.09; 7.10; 7.12; 8.07; 8.09; 8.11; 9.04; and Exhibit C, section 5. 24. By way of e-mail dated October 10, 2005, Liberti and Spinal-Aid addressed most, if not all, of the issues that Dr. Smarsh had with the standard franchise agreement. A true and correct copy of Defendant Liberti's October 10, 2005 e-mail is attached hereto as Exhibit "B." 25. In that e-mail, Defendants advised, in relevant part, that: You will find that we are agreeable to most, if not all, of your considerations. You will simply make an ink line through the items in question, make a small circle to place your initials and fax to me so that I can do the same. OK? Look forward to a future in business together. See Exhibit "B." 26. Dr. Smarsh followed Defendants' instructions and faxed to Defendants the franchise agreement with changes and interlineations; this revised agreement was signed by Dr. Smarsh and dated October 14, 2005. A true and correct copy of this franchise agreement is attached hereto as Exhibit "A." 27. Defendant Liberti also advised Dr. Smarsh that, to participate in the Spinal-Aid Center Franchise System, Dr. Smarsh was required to purchase a special decompression table sold by American Back Solutions. -4- 28. Based on his belief that he had reached an agreement with Defendant Spinal-Aid to own and operate a Spinal-Aid Center, and based on Defendant Liberti's statement that Dr. Smarsh was required to purchase that specific table in order to participate in the Franchise System, Dr. Smarsh purchased the required table for the price of $50,945.00. Attached hereto as Exhibit "C" is a copy of Dr. Smarsh's check reflecting this acquisition. 29. Subsequent to Dr. Smarsh's execution of the franchise agreement, Defendant Spinal-Aid failed to provide to Dr. Smarsh certain materials and information that was required to be provided to Dr. Smarsh, including certain advertisements and a compliance compact disc. 30. On December 30, 2005, Dr. Smarsh received an e-mail from counsel for Defendant Spinal-Aid advising that Dr. Smarsh is in default under the franchise agreement "_ for failing to follow the required specifications for the wall system, a [sic] integral component of the franchise." A true and correct copy of this December 30, 2005 e-mail is attached hereto as Exhibit "D." 31. Dr. Smarsh took steps to eliminate the purportedly offending trade dress. 32. By way of letter dated January 25, 2006, Dr. Smarsh was advised by counsel to Defendant Spinal-Aid that he is in default under the franchise agreement in that: 1. You have failed to pay the balance of the Initial Franchise Fee of $2,500. 2. You have failed to institute the Payment System as required by Section 7.12 of the Franchise Agreement. 3. You have failed to pay timely the Management Fees (currently $349) as required in Section 7.11 of the Franchise Agreement. 4. You have failed to document expenditures for the local advertising as required in Section 7.10 of the Franchise Agreement. 5. You have failed to reimburse my client for design work performed in the amount of $300. -5- 6. You have not supplied my client with the documentation of spending at least $3,500 for grand opening advertising activities. 7. You have not supplied my client a copy of your Spinal Aid Center fictitious name registration with the Commonwealth of Pennsylvania. 8. You have not supplied my client with a Certificate of Insurance that complies with Section 6.4 of the Franchise Agreement. A true and correct copy of this correspondence is attached hereto as Exhibit "E." 33. Many of the alleged defaults as set forth in the January 25, 2006 correspondence involve terms that were changed by Dr. Smarsh and to which Dr. Smarsh believed that the Defendants had agreed. 34. Specifically, Dr. Smarsh believed that: (a) he and Defendants reached an agreement that the initial franchise fee would be $22,500.00; (b) Defendants agreed to eliminate from the contract Section 7.12, which pertains to the institution of a payment system; (c) Defendants agreed to eliminate from the franchise agreement Section 7. 10, which pertains to local advertising; and (d) no obligations arose for grand opening advertising because he did not have any grand opening insofar as he never received any advertisements. 35. Defendants, however, never provided to Dr. Smarsh a copy of the franchise agreement signed by Defendant, Spinal-Aid. 36. Based on the above, Dr. Smarsh reasonably reached the conclusion that Defendant Spinal-Aid did not accept or consent to the several modifications and revisions to the franchise agreement. 37. By way of letter dated February 2, 2006, counsel for Dr. Smarsh sent to counsel for Defendants a letter advising of the same and demanding: (a) the return of the initial franchise -6- fee; (b) that Defendants purchase the decompression table; and (c) that certain compensatory damages be paid. A true and correct copy of this correspondence is attached hereto as Exhibit "F." 38. By way of letter dated February 15, 2006, counsel for Defendant Spinal-Aid sent to Dr. Smarsh a Notice of Termination of Franchise Agreement and made certain demands, all of which are more fully set forth therein. A true and correct copy of this correspondence is attached hereto as Exhibit "G." COUNTI DECLARATORY RELIEF THOMAS SMARSH, D.C. V. SPINAL-AID CENTERS OF AMERICA, INC. AND FRANK LIBERTI, D.C. 39. Paragraphs I through 38 hereof are incorporated herein by reference. 40. Defendants offered Dr. Smarsh the opportunity to participate in the Franchise System pursuant to the terms of a franchise agreement. 41. Dr. Smarsh did not accept Defendants' offer. 42. Dr. Smarsh submitted a counter-offer to Defendants by modifying Defendant Spinal-Aid's standard franchise agreement. 43. Dr. Smarsh paid an initial franchise fee to Defendant Spinal-Aid to which he believed that the Defendant Spinal-Aid agreed. 44. Dr. Smarsh purchased a specific decompression table based on both Defendants' representations that the table at issue was required equipment for a Spinal-Aid Center. 45. Dr. Smarsh purchased a specific decompression table based on his belief that Defendant Spinal-Aid agreed to Dr. Smarsh's terms. 46. Dr. Smarsh altered his financial position based on the belief that the parties reached an agreement. -7- 47. The franchise agreement, with Dr. Smarsh's modifications, was not executed by Defendant Spinal-Aid. 48. Defendants never provided Dr. Smarsh with an executed copy of the modified franchise agreement. 49. As the correspondence from Defendant's counsel at Exhibit "E" reflects, Defendant Spinal Aid did not agree that the initial franchise fee to be paid by Dr. Smarsh would be in the amount of $22,500.00. 50. As the correspondence from Defendants' counsel at Exhibit "E" reflects, Defendant Spinal Aid did not agree to the modifications made by Dr. Smarsh with respect to the other terms of the franchise agreement. 51. Dr. Smarsh and Defendant Spinal-Aid did not mutually assent to the same terms of the franchise agreement. 52. No "meeting of the minds" occurred between Dr. Smarsh and Defendant Spinal- Aid as to the terns of the franchise agreement. 53. No franchise agreement exists between Dr. Smarsh and Defendant Spinal-Aid. 54. Dr. Smarsh, however, paid to Defendant Spinal-Aid the sum of $22,500.00. 55. Defendants will be unjustly enriched if permitted to retain Dr. Smarsh's initial franchise fee. 56. Additionally, in reliance on the representations of both Defendants, Dr. Smarsh purchased a decompression table for the sum of $50,945.00. 57. Dr. Smarsh cannot otherwise use that decompression table in his practice. 58. Based on all of the preceding allegations, a present controversy exists between Dr. Smarsh and both Defendants. - 8 - WHEREFORE, Plaintiff Thomas Smarsh, D.C., respectfully requests that this Honorable Court enter an Order: (a) Declaring that "no meeting of the minds" occurred between Dr. Smarsh and Defendant Spinal-Aid as to the terms of the agreement; (b) Declaring that no franchise agreement exists between Dr. Smarsh and Defendant Spinal-Aid; (c) Requiring Defendant Spinal-Aid to return to Dr. Smarsh the initial franchise fee that was paid by Dr. Smarsh in the amount of $22,500.00; (d) Directing either Defendant Spinal-Aid or Liberti to take possession of the decompression table and compensate Dr. Smarsh for the same in the sum of $50,945.00; and (e) Awarding such other relief to Dr. Smarsh as this Court deems just and reasonable. COUNT If UNJUST ENRICHMENT THOMAS SMARSH, D.C. V. SPINAL-AID CENTERS OF AMERICA, INC. 59. Paragraphs 1-58 hereof are incorporated herein by reference. 60. Dr. Smarsh transferred to Defendant Spinal-Aid the sum of $22,500.00 believing that he had a valid contract with Defendant. 61. No valid contract exists between Dr. Smarsh and Defendant. 62. If Defendant is permitted to keep the sum of $22,500.00, Defendant will be unjustly enriched. WHEREFORE, Plaintiff Thomas Smarsh, D.C., respectfully requests that this Honorable Court enter judgment in his favor and against Defendant in the sum of $22,500.00, together with interest, costs and such other relief as this Court deems just and reasonable -9- COUNT III ESTOPPEL THOMAS SMARS. D.C. V. SPINAL-AID CENTERS OF AMERICA INC. AND FRANK LIBERTI D.C. 63. Paragraphs 1 through 62 hereof are incorporated herein by reference. 64. Based on Dr. Smarsh's communications with Defendants, including the exchange of e-mails, Dr. Smarsh reasonably believed that he had reached an agreement with Defendant Spinal-Aid to own and operate a Spinal-Aid Center pursuant to the terms of the franchise agreement, dated October 14, 2005, as modified by Dr. Smarsh, which agreement is attached hereto as Exhibit "A." 65. Defendant Liberti, on behalf of himself and co-Defendant, advised Dr. Smarsh that he was required to purchase a special decompression table if he wanted to participate in Defendant's Franchise System. 66. Defendants' representations intentionally or negligently caused Dr. Smarsh to believe that Defendant Spinal-Aid accepted Dr. Smarsh's proposed revisions to the franchise agreement and that an agreement was reached between the parties. 67. Dr. Smarsh justifiably relied upon those representations. 68. As a result of those representations, Dr. Smarsh purchased the special decompression table for the sum of $50,945.00. 69. But for Defendants' inducement, Dr. Smarsh would not have purchased the decompression table at issue. 70. Dr. Smarsh has no use or need for the decompression table that he purchased since no franchise agreement exists between the parties and Dr. Smarsh cannot operate a Spinal- Aid Center. 10- 71. As a result of the promises and representations of Defendants, Dr. Smarsh changed his position, to his detriment, with the acquisition of the decompression table which was needed for the operation of a Spinal-Aid Center. 72. Dr. Smarsh has been damaged as a result of Defendants' actions. 73. Dr. Smarsh seeks relief from this Court through which a remedy can be fashioned to compensate Dr. Smarsh for the damages that he sustained and to do equity. WHEREFORE, Dr. Thomas Smarsh, D.C., respectfully requests that this Honorable Court enter an Order: (a) Directing Defendants to pay Dr. Smarsh the sum of $50,945.00, together with interest thereon; (b) Directing Defendants to take custody and possession of the decompression table at issue; (c) Awarding Dr. Smarsh his costs; and (d) Awarding such other relief, or fashioning such other remedy, as this Court deems just and reasonable. Respectfully submitted, Dated: March t ', 2006 POST & SCHELL, P.C. Jam0s,1. Kutz, Esquire Attorney ID #21589 jkutz apostschell.com Barbara A. Zemlock, Esquire Attorney ID #58891 bzemlocK? ostschell.com 17 North Second Street, 12`h Floor Harrisburg, PA 17101 (717) 731-1970 Attorneys for Plaintiff, Thomas Smarsh, D.C. -11- I w 'J L I' Gul X X11 ?? ? ? /? FRANCHISE ,?` ? THIS AGREEMENT is signed on _ 10/1 00_ 2005 (the "Effective Date") between Spinal-Aid Centers of America, Inc., a Florida corporation having its principal business offices at 44 t 75 East Bay Drive, Suite 104, Cle ater, Florida 33764 and Thomes svn t4sA , an individual residing in the state of N/+. having his or er principal business address at; _ 17 A? ? I'd 17011 This Agreement is written in an informal style to make it easy to read and to help you become thoroughly familiar with all of the important rights and obligations that this Agreement covers before you sign it. In this Agreement, Spinal-Aid Centers of America, Inc. is referred to as the "Franchisor," "we," "us" or "bur." You are referred to as the "Franchisee," `you" or "your." A. We have developed and own a proprietary business system under the trade name "Spinal Aid Centers" that enables qualified professionals including chiropractors, medical doctors and osteopaths to provide to patients, diagnostic, prescriptive decompression - rehab neck and back programs, general medical services for prevalent ailments and offers therapeutic resolution of neuro-muscular skeletal problems using our proprietary intellectual properties including its trade secrets, confidential manuals, copyrighted materials, administrative systems, patient evaluation forms, management and billing control systems, marketing methods, advertising and promotional materials, training and supervision programs, layout and design specifications (collectively the "Proprietary Materials"). B. We continue to expend our time, money and other valuable resources to further develop the Proprietary Materials, all of which may be changed and improved from time to time by us, to meet the developing needs of all Franchisees who operate their independently-owned Spinal Aid Center (the "Franchise System"), and to integrate into the Franchise System such new or substitute Proprietary Materials, programs, protocols, procedures, systems, services, activities and products as we, in our sole discretion, deem essential and in the best interests of the Franchise System. C. We continue to develop, use and control the Proprietary Materials for our benefit and exclusive use and our Franchisees in order to identify for the public the source, uniformity and high quality standards of decompression - rehab neck .and back services provided to patients throughout the Franchise System and to maintain the high standard of quality associated with such services and products throughout the Franchise System. D. We are the owner of the exclusive franchising rights and the Spinal Aid Center service mark and such other service marks, trademarks, trade names, distinctive trade dress and logotypes as are now designated or may hereafter be designated by the Franchisor for use in connection with the Franchise System (the 'Proprietary Marks"). E. You desire to become associated with the Franchise System and to purchase the rights to operate one franchised Spinal Aid Center within the Operating Territory described below for the sole purpose of using the Proprietary Materials to provide decompression - rehab neck and back patient services and products under the Proprietary Marks. F. You understand and acknowledge the importance of maintaining our high and uniform standards of quality and service, the necessity of maintaining the Proprietary Materials in strict confidence and the obligation to operate the Spinal Aid Center in conformity with our standards and specifications in order to protect and preserve the goodwill of the Proprietary Marks and the Franchise System. G. You acknowledge having read this Agreement together with our Franchise Offering Circular and accept the terms, conditions and covenants contained in this Agreement as being reasonably necessary to maintain the integrity and reputation of the Franchise System and to protect and preserve the goodwill of the Proprietary Marks and Proprietary Materials. ?zc The parties agree as follows: 1.00 RIGHTS GRANTED BY FRANCHISE AGREEMENT 1.01 INITIAL FRANCHISE FEE In consideration of your payment to us of $ (the "Initial Franchise Fee"), receipt of which is acknowledged, we grant to you the right to own and operate a franchised Spinal Aid Center using the Proprietary Materials and Proprietary Marks in compliance with the terms and conditions of this Agreement within the Operating Territory. 1.02 LICENSE OF PROPRIETARY PROPERTY We grant to you a license to use the Proprietary Marks and Proprietary Materials in compliance with the terms and conditions of this Agreement and the Proprietary Information Agreement, attached as Exhibit C to the Franchise Offering Circular and incorporated herein by this reference, both of which agreements have been signed concurrently by you upon payment of the Initial Franchise Fee. 2.00 TERRITORIAL GRANT AND GEOGRAPHICAL RESTRICTIONS 2.01 OPERATING TERRITORY You are granted a conditionally exclusive franchise and license to use the Proprietary Marks and the Proprietary Materials within the geographic area (the "Operating Territory") encompassed by a radius from the premises having a population of at least 100,000 persons and whose center is the approved location of the Spinal Aid Center (the "Franchise Premises"). The approved location of the Spinal Aid Center and the Operating Territory will be described and delimited upon a high resolution map section attached as Schedule A. The Operating Territory will, in certain situations, may be so densely populated that more than one Spinal Aid Center will be required to adequately service the patients within the population base. If the Operating Territory proves to be one that requires more than one Spinal Aid Center to service the patient population, we will not grant anyone else a license or franchise to operate any other Spinal Aid Center within the Operating Territory without first offering you the right of first refusal for 30 days to own and operate the proposed additional Spinal Aid Center. If you fail to timely exercise your right of first refusal, the conditionally exclusive rights granted will not bar the opening and operation of additional Spinal Aid Centers by qualified individuals or entities. Before opening any new or additional Spinal Aid Centers, the closest franchise to any new proposed area has the right of first refusal for 30 days to purchase that territory. 2.02 FRANCHISE PREMISES If you have sufficient space available at your existing office location to commence operation of your Spinal Aid Center in compliance with our standards and specifications, the address of that location will be included on Schedule A as the Franchise Premises upon signing this Agreement. If you have not found a suitable location for the Spinal Aid Center before signing this Agreement, the street address for the Franchise Premises will he left blank on Schedule A until such time that you locate and secure a Franchise Premises acceptable us. You will, within 60 days from the Effective Date (the "Location Period"), agree in writing on Schedule A to a suitable Franchise Premises from which you will operate your Spinal Aid Center continuously and without interruption during the Term. We reserve the right, in our sole discretion upon your showing of good cause, reasonable diligence and good faith to grant you an extension to the Location Period of not more than 60 days in which to locate and secure the Franchise Premises. Any extension of the Location Period or allowances of more time by us will not in any way effect your obligation to begin operation of the Spinal Aid Center within the maximum time limit of 180 days from the Effective Date. The street address of the Franchise Premises is an integral part of this Agreement since it serves to define the Operating Territory and therefore must be included in Schedule A before you begin any business using the Proprietary Marks or Proprietary Materials in the Operating Territory. The address of the Franchise Premises will be updated as necessary by amendments to Schedule A which the parties will sign and date in witness of their mutual acceptance. You agree that you will not relocate the Franchise Premises within the Operating Territory without our prior written approval, which approval will not unreasonably withheld. 2.03 RESTRICTIONS UPON FRANCHISEE You expressly acknowledge that the grant of the Operating Territory does not confer upon you any exclusive marketing or advertising rights in the Operating Territory. To the contrary, you acknowledge that we will, on a regional and national basis, engage in marketing and advertising programs that will, directly or indirectly, service the Operating Territory and enhance public recognition of the Proprietary Marks and the services provided by Franchisees throughout the Franchise System. We do not require our Franchisees to provide goods or services solely to individuals residing within their respective operating Territories. However, you will not, within the operating territory of any other Spinal Aid Center (whether company-owned, franchised or otherwise established), provide any Spinal Aid Center services or products, or publish any materials, which solicit customers to or otherwise advertise the services offered from or through its Franchise Premises. In addition, you will not advertise outside of the Operating Territory without our prior written consent, which may be withheld in our sole discretion. 3.00 TERM AND RENEWAL 3.01 INITIAL TERM The initial term of this Agreement is 5 years (the "Term"), unless otherwise terminated sooner in accordance with the provisions of this Agreement. 3.02 RENEWAL TERM If are not in default under the terms of this Agreement, you may renew the Franchise for additional periods of 5 years each. If electing to renew, you must exercise your renewal option by giving us written notice by certified mail or personal delivery at least 180 days before the end of the Term. You will not be required to pay the then current initial Franchise Fee upon renewal of the Franchise but will pay a renewal fee of $1,000. Notwithstanding any provision to the contrary in this Agreement or in the renewal Franchise Agreement, if you renew this Agreement, you will not be required to pay a Management Fee in excess of the prevailing Management Fee assessed to new franchisees. Y cknowledge that we may, as a obliga ' , pursuant to the then existing form of set in this Agreement. You further acknov u to spend up to $50,000 on Jeasehold imnroae on granting a renewal, require you e Agreement, which may differ substa that we may also, as a condition of and otherwise to upgrade or renovthe top rm duties and 6afly from those terms iting a renewal, require Franchise Premises. l` Or l We may, iweta?sel refuse to renew or may terminate this Franchise Agreement for Good Cause. Good Cause includes your failure to comply with the lawful material provisions of this Agreement or any other collateral agreement between the parties after being given written notice of default. If the default cannot be cured within 30 days, your failure to initiate substantial and continuing action to cure the default within 30 days is deemed a willful and material breach of any such agreement. If, during any 12-month period, you commit 3 willful and material breaches of the same term or provision for which you have been given reasonable notice and a opportunity to cure, we may terminate this Agreement upon any subsequent willful or material breach of the same term within that 12-month period without providing notice or an opportunity to cure. 4.00 CONFIDENTIAL OPERATIONS MANUALS, STANDARDS AND SPECIFICATIONS 4.01 CONFIDENTIAL OPERATIONS MANUALS Upon your signing this Agreement and a Proprietary Information Agreement, we will loan to you one complete, serialized set of the "Confidential Operations Manuals in the form appropriate for and at the time of your Initial Training Program. The Manuals contain our valuable intellectual properties including our trade secrets, operating procedures, database management systems, advertising and marketing materials, specifications, standards, approved suppliers and products, accounting forms and bookkeeping methods. These Manuals will, together with any subsequent modifications or amendments, remain our confidential and exclusive property. All shareholders of a corporate Franchisee and all partners of a partnership Franchisee will, before receiving any access to the Confidential Operations Manuals or any other Proprietary Materials, sign the Proprietary Information Agreement for Franchisees. All of your directors, officers and employees must, as a condition of their employment, sign Proprietary Information Agreement for Employees of Franchisees. Neither the Franchisee nor its agents, independent contractors or employees will copy, duplicate or otherwise reproduce any part of the Manuals for any reason whatsoever. You will not disclose the Manuals, in whole or in part, to anyone who is not legally bound by the Proprietary Information Agreement. You will, upon expiration or termination of this Agreement for any reason, immediately return to us the Confidential Operations Manuals at your cost. You will certify such return by delivering, personally or by certified mail, the Manuals and duly executed Termination Certificates (attached as Schedule A to all Proprietary Information Agreements) for each Proprietary Information Agreement entered by your owners, shareholders, directors, officers and employees. Notwithstanding any provision of this Agreement to the contrary, Proprietary Materials does not include information (i) which is or becomes generally available to the public other than as a result of a disclosure by you or your agents, (ii) which was available to you on a non-confidential basis before disclosure of the information to you, or (iii) which becomes available you on a non-confidential basis from a person or entity other than us, who is not otherwise bound by a written confidentiality agreement prohibiting that person or entity from disclosing the information. Notwithstanding any provision in this Agreement or Manual to the contrary, we will not interfere with or influence your or your practicing physician's professional judgment and health care decisions in providing services to your patients or exercise control over your or your practicing physician's practice of medicine. 4.02 MODIFICATION OF STANDARDS AND SPECIFICATIONS We retain the right to prescribe additions to, deletions from and revisions of the Manuals (the "Supplements"), which become binding on you upon being mailed or otherwise delivered to you, as if originally set forth in this Agreement. We will notify you in writing, as far in advance as possible, of the nature of any revision, amendment or subsequent modification of the Manuals and its effective date. In the case of the modification of standards or specifications for goods, services or supplies, you will have 60 days from the effective date of the modification in which to bring operations into full compliance. Where such modifications involve changes in operating procedures, administration of patient services, accounting or bookkeeping methods, advertising materials, inventory control systems or other procedural matters, you will have 30 days from the effective date of modification to fully integrate the necessary changes in the day-to-day operation of the Spinal Aid Center. No modification or addition will materially adversely affect your status or rights under this Agreement. You agree to maintain your Spinal Aid Center in compliance with the Manuals and all Supplements which we may provide. We will provide the printed Supplements and the specific instructions, which you will need in order to update the Manuals. You will at all times ensure that your set of the Manuals and the Supplements are current and up-to-date. Upon any dispute as to your compliance with the provisions of the Manuals or any Supplements, the terms of the master copy of the Manuals and Supplements maintained by us at our principal office is controlling. We agree that all expenses that you incur as a result of the adoption of any Supplement will be reasonable, within your means and in the best interests of the Franchise System. V_? r+? y Now OWN boom 4.03 APPROVED SUPPLIERS s r? We will designate an approved supplier based upon the supplier's demonstration that it is able to consistently supply our Franchisees with goods or services meeting our standards and specifications. The list of names, addresses and telephone numbers of all approved suppliers will be maintained and updated by us in the Confidential Operations r`" Q1 Manuals. We reserve the right to grant or revoke the approval of a supplier at any time. If approval of a supplier is r? revoked all Franchi swill be romptly notified of revocation and its effective d requve o purchase certain proprie equipment, patient forms and erchandise from et er redly or from ow rates, subsidiarie +: or designee o are licensed to manufa these proprietary items exclusivel ou, m or er o rquidate or rr us yow en exrs g m ue to use an sell all merchandise and supplies acqured ? from an approved supplier after we revoke approval of that supplier, unless we reasonably determine that continued use 0 ? would be detrimental to the Franchise System as a whole, or otherwise constitute a breach of this Agreement or any r" other agreement of the parties. We will sell, and ensure that approved suppliers sell, all proprietary merchandise to you at a reasonable price. You have the right to purchase non-proprietary merchandise, from any supplier, regardless of whether approved by us. s r+* s w.M r? n.? OEM s rrM r.n r i s s r? i r? WOW r? Ono r!w Ow" WIT 4.04 EQUIPMENT, FIXTURES AND TRADE DRESS The fixtures, equipment, interior design specifications and graphics for the Franchise Premises constitute our proprietary trade dress and create the unique appearance upon which the continued public recognition, valuable goodwill and national business reputation of the Franchise System depend. All Franchisees are required to conform their Franchise Premises to these specifications and comply with all such standards, as modified from time to time, in the Confidential Operations Manuals. We will from time m HmP am nn the TP m ren, P vn t soendenable amounts to implement changes prescribed in the Manuals and to otherwise conform the Franchise Premises to our standards and specifications as modified. Any new or different requirements will not unreasonably increase your obligations or place an excessive burden on your operation of the Spinal Aid Center. You agree to adhere to any modification and to conduct the Spinal Aid Center in strict compliance with our standards and specifications as modified. 4.05 PROPRIETARY MARKS AND PROPRIETARY MATERIALS You acknowledge that we have full responsibility for and will maintain absolute control over the use of the Proprietary Marks on all promotional materials including printed and broadcast advertisements, direct mail materials, stationery, business cards, press releases, posters, point-of-sale displays, and all signs used at the Franchise Premises. The Confidential Operations Manuals and Supplements will set forth the restrictions and limitations on your use of these Proprietary Marks, and you agree to comply fully with all standards and specifications, as amended from time to time, modifying or limiting use of the Proprietary Marks in publications and otherwise. 4.06 ADVERTISING MATERIALS II t Shop ?? nmd .6R- un R¢?smnr+S?,? You will use only those adve ' ing, marketing and promotional materials, which we specifically approve for use throughout the Franchise System. /The Manuals and the Supplements contain all approved materials and provide you with the guidelines for and limitations upon authorized usage. You are not permitted to use the name "Spinal Aid Center" or any combination thereof, as part of your legal or business name except to comply with state fictitious or assumed name statutes. True and correct copies of any advertising, marketing or promotional materials which you may develop independently of the Manuals and propose for use within the Operating Territory must be submitted us for our written approval before any publication or dissemination by us. Our failure to respond within 10 Business Days following the documented receipt of proposed materials is deemed to constitute our approval We may engage in the business of pro vi ' era buying or placement services t chisees and otherwise ffer or sell quantifies of advertising, m une and promotional materials, ail flyers and related forms to Franchisees at such prices as we y publish, from time to time, in onfidential Operations Manuals and Supplements. If you reta' to engage in the activities of purcIla-sing media time or print space and placing or will a reasonable service fee not to exceed 15% of these documented costs. We acknowledge that you are not obligated, in any way whatsoever, to purchase these materials, forms or services from us. 5.00 FRANCHISEE TRAINING PROGRAMS 5.01 INITIAL TRAINING PROGRAM AND INDIVIDUAL TRAINING PROGRAMS We do not charge you any fee for the Initial Training Program for you and up to 2 other people. You acknowledge that you are required to attend and successfully complete an appropriate Initial Training Program and that you may also, in your sole discretion, have up to 2 additional people that you propose to serve in the management of the Spinal Aid Center (the Manager,") attend the same Initial Training Program without payment of any additional training fee. Franchisees will receive Initial Training for a period of not less than 3 days and I-day in-office visit (totaling 4 days). We will conduct the Initial Training Program at our corporate training facilities in Clearwater, Florida or at such other certified training center we may designate. You acknowledge that you are solely responsible for the cost of transportation to the training facilities, the cost of hotel accommodations during the Initial Training Program, the cost of daily transportation between the hotel and the training facilities and the cost of all meals and personal expenses incurred by you and your Manager during the Initial Training Program, We will charge $100 for each additional person who attends Initial Training above the initial 3 people. Your Transferees or Assignees will be responsible for all transportation costs to the training facilities, lodging costs, personal expenses, and all meals during their mandatory Initial Training Program. Your Transferees or Assignees as well as all subsequent Transferees or Assignees, will be required to pay an Initial Training Fee in the amount of $2,000 for their Initial Training Program. All Transferees and Assignees are required to attend and successfully complete the Initial Training Program and may, in their sole discretion, have the person that they propose to have serve as the Manager attend the same Initial Training Program without payment of any additional Initial Training Fees. You acknowledges that your Transferees and Assignees will be required to attend such Initial Training Programs and will be required to pay this Initial Training Fee in addition to being solely responsible for their transportation, lodging and meal expenses meals during their Initial Training Program. in addition to the Initial Training Program, certain Franchisees, Managers, Transferees and Assignees may, in our sole discretion, be requested or required to attend Individual Training Programs which are prescriptive in nature and designed to help these individuals improve the operation of their respective franchised businesses or to strengthen their business management skills. All such individuals may be required to pay a uniform fee in an amount, which will not exceed $250 for each day of their Individual Training Programs, Each person in attendance will be responsible for all their transportation, lodging, meals and personal expenses during any such Individual Training Programs. You acknowledge that those persons attending such Individual Training Programs will be required to pay this fee and will be solely responsible for their transportation, lodging and meal expenses during any such prescriptive training programs. 5.02 CONTINUING TRAINING PROGRAMS AND CONFERENCES We retain the absolute right, in our sole discretion, to prescribe optional and mandatory Continuing Training Programs for our Franchisees without charge from time to time. We may provide Continuing Training Programs for all Franchisees who need specialized instruction and hands-on training with implementing newly developed operating procedures as they are being incorporated into the Franchise System. The Franchisor may provide Continuing Training Programs for those Franchisees who, as an identifiable group, have experienced the same or similar difficulties in managing their Spinal Aid Center and businesses affairs. These Continuing Training Programs may be held at the corporate training facilities or such other locations as we may designate for the convenience of the Franchisees in attendance and our training staff. All Continuing Training Programs will he structured to build business-management skills, to develop expertise in technical matters related to providing patient services at the Spinal Aid Center or to remedy specific problems commonly encountered throughout the Franchise System. These Programs may last from 1 to 15 days depending on the subject material and the specific needs of the attending Franchisees. You acknowledge this Y /obligation to attend such mandatory Continuing Training Programs and agree that all persons required to attend such o Programs will be responsible for their own travel, lodging, meals and living expenses. 7 '/? We will sponsor, according to the needs of the Franchise System, Regional and National Conferences at which the Franchisees will receive information on recent trends in the areas of chiropractic, medical and Decompression - Rehab Neck and Back patient services, be advised of new developments in the Franchise System, review the advertising budget and programs for the National Advertising Fund, attend specialized workshops and training sessions for new patient services and products, and share information and ideas on ways to increase profits from operations. You acknowledge that attendance at these Conferences is mandatory and agree to be responsible for your its own transportation, lodging, meals and personal expenses. In addition, you acknowledge that you may be required to pay a reasonable fee to us on a pro rata basis with all other Franchisees to help defray our cost of sponsoring Regional and National Conferences. We reserve the absolute right to postpone or to not conduct Regional and National Conferences. 6.00 YOUR OBLIGATIONS BEFORE OPERATING THE FRANCHISED BUSINESS. 6.01 ACQUISITION OF THE BUSINESS PREMISES We will provide, as an integral part of the Confidential Operations Manuals, the necessary guidelines and the criteria with which you must comply when making a location decision. The lease negotiation and selection of the Franchise Premises are your sole responsibility, however, we provide reasonable assistance to all Franchisees on a needs basis and may, in our sole discretion, provide on-site help with evaluating certain specific locations. You further acknowledge that you may, depending upon your experience in such matters and the complexity of the real property lease involved with either acquiring a new Franchise Premises or expanding the size of your present office location to accommodate a Spinal Aid Center, be required to retain legal counsel or seek other professional assistance with negotiating terms and otherwise reviewing the lease before signing any written agreement. We will provide reasonable assistance, both to you and your professional representatives, on matters directly related to securing a Franchise Premises that conforms to our standards and specifications. We reserve the right to refuse granting a Franchise for any Franchise Premises that is not in compliance with our uniform standards and specifications. 6.02 EQUIPMENT, FIXTURES AND IMPROVEMENTS You acknowledge that the expenditures required for equipment, fixtures and improvements to real property are solely within your discretion and will be determined principally by the type of your existing practice, the size of your existing patient base, the size and type of the proposed Franchise Premises and the written agreements with the owner of the real estate. You agree to install, according to the standards and specifications set forth in the Confidential Operations Manuals, the approved equipment and/or fixtures before beginning operations of the Spinal Aid Center at the Franchise Premises. We will create an equipment layout plan for your decompression and rehab equipment and provide you with any details regarding the necessary build-out, the installation of equipment and fixtures, and the interior design of your existing office space or your newly acquired Spinal Aid Center. 6.03 WORKING CAPITAL AND INITIAL PLAN OF ACTION You acknowledge that the amounts we estimate as being required for working capital, deposits and prepaid expenses contained in ITEM 7 of the Franchise Offering Circular are predicated upon the assumption that the Spinal Aid Center will not produce a positive cash flow during the first 90 days of operations. You further acknowledges that if, for any reason, new patient development is slow after the initial development of the franchised business, additional funds may be required to pay operating expenses until such time as the franchised business generates sufficient cash from operations to cover expenses. You agree that you will use your best efforts to secure adequate working capital for maintaining operation of the franchised business and that you will, pursuant to your financial reporting obligations under this Agreement, keep us advised of any actual or anticipated cash flow problems which may interfere with continued operation of the Spinal Aid Center. After you have signed this Agreement and have successfully completed the Initial Training Program, we will provide you with reasonable assistance in developing an Initial Plan of Action to beginning operation of the franchised business. This Plan will include new patient development strategies and goals, a budget for available and anticipated resources, marketing strategies, advertising content and placement within the Operating Territory, grand opening procedures, and an estimate of operating expenses during the initial 3 months of franchised business operations. You 773 LI: .s 7 rte. w.rn r.? s r+? r? s r'? f rrr arm r s /0ft 4W Oda //w r+ .r r+r+ wM Poo will not, in any way whatsoever, interpret or construe as to be our obligation or commitment to implement or administer the Plan on your behalf. 6.04 INSURANCE You agree to maintain, at your sole expense and at all times during the Term, Comprehensive Public Liability Insurance in the amounts stated below and to name us as an additional insured under all policies. The insurance policy or policies must be written either by an approved insurance company listed in the Confidential Operations Manuals or by any other insurance company capable of satisfying our written standards, specifications and minimum policy limits. The Certificate of Insurance must include a statement by the insurer that the policy or policies will not be canceled or materially altered without at least 30 days' prior written notice to us sent certified mail return receipt requested. You agree to furnish us with a Certificate of insurance before beginning operation of the franchised business and annually thereafter. You agree that you will carry and maintain, at your sole expense and at all times during the Tenn, workers' compensation and employer's liability insurance for all of your employees engaged in the operation of the franchised business and provide statutory workers' compensation benefits as required by the laws of all states in which your employees are located or perform services. The minimum policy amount for Comprehensive Public Liability Insurance must be $1,000,000 on an "occurrence" basis, covering all of your operations as named insured with a $1,000,000 combined single limit coverage, unless a lesser amount is specified, for the following types of claims: (1) Premises and Operations; (2) Products and Completed Operations; (3) Personal Injury; (4) Advertising Liability; (5) Broad Form Property Damage; (6) Contractual Liability; (7) Employees as Additional Insureds; (8) Extended Bodily Injury Coverage; (9) Incidental Medical Malpractice Liability; (10) Fire Legal Liability on Real Property; (11) Premises Medical Payments; and (12) Owned, Non-Owned and Hired Automobile Insurance. We reserve the right to increase or decrease the minimum policy limits and to require different or additional kinds of insurance from time to time. You agree to report all claims, or potential claims, to both the insurer and to us as soon as you have actual notice of the claim or knowledge of the incident from which a potential claim may arise. If you fail to purchase or maintain the insurance, we may (but is not obligated to) obtain, through agents and insurance companies of our choosing, the insurance on your behalf and at your sole expense. You expressly agree to pay the required premiums or to reimburse us for such payments made on your behalf. Nothing contained in this Agreement will be construed or deemed to impose any duty or obligation upon us to obtain or maintain any specific fors, kinds or amounts of insurance for or your behalf. 6.05 LICENSES AND PERMITS Before beginning operations at your Spinal Aid Center, you will obtain all local and state permits, licenses and certifications necessary to conduct business. You will also comply with all safety, building or other local, state and federal statutes, ordinances, regulations, codes, licensing requirements or standards applicable to the Franchise Premises or the operation of the Spinal Aid Center. We are responsible for advising you of any regulatory matters or determining your compliance therewith, and you agree to defend, indemni anhold us harfnless from any claims, losses or liabilities from regulatory matters. " t, A, K +b J j g LJU 4 t IC i' 4,eer I " 1)7?9 7.00 OPERATION OF THE FRANCHISED BUSINESS 7.01 COMMENCEMENT OF FULL AND CONTINUOUS OPERATION You will begin full and continuous operation of your Spinal Aid Center from a mutually-agreed-upon Franchise Premises within 120 days beginning with the Effective Date unless we, a? selydrscretien, upon your showing of good faith effort to perform, reasonable diligence and circumstances beyond your control as cause for non- performance, grant you a reasonable extension not to exceed 60 days. If you fail to begin full operation of the Spinal Aid Center within the 120-day period or, if an extension period is granted, the maximum allowable 180-day period, we may terminate this Agreement effective immediately. Upon termination, we will refund to you 80% of the Initial Franchise Fee less 20% to cover our reasonable expenses. These expenses include the costs of preparing the Franchise Agreement and related documents, conducting a routine investigation of you, training the Franchisee, selecting the Operating Territory and assisting with location of the Franchise. 7.02 MANAGEMENT OF THE FRANCHISED BUSINESS You will maintain direct control and supervision of the Spinal aid Center and the Franchise Premises. You may employ a full-time (referenced in Section 5.01) to supervise the day-to-day operation of the franchised business, provided that the Manager first signs the Proprietary Information Agreement and then successfully completes the initial Training Program. 7.03 COMPLIANCE WITH STANDARDS AND QUALITY ASSURANCE We have established certain defined standards, specifications and procedures for operating the Spinal Aid Centers, which are uniform and mandatory for all Franchisees within the Franchise System. We will offer you help and assistance with achieving and maintaining these standards throughout the Term as these standards are, and will continue to be, strictly enforced by us. We agree to comply fully with all standards, specifications and procedures we designate as required or mandatory in the Confidential Operations Manuals, in its Supplements or in writings we provide to you. Subject to H1PPA Guidelines and with a patient's permission if necessary, you further agree that we or our duly designated representatives are permitted, at any time during the Term and for any reason, to periodically (with or without prior notice to you) enter the Franchise Premises during normal hours of operation for the purpose of observing, studying and making a written report of your operation and your compliance with the mandatory standards, specifications and procedures (the "Quality Assurance Report"). You further agree to provide you or your representative with any requested information, records or data on your business operations reasonably related to conducting a study or preparing a Quality Assurance Report. We will provide you with a copy of the completed Quality Assurance Report setting forth the material deficiencies, if any, and describing, as necessary, a reasonable course of action to remedy any deficiency (the "Plan for Correction"). You will, within the time limits set forth in the Plan for Correction, comply with and fully implement any remedial action designated in the Plan for Correction as mandatory or required, and consider in good faith any other recommendations or suggestions for improving the efficiency of patient services and business operations, and for increasing revenues. You acknowledge that failure to implement any Plan for Correction may constitute a material breach of this Agreement and be grounds for termination. 7.04 LATESTDEVELOPMENTS AND CONTINUING TRAINING PROGRAMS We will endeavor to keep abreast of the most recent and advanced knowledge concerning systems and techniques, which enhance or facilitate operation of the franchised business. This knowledge will, when and as we deem appropriate, be set forth in writing and included in Supplements or otherwise distributed throughout the Franchise System. The Franchisor will, pursuant to its obligations to provide Continuing Training Programs and Conferences, conduct seminars and structure leaming materials, which make the knowledge and operating techniques readily available to all Franchisees. We may designate these Programs, Conferences or seminars as either mandatory or optional for the Franchise System, and all Franchisees will be required to attend and satisfactorily complete any Programs, Conferences or seminars designated as mandatory. You acknowledge and agree that we have absolute discretion with the content, scheduling and classification of all Programs and Conferences, and will, as we deem appropriate to the needs the Franchise System, have the right to conduct, postpone or not conduct any National or Regional Conferences. 7.05 RETENTION OF RECORDS You will, at all times during the Term, maintain a complete and accurate set of all business and financial records related to operating the Spinal Aid Center. These records include patient histories, insurance payment records, database entries, order sheets, reports, tax returns, financial statements and invoices. You will provide us annually, within 60 days of the end of your Franchisee's tax year, a profit and loss statement and a compilation balance sheet prepared by a Certified Public Accountant. You will retain all records for your Spinal Aid Center for a minimum period 10 of 5 years as provided in the Confidential Operations Manuals and make all records available us for inspection, audit or reproduction during normal business hours at the Franchise Premise 7.06 FRANCHISOR'S RIGHT TO AUDIT We reserve the ri , at any tim or any re reasonable notice to _ypwTo inspect or audit during ormal business ho y business cia cords ch you are required to tain pursuant to this Agreement and the Confide ' Operations Manuals. Audits ' e conducted at our ex a unlessase firms t7?et tuestatiatics are 7.07 PROTECTION OF PROPRIETARY MARKS AND MATERIALS We will make reasonable efforts to protect your right to use the Proprietary Marks. Upon any infringement of or challenge to your use of the Proprietary Marks, you will immediately notify us. We have sole discretion to take such action, as we deem appropriate and have the exclusive right to control any litigation or administrative proceeding, which in any way relates to the Proprietary Marks or your use of the Proprietary Marks. Any damages or other benefit arising out of such action accrues to us. If, in our sole discretion, it becomes advisable at any time for us to modify or discontinue use of any of the Proprietary Marks or to use one or more additional or substitute names or marks, you agree to do so. We are not obligated to reimburse you for any costs incurred pursuant to complying with this obligation. You acknowledge that you do not have any right to recover damages, costs or other forms of relief from us upon any modification, discontinuation or substitution. No goodwill or other trade value associated with any name or mark inure to your benefit. You agree to secure the Confidential Operations Manuals, the Supplements and all other Proprietary Materials under lock and key at the Franchise Premises and to limit access only to those individuals who have executed the Proprietary Information Agreement. 7.09 GRAND OPENING ADVERTISING You must spend at least $3,500 for gr opening advertising activiti . You will implement a opening and promotional program for th an chise sometime during first 60 days after opening lowing our i o Wing activities and publi ' , and advice and guidance staffing, decoration, and eration of the durm the grand opening od. 7.10 LOCAL ADJV?RTISING REQUZM GIONAL OWNERS FORU You agree t end between $700 aneek period for local dvertising initiated and placed Lndivid u ly by you: Franchisees will commeedia and placing dvert'sing within their resp ective ng errit6nes pursuant to their Local ment in the s e month that you begin operations. ll no dvertise outside o f the Ope mg Territory without our prior itten consent , which may be withheld ore discretion. 7.11 MANAGEMENT FEE You will pay to as a monthly assessment in the amount of $349 per month, (the "Management Fee") throughout the Term. You agree to begin payment of this Management Fee on the 15th day of the 3rd month following the month in which you commenced operation. Payment of this Management Fee must a postmarked no later than the 15th day of each month. ?? 7.12 P SYS (a) All payments by you to us will be effectuated by a Payment System by the use of pre-authorized transfers from your operating account through the use of special checks or electronic fund transfers, that we will process 11 1-"-4 at the time any payment is due or through the use of any other payment system we designate. You will cooperate with us to implement the Payment System within 15 days before opening date. You agree to cooperate with us in maintaining the efficient operation of the Payment System, including depositing all Gross Revenues you receive in your operating account accessed by the Payment System within one Business Day of receipt. (b) You will give your financial institution instructions in a form we provide or approve and will obtain the financial institution's agreement to follow these instructions. You will provide us with copies of these instructions and agreement. The financial institution's agreement may not be withdrawn or modified without our written approval and approval is within our sole discretion. You will also sign all other forms for funds transfer as the financial institution or we may request. (c) We ma re quire your financial ins ' tion to send a monthly statement of all a' ity in the designated acc?unt to us at the s e time as it sends these tements to you, and any other reports of activity in the operating a punt as we real ably determine and St. ( If you maintain other bank accounts for the franchise b ess you must identify these accounts to an rovide to us copie the monthly statements for all these counts and the details of all deposits and wr awals to them. - --- (e) You will pay all charges imposed by your financial institution. We will pay the charges imposed by our financial institution for the Payment System. (t) You agree that your obligations to make payments under this Agreement and any other agreement entered into with us or our Affiliates for the franchise business, and our rights and the rights of our Affiliates, if any, to receive these payments, are absolute and unconditional, and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future clams that you have or may have against us, any of our Affiliates or against any other person for any reason. 7.14 LATE PAYMENT CHARGES You will pay us a late Payment Charge in the amount of $35 if any payment remains overdue where there were insufficient funds in the Franchisee's account subject to the Payment System. 8.00 ASSIGNMENTS, TRANSFERS AND TERMINATIONS 8.01 CORPORATE ASSIGNMENT AGREEMENT We grant franchises only to named individuals as Franchisees. If you presently own or subsequently form a corporation or other business entity meeting our ownership and control standards, we will permit this Agreement to be assigned to the business entity, provided that the business entity is only authorized to conduct the franchised business as granted under this Agreement and, should you purchase additional franchises, other such agreements with us. You must, at all times, own the majority of issued and outstanding equity interests of the assignee business entity and control the majority voting power of the shareholders and the board of directors. We will only approve an assignment when set forth in writing on our standard form of Corporate Assignment Agreement in which you and business entity (the "Assignee") agree to be bound jointly and severally by all the terms and provisions of this Agreement. An assignment does not relieve you of any of your personal obligations, responsibilities or duties to us. Further, all issued and outstanding share certificates of the Assignee must bear a legend stating that the shares may not be transferred, assigned or sold without our prior written approval. 8.02 RIGHTS OF FRANCHISEE'S HEIRS Upon the death or incapacity of an individual who is the Franchisee, a shareholder of a corporate Franchisee or a partner of a partnership Franchisee, we have the right to assist you or your heirs in finding a satisfactory substitute to assume control of the Spinal Aid Center if the individual was a person upon whose professional reputation, ability, 12 experience or credit we relied in granting the Franchise. From the date of death or disability until a fully trained and qualified substitute assumes full-time operational control of the franchised business, we may, in our sole discretion, enter the Franchise Premises and operate the Spinal aid Center. The legal interest of the deceased or incapacitated Franchisee may be assigned to your qualified spouse or adult children without payment of a Transfer Fee, provided that the spouse or adult child attend, at their own expense, and successfully complete the Franchisor's earliest available Initial Training Program. The parties will mutually agree in writing upon selection of the individual to assume control of the franchised business. The failure on the part of your heirs or personal representatives either to provide an agreeable substitute or to offer the franchised business for sale to a third party is considered a breach of this Agreement and Good Cause for termination. The right of first refusal to repurchase the Franchise described in Section 8.04 does not apply unless the heirs or personal representatives propose to sell or assign this Agreement to a third party, Your heirs or personal representatives have the same rights and obligations as you if they desire to sell or assign this Agreement, and the conditions and obligations described in Section 8.05 apply to any third-party sale or assignment. 8.03 TEMPORARY OPERATION OF THE BUSINESS BY FRANCHISOR If you abandons the franchised business or fail to operate the business during normal business hours, or if any person upon whose ability or experience we relied in granting the Franchise no longer actively participates in management of the franchised business, we may, in our sole discretion, enter the Franchise Premises and assume full operational control of the franchised business until satisfactory arrangements are made for a qualified individual to assume control. During any time that we must assume control and manage the franchised business, we are entitled to receive a reasonable management fee for these services. 8.04 REPURCHASE BY US Before completing any sale, assignment, transfer or other transaction involving a sale of substantially all of the assets comprising the franchised business or a substantial interest in its rights and obligations under this Agreement, you must provide us written notice of the offer stating the complete terms of the proposed transfer and the name of the proposed transferee. We have the right of fast refusal to acquire, within 30 days after receipt of such notice, the same interest on the identical terms proposed, provided that the price be reduced by any sales commission which would have otherwise been payable and that we may substitute cash for any other form of payment proposed in the offer. If we do not exercise our right of fast refusal, you may complete the sale as proposed, provided that you and transferee comply with the provisions of this Agreement concerning transfers. If a sale to a proposed transferee is not completed within 60 days after delivery of the offer to us, we once again have the right of first refusal to acquire your interest. 8.05 TRANSFER BY YOU The rights, duties and obligations set forth in this Agreement are personal to you. We have granted this Franchise and license to you in reliance upon your professional reputation, business skills, fmancial capabilities and personal character. Accordingly, neither you nor any immediate or remote successor to any part of your interest in the Franchise, nor any individual, partnership, corporation or other legal entity which directly or indirectly controls you, may not sell, assign, transfer, convey, give away, pledge, mortgage or otherwise encumber any interest in the franchised business or in any legal entity which directly or indirectly owns the franchised business without our prior written consent. Any purported assignment or transfer, by operation of law or otherwise, without our prior written consent is null and void and constitutes a material breach of this Agreement and Good Cause, allowing us to terminate upon notice to you. We will not unreasonably withhold our consent to a transfer of the assets comprising the franchise business, any interest in the Franchise or this Agreement unless you re in breach or default of your obligations under this Agreement. However, if a transfer, alone or together with other previous, simultaneous or proposed transfers, would have the effect of transferring a controlling interest in the franchised business, we may, in our sole discretion, require any or all of the following as conditions of our approval: 13 `,/ (a) You comply with all the obligations required of Franchisees upon termination of this Agreement (as set forth in Section 8.11). You remain responsible for all obligations under the terms and conditions of this Agreement until specifically released in writing by us. You will be required to execute a termination agreement and a general release in a form we prescribe of all claims that you may have against us, our subsidiaries and affiliates, and thew respective officers, directors, agents and employees as of the date of the assignment. (b) The transferee is qualified according to the objective standards then being used by us as the basis for granting new franchises, and that the transferee sign our then-current form of Franchise Agreement together with all the collateral agreements then being required by us when granting a new franchise. The transferee is not required to pay an initial Franchise Fee, but you are required to pay us a Transfer Fee in the amount of $2,000. The transferee will, pursuant to its Franchise Agreement, be responsible for payment of the then-current Royalty Fee, National Advertising Fee and other such fees, if any, being paid by new Franchisees. The transferee will also be required to comply with our then current Local Advertising Requirement as it relates to the advertising policies of the Regional Owners Forum to which transferee will be admitted in your place. (c) The transferee pays to us the then-current Initial Training Fee (currently $2,000) (see: Section 5.01 of this Agreement) and the transferee attends and successfully completes the Initial Training Program pursuant to the terms of the then current form of Franchise Agreement and otherwise fulfill the performance obligations required of new Franchisees before beginning operation of the franchised business. (d) The transferee signs before any payment to you, a disclosure letter concerning the transfer and containing our waiver and release for any amount paid to and representations made by you. 8.06 CONDITIONS FOR TERMINATION BY YOU If we commit a material breach of this Agreement, which is not cured within 60 days after you have delivered written notice to us describing the breach, you may terminate this Agreement for cause effective 10 days after delivery of written termination notice us, provided that you are in full compliance with the terms of this Agreement. You have no other termination rights, and termination by you without complying with the foregoing is deemed a termination without cause. Termination by you without cause will result in different post termination consequences than a termination with cause. 8.07 TERMINATION BY US: YOUR FAILURE TO QUALIFY We may terminate this Agreement effective immediately upon the return to you 80% of the Initial Franchise Fee: (a) You fail to begin busines within 180 days after the Effective Date of this Franchise Agreement; or r (b) You are unable, air eBF ep ^ rSo successfully complete the Initial Training Program and an Individual Training Program is not capable of remedying your deficiency. 8.08 TERMINATION BY FRANCHISOR: FRANCHISEE'S NON-CURABLE BREACH We may terminate this Agreement for Good Cause without returning the Initial Franchise Fee, without giving prior notice to the franchisee and without giving the Franchisee an opportunity to cure when a non-curable breach occurs. Termination is effective upon delivery to you or 3 days after mailing to you a written declaration of termination, whichever event occurs first. Non-curable breaches constituting Good Cause for termination without an opportunity to cure occur when: (a) You are adjudicated as bankrupt or insolvent, or a petition in bankruptcy is filed under the U.S. Bankruptcy Code by or against you, the franchised business, or the business entity to which this Agreement has been assigned; 14 73 w+^ 0 w ,yr (b) You abandon, for any reason, the franchised business for a period of more than 7 days or fail to wr operate the franchised business for a period of more than 7 days without our prior written approval; Ww vs (c) You make, or attempt to make, an assignment or a similar disposition of the assets of the franchised r business for the benefit of creditors, or the Franchise Premises or assets of the franchised business are seized, taken over r or foreclosed by a creditor, lien holder, lessor or government official, provided that a final judgment against you remains y unsatisfied for 30 days without the filing of a supersedeas or other appeal bond; w• V (d) You are convicted of a felony or other crime that substantially impairs the goodwill associated with the Proprietary Marks; r i wr (e) You fail, for a period of ] 0 days after notification of noncompliance, to comply with any federal, state y or local law or regulation applicable to operation of the franchised business; r (f) You make a non-curable representation, which tarnishes our reputation, or you engage in conduct that reflects materially and unfavorably upon the operation and reputation of the Franchise System; r (g) You commit a non-curable violation of your obligation to maintain the confidentiality of the a f Proprietary Materials; r y (h) You make or attempt to make a transfer of the Franchise Agreement or the Spinal Aid center in r ! violation of this Agreement; or r. (i) You are delinquent by 10 days or more in the payment of the Royalty Fee or National Advertising Fee for the 4 time in any 12-month period. r J 8.09 TERMINATION BY US: YOUR FAILURE TO CURE DEFAULT r 9 r We may give you a Notice of Default that, with respect to curable breaches, provides a cure period of not less J than 10 days for monetary defaults and not less than 30 days for non-monetary defaults beginning on the date that the i Notice is received by you. If you cure the breach before the cure period expires, the Notice of Default is no longer r effective. If you fail to cure the breach before the cure period expires, we may give a Notice of Termination stating our intent to terminate this Agreement on a specified date, and this Agreement automatically terminates on the specified r date. Events, which constitute curable breaches, occur when: J r (a) You fail, refuse or neglect to pay any monies due and owing to us on the date monies are due; r J r (b) You become delinquent in your payment of monies due to suppliers, landlords, leasing agents or J retailers; r r (c) You fail to comply with the Local Advertising Requirement; J j (d) You fail to pay all sales or other taxes when due and before delinquent, except when such payments r are being contested in good faith by appropriate proceedings; r e You commit any act, which materially impairs the goodwill associated with the Proprietary Marks; ? r -? (f) You fail, within the time prescribed, to comply with any of the requirements or standards imposed upon you by the terms of this Agreement, the Confidential Operations Manuals, the Supplements or other such r.. operational memoranda we issue, or uses bad faith in carrying out the terms of any such lawful directives or obligations; (g) You allow unlawful activities to occur or allow any unauthorized or illegal material to be utilized, nged or sold at the Franchise Premises; -5 n r`?aal ???1? ??s???C r ??rn c?A6bv doca /104 AIqp r 6nd 19-fly -10, fr cn oe ar?? U? be {weer a y -7 15 ( rr r ?" (h) You operate the franchised business in a manner that presents a health or safety hazard to patients, customers, employees or the general public and such manner of operation continues for a period of 2 or more days after you receive notice to correct operations or remove the hazard; (i) You fail or refuse to permit us to inspect the Franchise Premises or conduct an audit of the franchised business; or 0) You fail to maintain the insurance policies required by this Agreement. No right or remedy conferred upon or reserved for us by this Agreement is exclusive of any other right or remedy in this Agreement or by law or equity provided or permitted, but each is cumulative of every other right or remedy available. 5.10 YOUR INTEREST UPON TERMINATION Upon termination or expiration, you have no interest in the goodwill or intangibles of the franchised business or equity in the Franchise, apart from the leasehold, vehicles, fixtures, equipment and supplies you have purchased. We have the right (but not the duty), to be exercised by notice of intent to do so within 30 days after termination or expiration of this Agreement, to purchase any improvements, equipment, advertising and promotional materials, products, supplies, inventory and any other items bearing the Proprietary Marks at current fair market value. If the parties cannot agree on a fair market value within a reasonable time, we will designate an independent appraiser, and the appraiser's determination of fair market value is binding. If we elect to exercise any option to purchase provided in this Agreement, we have the right to set-off all amounts due from you under this Agreement and the cost of the appraisal, if any, against any payments therefore. 8.11 YOUR OBLIGATIONS AFTER TERMINATION Upon termination or expiration of this Agreement, the Franchisee shall immediately cease to be a licensed Franchisee, and: 09V 11 ? 00 , rl?r ? rs ,ncu?:n ? H??r ? 4A2minHl-ran (a) The Franchisee will promptly pay to us all sums owing by you to us under the terms of this Agreement. These sums include all damages, costs and expenses, including reasonable attorneys' fees, incurred by us by reason of default on your part, regardless of whether the sums are incurred before or after the termination or expiration of this Franchise Agreement. The sums include all costs and expenses, including reasonable attorneys' fees, incurre by the Franchisor in obtaining injunctive or other relief to enforce the provisions of this Agreement or any collater tten agreements related to the franchised business. n (b) ill pay us los is equal t or each month remaining in th Term; _=} (c) You will immediately cease to use, by advertising or in any manner whatsoever, the name Spinal-Aid Centers and any forms, manuals, slogans, trade names, designs, marks, symbols, trade dress or devices used in connection with the operation of the franchised business or any colorable imitations thereof. You will not represent or advertise that the parties were formerly parties to this Agreement or that you did business under the Proprietary Marks. (d) You will take such action, as is necessary to cancel any fictitious name, assumed name or equivalent registration that contains the name Spinal-Aid Centers or any other Proprietary Mark. You will, at our option, either cancel or assign to us or one of our other Franchisees any telephone listing containing the name Spinal-Aid Centers or any other trade name used in connection with the franchised business. You will, within 30 days of any termination, famish proof of cancellations or assignments and have all telephone calls forwarded to telephone numbers assigned to us or one of our other Franchisees. (e) You will immediately return the Confidential Operations Manuals, including any Supplements, revisions, inserts, amendments, exhibits or forms we provided, together with all advertising formats, camera-ready layouts and other proprietary forms and materials used in connection with promoting the franchised business. 16 7/J S y r NN ¦ s rr+, Jr r.? r+? s s r.^ V ow" r^ r' r r? s r r^ r.? s r^ r.? aI rr?^ nw smak 1W rrr? r? .•m Poo r MiO Id" 000 /00 PAR .: (f) You remain bound by your covenant to maintain the confidentiality of the Proprietary Materials under this Agreement and the Proprietary Information Agreement whose terms and conditions survive termination of this Agreement, and you remain bound by your covenant not to compete with us or our other Franchisees upon termination of this Agreement in all cases except when termination arises from our failure to cure our material breach of this Agreement. 8.12 TRANSFER BY US We have the right to transfer or assign its interest in this Agreement to any person, persons, partnership, association, or corporation or other entity. If our assignee assumes all of our obligations under this Agreement and sends you written notice of the assignment so attesting, you agree promptly to sign a general release in our favor from any claims or liabilities arising from this Agreement. 9.00 RELATIONSHIP, INDEMNIFICATION AND PAYMENT PROVISIONS 9.01 INDEPENDENT CONTRACTOR RELATIONSHIP The parties understand and agree that no agency, employment, partnership or joint venture is created by this Agreement and that your franchised business is separate and apart from any business which we may operate. The parties further agree that you are not our general agent, and no representation will be made by either party that would create an apparent agency, employment, partnership or joint venture relationship. Neither party has authority to act for the other in any manner to create obligations or debts that would be binding on the other, except as specifically provided in this Agreement. Neither party is responsible for any act or omission of the other or any employee of the other. In all public and private records, documents, relationships and dealings, you will indicate that you are an independent owner of the franchised business established by this Agreement. You will prominently indicate on all letterheads, business forms and writings of any kind that you are our licensed Franchisee by using language substantially stating that you are a "Franchisee of Spinal Aid Centers of America, Inc." You will maintain employee records in such a manner as to clearly show that you and your employees are not our employees. We have no liability for any sales, use, excise, income, property or any other tax levied upon the franchised business, the Franchise Premises, the Spinal Aid Center or any of your assets used in connection with the franchised business. 9.02 FRANCHISOR INDEMNIFICATION You agree to defend, indemnify and hold us harmless from all fines, suits, proceedings, claims, demands, actions, losses or damages of any kind or nature, instituted by any third party, arising from or otherwise connected with the franchised business, the Franchise Premises, or the operation of the Spinal Aid Center. We are not liable to you or to any other persons by reason of any of your acts, omissions, neglect, or fault or any of your agents or employees, or for any situation otherwise arising on the Franchise Premises. 9.03 FRANCHISEE INDEMNIFICATION We agree that we will defend, indemnify and hold you harmless from all fines, suits, proceedings, claims, demands, actions, losses or damages of any kind or nature, instituted by any third party, arising from or otherwise connected with your use of the Proprietary Marks or the Proprietary Materials, as set forth in the Confidential Operations Manuals or otherwise authorized in writing by us, or with any of our or our employees, agents, officers or directors false representations, warranties, negligent or willful acts, or omissions. 9.04 LIQUIDATED DAMAGES AND ENFORCEMENT You agree that the conditions, restrictions, covenants and other limitations on your use of the Confidential Operations Manuals and the Supplements, the Proprietary Marks and the Proprietary Materials which are imposed by this Agreement and the Proprietary Information Agreement are necessary, equitable and reasonable for our benefit and the general benefit of all Franchisees and others enjoying an authorized and lawful economic benefit from these 17 .. intellectual properties. You acknowledge that our remedy at law for your unauthorized use or misappropriation of these properties or for any breach of this Agreement or the Proprietary Information Agreement related to these properties would be inadequate and that, accordingly, we are entitled to immediately seek injunctive relief. In addition to, and not in derogation of, the right to obtain an injunction, we are entitled to damages until an injunction issues. Due to the difficulty in computing the damages resulting from any breach, damages are fixed ' y as liquidated damages and not as a penalty for each day that any unauthorized use or breach co S. The parties agree that the stated sum reasonably represents the actual damages that we will suffer upon ch unauthorized use or breach. ?. 9.05 PAYMENT OF OBLIGATIONS DUE The expiration or termination of this Agreement does not relieve you from your obligation to pay us and other S creditors, promptly when due, all indebtedness incurred or fees accrued as of the effective date of termination. Your obligations pursuant to Section 9.04 will, in conjunction with the Proprietary Information Agreement, remain in full force and effect after termination of this Agreement. You agree that you will not, on the grounds of any alleged nonperformance us of our obligations under this Agreement, withhold payment of any fees or amounts due. No endorsement or statement on any check or payment of any sum less than the full sum due us will be construed as an acknowledgment of payment in full or an accord and satisfaction, and we may accept any cash, check or payment without prejudice to our right to recover the balance due or pursue any other remedy provided in this Agreement or by law. 10.00 MISCELLANEOUS PROVISIONS 10.01 CONSTRUCTION Alt captions and headings are for reference purposes only and are not deemed to be a part of this Agreement, and all dollar amounts stated in this Agreement refer to legal currency of the United States of America. All words in this Agreement are deemed to include any number or gender as the context or sense of this Agreement requires, and the words "will" and "must" used in this Agreement indicate a mandatory obligation. If any part of this Agreement is, for any reason whatsoever, declared invalid or unenforceable by any court of competent jurisdiction, the affected part will nevertheless be enforced to the fullest extent allowed by law, and such declaration will not affect the validity of the remaining provisions, which remain unaffected and in full force and effect. The parties declare, as their present intent, that they would have signed the remaining portion of this Agreement without including any portions that may, for any reason, are declared invalid in the future. The rights of the parties are cumulative and no exercise or enforcement by a party of any right or remedy under this Agreement precludes the exercise or enforcement by that party of any other right or remedy contained in this Agreement or provided at law, in equity or otherwise. For purposes of this Agreement, the "Franchisee" may be an individual, partnership or, if a Corporate Assignment Agreement is signed, a corporation or other business entity and includes any corporation, partnership, individual, combination of individuals or other legal entities, which own a majority interest of the Franchisee or in which the Franchisee owns a majority interest. This Agreement inures to the benefit of, and be binding upon, the parties and their permitted successors and assigns. 10.02 NoncEs Any notice required or permitted by this Agreement must be in writing, addressed to the party at the address given above, or to such other address as one party by notice informs the other, be mailed by registered or certified mail if not hand delivered, and be effective on the sooner of delivery or 3 days after mailing. If any applicable and binding law or rule of any jurisdiction requires a greater notice period before the termination of this Agreement than is required in this Agreement, or the taking of some other action not required in this 18l S Agreement, such prior notice or other action required by law or rule will, only within that jurisdiction, be substituted for the notice requirements or actions agreed upon in this Agreement. 10.03 TIME IS OF THE ESSENCE In all respects, time is of the essence in this Agreement. Notwithstanding any provision of this Agreement to the contrary, neither party is deemed to be in breach under this Agreement for failing to fulfill any term or condition of this Agreement, if and to the extent that the party's failure results from strikes or other labor disputes, acts of God, shortage of or inability to obtain labor or materials, damage to works in progress by any casualty, lawsuits, restrictions imposed or mandated by governmental or quasi-governmental entities, enemy action, civil commotion, fire, flood, earthquake or any other unforeseeable event beyond your reasonable control except to the extent caused by the negligence of that party. 10.04 JURISDICTION, VENUE AND MEDIATION The parties agree that this Agreement will be interpreted according to and governed by the laws of the State of Florida which laws prevail upon any conflict of law (without regard to, and without giving effect to, the application of Florida choice of law or conflict of law rules) except to the extent governed by the U.S. Trademark Act of 1946, 15 U.S.C. §§ 1051, et seg. (the "Lanham Act") as amended. The parties agree that any action brought by either party against the other parry in any court, whether federal or state, must be brought within the state and in the judicial district in which we have our principal place of business. You consent to personal jurisdiction and venue in any court of competent jurisdiction in the judicial district in which we then have our principal place of business, and you submit to the exclusive jurisdiction of such courts for interpretation of your rights and obligations under this Agreement. Nothing in this Section is intended by the parties to subject this Agreement to any franchise or similar law, rule, or regulation of the State of Florida to which this Agreement would not otherwise be subject. The parties agree that before filing any action at law or claim for equitable relief arising from any disputed matters which cannot be amicably resolved, excluding only those matters involving unauthorized use of the Proprietary Marks and the Proprietary Materials, the parties will submit unresolved disputes to mediation in the city where we are located and before a mediator to be mutually agreed upon by the parties. The parties agree that they will not unreasonably withhold their consent to either the forum or the mediator and that they will share equally and pay promptly all fees and costs incurred during any mediation. 10.05 ATTORNEYS' FEES If either party institutes a suit or action to enforce any term or provision of this Agreement, the most prevailing party in the suit or action, or on appeal, is entitled to recover from the losing party the reasonable attorneys' fees set by the trial or appellate court in addition to the costs and other disbursements provided by law. 10.06 ACCEPTANCE OF FRANCHISE AGREEMENT This Agreement is binding upon you at the time it is signed by you and delivered to us at our principal place of business. This Agreement is not binding upon us until it is accepted in writing by one of our principal officers. If we do not accept this Agreement within 7 days after receipt, this Agreement is not binding upon you. 10.07 ENTIRE AGREEMENT This Agreement, including the attached Schedules and the agreements incorporated in this Agreement by reference, will be construed together to constitute the entire understanding between the parties and supersedes all other previous and contemporaneous agreements, whether oral or written, pertaining to the subject matter of this Agreement. This Agreement may not be modified or amended except by written agreement signed by the parties. Representations by either party, whether oral, in writing, electronic or otherwise, that are not set forth in this Agreement are not binding upon the party alleged to have made such representations and be of no force or effect. 79s 19 10.08 WAIVER We reserve the right and privilege, in our sole discretion as we deem necessary and in the best interests of the Franchise System, to vary standards for any Franchisee based upon peculiarities of a particular Franchise Premises, conditions imposed by local law or custom, demographics or any other circumstances which we deem important to the successful operation of the franchised business. No Franchisee has any recourse against us for any variations permitted, and no other Franchisees is entitled to require us to grant or permit them a like or similar variation. No waiver or delay in either party's enforcement of any breach of any term, covenant or condition of this Agreement will be construed as a waiver by such party of any preceding or succeeding breach of that specific or any other term, covenant or condition of this Agreement. 10.09 RECEIPT of FRANCHISE OFFERING CIRCULAR AND ACKNOWLEDGMENTS The Franchisee hereby acknowledges that he or she has: (a) received a copy of the complete Franchise Offering Circular required by the Federal Trade Commission, the franchise laws of the state in which the Franchisee is resident and the franchise laws of the state in which the Franchise Premises are to be located at least 10 Business Days before the date on which this Agreement was signed or any consideration was paid; (b) been accorded ample time and opportunity to consult with advisors of its own choosing concerning the Franchise Offering Circular before signing this Agreement; (c) read and understands this Agreement together with the collateral agreements referenced in this Agreement before signing any such agreement; (d) received a copy of this Agreement together with the collateral agreements in this Agreement in a fmal form for execution at least 5 Business Days before signing it; (e) received no representations, promises, guarantees, projections or warranties of any kind from us, our directors, officers, employees or agents to induce the signing this Agreement or in connection with this Agreement except as specifically set forth in writing in this Agreement; and (f) receivedmo guarantee from us, our directors, officers, employees or agents as to your potential or guaranteed success in the franchised business contemplated by this Agreement. IN WITNESS WHEREOF, the parties to this Agreement, intending to be legally bound, hereby have duly signed, sealed and delivered this Agreement in duplicate originals on the day and year first written above. FRANCHISOR: Spinal Aid Centers of America, Inc. By: (signature of authorized officer) (name and title of authorized officer) 20 7 S SCHEDULE A The approved location of the Spinal Aid Center (the "Franchise Premises") will be at the following street address: 35-/y % Rln??? Lr?m? F/ I( >°n i 7d it The Operating Territory is an area circumscribed by a circle whose radius comprises at least a population of 100,000 persons and whose center is the Franchise Premises and comprised of the following zip codes: W WITNESS WHEREOF, the parties have agreed to this Schedule on FRANCHISOR: Spinal-Aid Centers of America, Inc. By: (signature of authorized officer) (name of authorized officer) FRANCHISEE: (name) 10I "/ .2005 EXHIBIT C - PROPRIETARY INFORMATION AGREEMENT SpinalAid CENTERS OF AMERICA " PROPRIETARY INFORMATION AGREEMENT In consideration and as a condition of being granted a franchise by pinal Aid Centers of America, Inc. (the 'VV "Franchisor") pursuant to a certain Franchise Agreement entered into on rJ , 2005 and incorporated herein by this reference (the "Franchise Agreement"), I, _om fl-, Synl (the "Franchisee"), as an owner of the franchised business (the "Spinal Aid Center"), acknowledge the following and agree to the terms and conditions of this Proprietary Information Agreement: 1. Franchisor's Proprietary Information. The Franchisee acknowledges that it is to receive information which the Franchisor has developed over time at great expense, including the Franchisor's trade secrets, operating procedures, new patient and insurance reporting forms, accounting and bookkeeping methods, patient control systems, advertising and marketing materials, specifications, standards and proprietary methods of doing business (collectively the "Confidential Operations Manual" and its "Supplements" defined in the Franchise Agreement). The 4W Franchisee also acknowledges that this information is not generally known in the industry and is beyond its own present skills and experience, and that to develop it independently would be expensive, time-consuming and difficult. The Franchisee further acknowledges that the Confidential Operations Manual provides a competitive advantage and will be 40 valuable in the development of its Spinal Aid Center, and that gaining access to it is therefore a primary reason why the "MZ Franchisee entered into this Agreement. 4 2. Confidentiality. At all times, both during the term of the Franchise Agreement, including any renewal term, and after its expiration or termination for any reason, the Franchisee agrees to keep strictly confidential and in trust (except as the Franchisor may otherwise consent to in writing) and not to disclose, or make any use of, the Confidential Operations Manual, in whole or in part, or any amendments, inserts or fomrs, including any revisions thereof, or any other business plans, marketing plans and strategies, customer lists or other subject matter pertaining to any business of the Franchisor or any of its Franchisees, affiliates, clients, customers or consultants which the Franchisor provides pursuant to its obligations to the Franchisee, except as provided in the Franchise Agreement, the Confidential Operations Manual and this Agreement. The Franchisee also agrees not to deliver, reproduce or in any way allow any ?.w such trade secrets, confidential information, knowledge, data or other information, or any documentation relating thereto, V1I to be delivered or used by any third parties without the specific written consent of a duly authorized representative of the Franchisor. 3. Employees of Franchisee. The Franchisee agrees to require all of its employees, as a condition of their employment, to execute the appropriate form of the Franchisor's proprietary information agreement provided for that purpose. The Franchisee further agrees to limit the access of such employees to the Franchisor's Confidential Operations Manual and any other trade secrets, confidential information, knowledge, data or other proprietary materials ?., on a need-to-know basis for performing the Franchisee's obligations pursuant to the Franchise Agreement. The Franchisee agrees to keep the Confidential Operations Manual and all other such confidential materials under lock and key when not being utilized in connection with the day-to-day operation of the Spinal Aid Center. 4. Trade Secrets of Others. The Franchisee represents that its performance of all the terms of this Agreement and its performance of all the duties and obligations of the Franchise Agreement do not and will not breach any agreement or duty to keep in confidence any proprietary information, knowledge or data acquired by it in confidence or in trust prior to entering into the Franchise Agreement. The Franchisee agrees that it will not disclose to the .00 mob Franchisor, or induce the Franchisor to use, any confidential or proprietary information or material belonging to any third parry or enter any agreement, either written or oral, in conflict herewith. .? 5. Covenant Not to Compete. The Franchisee agrees that during the period commencing on the date hereof and continuing for a period of 2 years following the expiration or termination of the Franchise Agreement for G? n0 Aack1c><-rtJA ®n TRf9^t rs 01. II I 1 S?g/c, ft C ucr- k s,I RS X 07 rr/ }r, b? i- C k A0 P,c qc 1-i cam. ran] ¢oeFy 4h. t L Ve i asA nv,?+ E??f . ?G,? ?ZI(Rnlld w r l ? rmn ,nv? ?c) a ?? 5 1910 any reason except to e in by the ?razr li eeor cause (limitations de din Section 6), the Franchisee will not " within le m the Franchisee's Franchise Premises f th e ors compaay?atvired buci? nest ,-eter directly or indirectly, , tindividually or as a shareholder, director, s ` r, attner, lender, 0 , co ant, representative, 8 • agent or employee of or for any person, firm, partnership or corporation: (a) Engage in or advise any business whose products or methods of operation are similar to those of the Franchisor, its subsidiaries or affiliates or any of its Franchisees; (b) Own, manage, operate, sell, control or participate in the ownership, management, operation, sales or control or be connected in any manner with any business in which the Franchisor is now or may hereafter become engaged; (c) Canvass, solicit orny such business in competition with the business of the Franchisor, its affiliates or any of its Franchisees from any of their present, former or prospective customers or advise such customers to curtail or cancel their business with them; (d) Recruit, hive, assist others in recruiting or hiring, discuss employment with, or refer to others concerning employment, any person who is, or within the preceding 12 months was, an employee of the Franchisor, its subsidiaries or affiliates or any of its Franchisees or attempt to induce any such employee to terminate its employment; (e) Divert or attempt to divert any business or patient of the Multi-discipline Center licensed under the Franchise Agreement to any competitor by direct or indirect inducements or otherwise, or to do or perform directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Franchisor's Proprietary Marks and the Franchise System; or (f) Disclose to any person, firm or corporation the name of any present, former, future or prospective suppliers, patients or customers of the Franchisor, its subsidiaries or affiliates or any of its Franchisees. 6. Special Limitations on Covenant Not to Compete. If the Franchise Agreement is terminated by the Franchisee for cause, as defined therein, the Franchisee may continue to operate a business at its Franchise Premises under another name and business identity provided that the Franchisee is in full compliance with the post-termination obligations set forth in its Franchise Agreement. In the event of such termination for cause: (a) The prohibitions set forth in Subsections 5(a) and 5(b) will not apply to any business that the Franchisee conducts from its Franchise Premises and within its Operating Territory; (b) The prohibitions in Subsection 5(c) will not apply to any such business accepted from any such customers who have dealt extensively with the Franchisee at the Franchise Premises within the Operating Territory; (c) The prohibitions in Subsection 5(d) will not apply to employees of the Franchisee; and (d) The prohibitions in Subsections 5(e) and (f) will not apply to the names of patients and customers who have dealt extensively with the Franchisee at the Franchise Premises within the Operating Territory. Nothing in this Agreement shall prevent the Franchisee from owning for investment purposes up to an aggregate of 5% of the capital stock for any competitive business, provided that such business is a publicly held corporation whose stock is listed and traded on a national or regional stock exchange, or through the National Association of Securities Dealers Automated Quotation System (NASDAQ), and provided that the Franchisee does not control any such company. 7. Return of Confidential Material. Upon termination of the Franchise Agreement for any reason, the Franchisee agrees to promptly surrender and deliver to the Franchisor the Confidential Operations Manual and all amendments, inserts and forms, including any revisions thereof, and all other confidential business plans, marketing plans and strategies, customer lists and all other proprietary materials pertaining to the business of the Franchisor or any of its Franchisees, affiliates, clients, customers or consultants which the Franchisor has provided pursuant to its general _7? J? obligation to Franchisees together with any copies thereof. The Franchisee agrees to sign and deliver the Termination Certification attached as Schedule A together with the above-described proprietary and confidential materials. 8. Remedies. The Franchisee acknowledges that upon a breach of this Agreement, the Franchisor will be irreparably injured and without an adequate remedy at law. In this event, the Franchisor will therefore be entitled to a temporary, preliminary and/or permanent injunction without the need to show actual or threatened harm or to post a bond or other security. This remedy shall be in addition to any other remedies the Franchisor may have under the Franchise Agreement, at law or in equity. The Franchisee further agrees that if any litigation arises under this Agreement, the prevailing party will recover, and the losing party will pay, the costs and attorneys' fees incurred by the prevailing party in trial and upon appeal, as determined by the respective courts. 9. Modification. This Agreement may not be changed, modified, released, discharged, abandoned or otherwise amended, in whole or in part, except by a written instrument signed by the Franchisee and the Franchisor. 10. Severability. If any part of this Agreement, for any reason whatsoever, is declared invalid or unenforceable by any court of competent jurisdiction, the affected part will nevertheless be enforced to the fullest extent allowed by law, and this declaration will not affect the validity of the remaining provisions which will remain unaffected and in full force and effect. The parties declare, as their present intent, that they would have signed the remaining portion of this Agreement without including any portions that may, for any reason, be declared invalid in the future. 11. Successors and Assigns. This Agreement is binding upon the Franchisee's heirs, personal representatives and other legal representatives and is for the benefit of the Franchisor, its successors and assigns. 12. Governing Law. This Agreement is governed by and construed in accordance with the laws of the state in which the Franchisor's principal office is located (currently Florida). IN WITNESS WHEREOF, this Agreement is made and entered into on 1 G / 2005. FRANCHISEE Molng-s e d (name) individually and as an officer or partner of (business name) (state) corporation) ACCEPTED BY FRANCHISOR: Spinal Aid Centers of America, Inc. (signature of authorized officer) (name and title of authorized officer) SCHEDULE A TERMINATION CERTIFICATION This is to certify that neither I personally nor the Franchisee of which I am an owner has failed to return the Confidential Operations Manual, or any part thereof, including the supplements, inserts and forms, together with revisions thereof, and other confidential business plans, marketing plans and strategies, proprietary customer lists and other proprietary materials pertaining to any business of the Franchisor or any of its Franchisees, affiliates, clients, customers or consultants and belonging to Spinal Aid Centers of America, Inc. which were provided pursuant to its obligations under our Franchise Agreement or any copies thereof. 1 further certify that I have complied with and will continue to comply with all the terms of the Proprietary Information Agreement signed by me with the Franchisor. I father agree that, in compliance with the Proprietary Information Agreement, 1 will preserve as confidential all trade secrets, confidential information, knowledge, data or other information relating to products, processes, know-how, designs, formulas, test data, customer lists or other subject matter pertaining to any business of the Franchisor or any of its Franchisees, subsidiaries, affiliates, clients, customers or consultants. Dated on 12005 (signature) (name) individually and as an officer or partner of (business name) a ( corporation) ACCEPTED BY FRANCHISOR: Spinal Aid Centers of America, Inc. (signature of authorized officer) (name and title of authorized officer /77(? EXHIBIT D - LIST OF FRANCHISEES I. Operational Franchisees. The following are the names, addresses and telephone numbers of all Franchisees as of June 1, 2005 who are operational: Nam Name Telephone Number Summit Chiropractic 1741 Briargate Blvd. 719-593-1227 Cs Dr. Jeff Keller C lorado Springs, CO $0920 -V Summit Chiropractic 6130 Barnes Rd. STE 116 719-593-1227 Cy Dr. Jeff Keller Colorado S rip CO 809221 Dr. Ron Spallone 3500 South Wadsworth Blvd. 303-980-5699 Lakewood CO 80235 Lakeland Spine Center 3242 South Florida Avenue 863-644-0880 Dr. Dane Parker Lakeland FL Chiropractic Pain Treatment Center 4724-B Gordon Gate Park 239-304-2214 Dr. Peter Julies Na les FL 34116 Hiler Chiropractic 1234 Airport Rd. North 239-659-2669 ¢5 Dr. Richard Hiler Na les FL 34104 Dr. David Huffman 503 South MacDill Ave. 813-879-8929 > Tama FL 33609 Team Chiropractic 7840 East US Highway 36 317-272-4100 Dr. John Dettmer Avon IN 46123 Castleton Chiropractic 8208 Allisonville Road 317-577-5444 Dr. Ronald Sheppard Indiana olis IN 46250 Rebman Chiropractic 8249 West 95" St. 913-648-8600 Dr. Mark Childress Overland Par KS. 66212 Chiropractic Art 2815 South Jones Blvd. 702-362-6303 Dr. Stephen Chiarello L Ve as NV. 89146 Osborn Chiropractic 4900 Reed Rd. 614-459-3770 Dr. Ken Osborn Columbus H 43220 Dr. John Heary 433 West Liberty St. 330-721-4616 Midis OH 44256 Brooklin Chiropractic 5592 Broadview Rd. 216-635-0653 Dr. Sam Galati Parma, OH 44134 Dr. Ardaman Singh 6600 North High St. 614-436-9355 Worthin on OH 43085 Portland Injury and Rehabilitation 6230 North East Halsey 503-236-8697 Dr. Dorian uinn Portland OR 97213 Dr. Greg Gamache 8301 Dayton Pike 423-842-2828 I TN 37379 Soddy Daisy 2. Franchises F.xemrted But Not Yet (Operational. The following are the names, addresses and telephone numbers of all Franchisees as of June 1, 2005 who are not yet operational but have signed a Franchise Agreement: NONE 3. Former Franchisees, The following are the names, last known home addresses and home telephone numbers of all franchisees that have been terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under a Franchise Agreement during the most recently completed fiscal year or who have not communicated with us within 10 weeks of the effective date of this Franchise Offering Circular: 77b EXHIBIT E -LIST OF STATE ADMINISTRATORS AND AGENTS FOR SERVICE OF PROCESS AGENT FOR SERVICE OF STATE STATE ADMINISTRATOR PROCESS CALIFORNIA Corporations Commissioner California Commissioner of Department of Corporations Corporations 320 West 4' Street, Suite 750 Department of Corporations Los Angeles, CA 90013 320 West 4`s Street (213) 576-7500 Suite 750 Los An eles CA 90013 HAWAII Business Regulation Division Director of Hawaii Department of Securities Compliance Commerce and Consumer Affairs Department of Commerce and 1010 Richards Street Consumer Affairs Honolulu, Hawaii 96813 1010 Richards Street Honolulu, HI 96813 808 586-2727 ILLINOIS Illinois Attorney General Illinois Attorney General 500 S. Second Street 500 South Second Street Springfield, IL 62706 Springfield, IL 62706 217 782-4465 INDIANA Indiana Secretary of State Indiana Secretary of State Securities Division 201 State House Room E-I 1 Indianapolis, IN 46204 302 West Washington Street Indianapolis, IN 46204 317 232-6681 MARYLAND Securities Commissioner Maryland Securities Commissioner Office of the Attorney General 200 St. Paul Place, 20th Floor Division of Securities Baltimore, MD 21202-2020 200 St. Paul Place, 20th Floor Baltimore, MD 21202 410 576-7042 MICHIGAN Franchise Administrator Michigan Department of Commerce, Consumer Protection Division Corporations and Securities Bureau Antitrust and Franchise Unit 6546 Mercantile Way Michigan Department of Attorney P.O. Box 30222 General Lansing, MI 48910 670 Law Building Lansing, MI 48913 517 373-7117 1'?. I? I 140 rr., 10 r 10 0. r.• To r 10 0. ! om? 10 wv? f r. ! MINNESOTA Franchise Examiner The Commissioner of Commerce of Minnesota Department of Commerce Minnesota 133 East 7th Street Department of Commerce St. Paul, MN 55101 133 East Seventh Street 612 296-6328 St. Paul MN 55101 NEW YORK Bureau of Investor Protection and Secretary of State of the State of Securities New York New York State Department of Law 162 Washington Avenue 23`d Floor Albany, NY 10271 120 Broadway New York, NY 10271 212 416-8211 NORTH DAKOTA Franchise Examiner North Dakota Securities Office of Securities Commissioner Commissioner 600 East Blvd., 5th Floor State Capitol Bismarck, ND 58505 Bismarck, ND 58505 701 328.4712 OREGON Department of Consumer and Department of Consumer and Business Services Business Services Labor and Industries Building Labor and Industries Building Salem, Oregon 97310 Salem, Oregon 97310 503 3784140 503 3784140 RHODE ISLAND Chief Securities Examiner Director of Rhode Island Division of Securities Department of Business Regulation 233 Richmond St., Ste. 232 Suite 232 Providence, RI 02903-4232 233 Richmond Street 401 277-3048 Providence RI 20903-4232 SOUTH DAKOTA Franchise Administrator Director of South Dakota Division of Division of Securities Securities 118 West Capital 118 West Capitol Street Pierre, SD 57501-5070 Pierre, SD 57501-2017 605 773-4013 VIRGINIA Chief Examiner Clerk of the State Corporation State Corporate Commission Commission 1300 E. Main St., 9th Floor 1300 East Main Street Richmond, VA 23219 Richmond, VA 23219 804 371-9051 WASHINGTON Administrator Director of Washington Financial Department of Financial Institutions Institutions Securities Division General Administration Building P.O. Box 9033 Securities Division - 3rd Floor West Olympia, WA 98507-9033 210-11 m Street SW 360 902-8760 Olympia, WA 98504 WISCONSIN Franchise Administrator Commissioner of Securities of Division of Securities Wisconsin Department of Financial institutions 101 East Wilson Street P.O. Box 1768 Madison, WI 53702 Madison, WI 53701 608 266-8559 ALL OTHER STATES N/A Keith J. Kanouse, Esq. Kanouse & Walker, P.A. Suite 324 Atrium, One Boca Place 2255 Glades Road Boca Raton, FL 3 431 ;?3S EXHIBIT F - TABLE OF CONTENTSFOR OPERATIONS MANUAL Table of Contents 7,s ,l Chapter 1. Introductory page "a? 1.1 Summary 1 mid 1.2 Letter from the President 2 1.3 Philosophy of the Franchise System 3 1.4 Structure of the Franchiser 4 V0 1.5 Franchisee Responsibilities 5 Chapter 2. Franchise Background 2.1 Summary 1 2.2 History of the Franchiser 2 2.3 Services and Products Offered 2-3 2.4 Relationship: Franchisee/Franchiser 4 Chapter 3. Before You Open 3.1 Summary 1 3.2 Before You Open 2.7 3.3 Lease Negotiations 8 3.4 Recommended Equipment & Supplies 9-10 3.5 Approved Vendors and Brands 11 3.6 Initial Inventory Requirements 11-12 3.7 Layout and Design of Office 13 3.8 Final Approval of Plans (site) 13 3.9 Leasehold Improvements 14 3.10 Signage 14 3.11 Licenses; Required Permits 14 3.12 Insurance Coverage 15 Chapter 4. Staffing 4.1 Summary 1 4.2 Affirmative Action, 2 4.3 Equal Opportunity Issues 3 4.4 Employment Guidelines 4 4.5 Position Descriptions 5-6 4.6 Manager Qualifications 7 4.7 Personal Policies 7 4.8 New Employees Orientation 8 4.9 Evaluation 8-9 4.10 Benefits 9 /J-5 page 4.11 Firing Practices 10 4.12 Miscellaneous Tax Forms 10-13 4.13 Employee Handbook 13-20 Chapter 5. Operating Procedures 5.1 Summary 1 5.2 Office Hours 2 5.3 Opening & Closing Procedures - Checklist 2-3 5.4 Receiving Payments 3-4 5.5 Deposit, Closeout Procedures 4 5.6 Weekly Statistics/Potential Patients/New Patient Value Form 4-5 5.7 Check Acceptance Procedures 5-6 5.8 Credit Card Procedures 6-7 5.9 Insurance Billing Procedures 7 5.10 Scheduling Staff 8 5.11 Scheduling Appointments 8-9 5.12 Inventory 10-11 5.13 Ordering Supplies/Stock 12 5.14 Receiving 13 5.15 Site Visits by Franchiser 13 5.16 Inspections / Accreditation Procedures 14-16 5.17 Problem Solving 16-18 Chapter 6. Daily Office Routines 6.1 Summary 1 6.2 Pre-Opening 2-3 6.3 Phone Scripts 3-4 6.4 After Closing 4-6 6.5 Security & Safety 7-8 Chapter 7. Assuring Quality 7.1 Summary 1 7.2 Housekeeping 1 7.3 Product Quality 2 7.4 Record Keeping 2-3 7.5 Merchandising in Center 3 7.6 Compliance with Policies 3-4 7.7 Center Appearance 4 l? Chapter B. Merchandising and Sales 8.1 8.9 8.10 8.11 Summary Sample Inventory Approved Vendor List Merchandise & Sales; Customer Orders Chapter 9. Advertising & Promotion page 1-2 2 2-3 3 9.1 Summary 1 9.2 Marketing Philosophy 2 9.3 Marketing Tips & Terms- Glossary 3-5 9.4 Logos & Trademarks 6 9.5 Requirements for Ad Materials / Placement 6-7 9.6 Approval Procedures for Ad Materials / Placement 7-8 9.7 Peripherals: Brochures, Cards, Mailers 8-9 9.8 Ordering Materials 9 9.9 Advertising Methods 9-10 9.10 Community Awareness 9.11 Grand Opening Procedures Chapter 10. Bookkeeping 10.1 Summary 1 10.2 Record Keeping Requirements 2-3 10.3 Internal Controls 3-4 Chapter 11 11.1 Summary 1 11.2 Small Business Management 2-3 11.3 Training Managers 3 11.4 Ongoing Training for Franchisees 4 Chapter 12 12.1 Summary 1 77- EXHIBIT G -REGISTRATION STATE ADDENDA TO FOC AND FRANCHISE AGREEMENT The states of California, Hawaii, Illinois, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia and Washington require that the FOC and Franchise Agreement be amended to conform to their state's franchise laws as part of the state's registration and approval of the franchise offering. This must be done before we offer or sell any franchises in those states or to residents of these states. If we have registered in any of these states, attached are the applicable Addenda to FOC and Franchise Agreement that apply only to residents of that state and/or where the Spinal Aid Center Franchise will be located in such state. EXHIBIT H - ACKNOWLEDGMENT OF RECEIPT This Franchise Offering Circular summarizes certain provisions of the franchise agreement and other information in plain language. Read this Franchise Offering Circular and all agreements carefully. If we offer you a franchise, we must provide this Franchise Offering Circular to you at the earliest of: (1) The first personal meeting to discuss our franchise; or (2) Ten business days before the signing of a binding agreement; or (3) Ten business days before a payment to us You must also receive a franchise agreement containing all material terms at least 5 business days before you sign a franchise agreement. If we do not deliver this Franchise Offering Circular on time or if it contains a false or misleading statement, or a material omission, a violation of federal and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C. 20580 and to the applicable state agency listed in Exhibit A. Inc. Dated: 12005 individual There are no subfranchisors or franchise brokers offering this franchise for Spinal Aid Centers of America, The date of issuance of this Franchise Offering Circular is June 1, 2005 The undersigned, personally and/or as a duly authorized officer or a partner of the prospective Franchisee, does acknowledge receipt from Spinal Aid Centers Of America, Inc. of the Franchise Offering Circular for prospective franchisees (to which this Receipt is attached), including the following Exhibits: A - Financial Statements E - List of State Administrators and Agents for B - Franchise Agreement Service of Process C - Proprietary Information Agreement F - Table of Contents for Operations Manual D - List of Franchisees G - State-Specific Addenda H - Acknowledgment of Receipt as an officer or partner of name of entity a state corporation or partnership (circle one) (copy #I - to be retained for your records) zo? "'wJ. xl1;?d SOH j -lo Page 1 of 3 ©N ,. jr l4'- /o/ /os Subj: RE: Initial franchise fee Date: 1011012005 7:36:35 P.M. Eastern Daylight Time From: f liberti msn.com To: Doctorsmarsh ol.com Hi Doc, on this question of franchise fee - I apologize - it seems as a few documents had this incorrect data on page 4, but the correct price was listed in all the other areas representing the fee. The fee was 29,995 discounted to 24,995. It is going up to 37,500 in November. Regards the rest of your questions, I think you'll be satisfied as you can see below or open attachment. I will be calling you tonight as well and look forward to working with you. Frank Contract Review: Thank you for your questions. You will find that we are agreeable to most, if not all of your considerations. You will simply make an ink line through the items in question, make a small circle to place your initials and fax to me so that I can do the same. OK? Look forward to a future in business together. Frank Franchise offering circular Page 5- Renewal fee did you say this changed or is it still 25%? It is 25% at this time and will have to increase in the near future. Financial statement What happens if franchise goes bankrupt? I shoot myself. don't know -you will have to ask an attorney -1 suppose it depends on the type of bankruptcy -some type you lose your money and others you get a portion back. However, you will receive much more than your investment back the moment you receive all our proprietary material and you should get your investment back in a few months - so you'll be way ahead of the game. Franchise agreement 1. Section 3.02 paragraph 2. We said this would be eliminated. Correct. Put an ink line through the last sentence - then circle your initials next to it and fax to me @ 727-723-0039 so I can do the same. 2. Section 4.03'/2 way down paragraph remove we must purchase equipment Tuesday, October 11, 2005 America Online: Doctorsmarsh Page 2 of 3 from spinal aid. Again - line item it, initial it and fax it to me. 3. Section 4.06 last paragraph 15% service fee will come from media not us. This means - if you need us (Spinal Aid) to actually purchase your media for you - that you will pay us a 15% agency commission. We will advise you on this, but you will not require us to buy your media, as this will be done by you. You can line item it if you like. 4. Section 7.06 why do you need to audit if you do not collect %? We don't. You can eliminate this section. Again - line item it, initial it and fax it to me. 5. Section 7.09 Remove required amount. Correct. Again - line item it, initial it and fax it to me. 6. Section 7.10 there is no required spending amount Correct -Again -line item it, initial it and fax it to me. 7. Section 7.12 you do not need to see our bank statements or accounts. Correct - Again - line item it, initial it and fax it to me. a. Section 8.11 (b) When terminated everything stops. No payments because we will not have spinal aid to make payments. This is to prevent someone from continuing to use our material after termination and not pay us for it. For example - you will continue to use the knowledge we provided and other items as your yellow page ad will still be in print and you may be in continuance of contracts to run other advertising and therefore benefit after termination. To prevent this, we would incur costs to get you to cease and desist. Since, you will benefit from our consulting into the future and still reap benefits AFTER termination, we want to be paid for the full 5 years. In other words, it is to ensure that we receive full payment for revealing our intellectual property rather than you terminate and we don't get paid our full price. s. Section 9.05 same as 8.11. 1 don't know how much of an issue this is, as we receive our franchise fee up-front - but there must be a logical reason for why our attorney's included it. I suppose if you buy property from us and terminate, we'll be entitled to payment... Tuesday, October 11, 2005 America Online: Doctorsmarsh ,f Proprietary information agreement Page 3 of 3 Section 5 spinal aid will end not chiropractic. Correct, but C,D and E remain to prevent you from hiring any Spinal Aid employees or ex-employees or take any Spinal Aid patients away from any other Spinal Aid entity. (c) will not silicate business but will take if they seek out us. I suppose? You said if this does not work you will take the table back ...is that still true. Yes ,,and here is my qualifier. I do not wish for anyone to suffer through any losses. I would like to hold you to agree to reasonably follow our advice - however, I feel it is best if I simply come to the aid of anyone who is unable to make it work. I expect this to exist in only 5% of the cases. I hope it's not you, but if it is, certainly agree to "re-market" the table, which means I will sell it for you to the next chiropractor in line to purchase a table. It would only require 2 to 6 weeks to sell. Fair enough? Hope this meets with your approval. PS: The purchase price discount is 24,995. Friday is the due date. From: Doctorsmatsh@aol.com To: f_l/beitl@msn.com Subject: InNal fianchl5e fee Date: M 7Ott200510:39:57 EDT On page 4 it.says the Initial Franchise Fee is 24,900 and 19,999. if paid within 5 days-That's still good right.? Tom Tuesday, October 11, 2005 America Online: Doctorsmarsh ,E. « +?? ? ???.? x ? N N •a?• ? nom b \\\???lll a`S sp`I y0 J Q H d ,G. GO m C?, 4P ? N 1 ri Ln 1 rm rlm •t co 1 d ? ? ru ti ? i .?'`?? vaacici Subj: Spinal Aid Center Date: 12/30/2005 1:12:30 P.M. Eastern Standard Time From: Keith kanouse.com To: _rl0ctorsmarsh aol_co_ CC: f liberti@_m_sn_com Page I of I Dr. Smarsh - I think you don't fully understand your legal situation. You are in default under the Franchise Agreement for failing to follow the required specifications for the wall system, a integral component of the Franchise. Rather than send you a notice of default and then terminate you for your failing to conform without any payments to you, my client is willing to refund a significant portion of the initial franchise fee. You are free to keep the table but must return the Manuals, the Virtual Doctor and other confidential and proprietary information. Alternatively, Dr. Liberti will assist you in selling the table but you must continue to pay the interest and then pay-off the finance company. This course of action will save you time and significant attorney's fees. Please get back to me with your decision. Keith J. Kanouse Kanouse & Walker, P.A. One Boca Place Suite 324 Atrium, PMB #1070 2255 Glades Road Boca Raton, FL 33431 561-451-8090 Fax: 561-451-8089 Keith Kanouse.com Tuesday, January 10, 2006 America Online: Doctorsmarsh KEITH J. KANOUSE, ESQ. SUSAN WALKER, ESQ. FRANCHISE 6 DISTRIBUTION CORPORATE 8 SECURITIES REAL ESTATE BANOUSE & WALKER, P.A. ATTORNEYS AND COUNSELORS AT LAW ONE BOCA PLACE SUITE 324 ATRIUM, PMB #1 WO 7255 GLADES ROAD BOCA RATON, FLORIDA 33431 W W W.KANOUSE.COM January 25, 2006 Certified Mail Return Receipt Requested and U.S. First Class Mail Dr. Thomas Smarsh Smarsh Chiropractic 3514 Trindle Rd. Camp Hill, PA 17011, Re: Notice of Default Dear Dr. Smarsh: TELEPHONE (561) 451-8090 FAX (561) 451.8089 E-MAIL KEITH®KANOUSE.COM SWALKER@KANOUSE.COM ti JAN 3 0 ?uue This notice is being sent to you pursuant to Section 10.02 of the Spinal Aid Center Franchise Agreement dated October 14, 2005 between you and my client, Spinal Aid Centers of America, Inc. (the "Franchise Agreement'). Please be advised that you are in default under the Franchise Agreement in that: 1. You have failed to pay the balance of the Initial Franchise Fee of $2,500. 2. You have failed to institute the Payment System as required by Section 7.12 of the Franchise Agreement. 3. You have failed to pay timely the Management Fees (currently $349) as required in Section 7.11 of the Franchise Agreement. 4. You have failed to document expenditures for the local advertising as required in Section 7.10 of the Franchise Agreement. 5. You have failed to reimburse my client for design work performed in the amount of $300. 6. You have not supplied my client with the documentation of spending at least $3,500 for grand opening advertising activities. 7. You have not supplied my client a copy of your Spinal Aid Center fictitious name registration with the Commonwealth of Pennsylvania. Dr. Thomas Smarsh Smarsh Chiropractic January 25, 2006 Page 2 You have not supplied my client with a Certificate of Insurance that complies with Section 6.4 of the Franchise Agreement. You may cure the default set forth in 1, 3 and 5 above by paying $3,149 by Monday, February 6, 2006. You may cure the other defaults by: (i) providing documentation that the Payment System has been set up; (ii) providing documentation that you have complied with the grand opening and local advertising requirements; and (iii) providing documentation that you have complied with Pennsylvania law regarding fictitious, trade or assumed names, and providing documentation regarding proof of insurance no later than February 27, 2006. In addition, you have until February 3, 2006 to demonstrated that you have removed the Spinal Aid Trade Dress. Please supply an Affidavit and pictures by February 3, 2006. If you fail to cure these defaults, my client intends to terminate the Franchise Agreement and you will be responsible for your post-termination obligations set forth in Section 8.1o and 8.11 of the Franchise Agreement Please govern yourself accordingly. Respectfully, V Keith Kanouse For the Firm Cc: Dr. Frank Liberti James Kutz, Esq. ,? xl, ; ? ?? ?- ? 601s ScxEr.1,PE A TTOP NETS AT I.AW February 2, 2006 Keith J. Kanouse, Esquire Kanouse & Walker, PA 2255 Glades road, Suite 324-A Boca Raton, FL 33431 S-m r-;f James J. Kutz Direct Dlal: 717-612-6038 Fax Number: 717-731-1985 Ikutz@postschell,com Via Email and U.S. Mail RE: Spinal Aid/Dr. Thomas Smarsh/Your Letter of January 25, 2006 Re: Default PENNSYLVANIA Dear Mr. Kanouse: PHILADELPHIA My client, Dr. Thomas Smarsh, and I were disappointed to see your January 26 PITTSBURGH correspondence, especially given what I felt was an olive branch letter directed from me to HARRISBURG you with clear and explicit signals that my client wanted the franchise relationship to work. We construe your letter as a clear indication that Dr. Liberti is intractable in his position that LANCASTER this relationship cannot and will not go forward. In view of same, I am writing to proffer a ALLENTOWN resolution which would disentangle your client and mine. As an initial point, your seriatim listing of default events confirms that your client is taking NEW JERSEY the position that it did not accept or consent to the several modifications and revisions which PRINCETON Dr. Smarsh made to the form franchise agreement. We have email correspondence confirming that your client noted his consent, get certain demands, set forth in your January 25 correspondence would not be demands of default if, in fact, the revisions and deletions were part of the modified franchise agreement. For example, but not by way of limitation, the demand to pay a "balance" on the initial franchise fee is simply inconsistent with the dollar figure which my client negotiated with your client. That having been said, at best for your client, there appears to be an absence of the meeting of the minds and, at worst, it appears that your client either improperly induced my client into this arrangement at great expense to my client, or, alternatively, in hindsight, your client determined that he could be more profitable by forcing a termination of this franchise arrangement by entering into a more lucrative contract with another chiropractor in the same geographic area as Dr. Smarsh. We have firsthand information concerning your client's effort in this regard and simply take that interaction as further, irrefutable evidence that Dr. Liberti is simply trying to create or manufacture issues of default which, despite our disagreement, demonstrates that my client is far better off disentangling as noted above. Accordingly, through this correspondence, I propose the following resolution, which, if agreed to by your client, paves the way for him to enter into a new franchise agreement with Dr. Herd, which, as I indicated, is his clear motive and goal as I dictate this to you. We would ask that, in consideration of full and complete resolution of this matter, your client return to 17 NORTH SECOND STREET 121H FLOOR HARRISBURG, PA 17101-1601 717.731.1970 WWW.POSTSCHELL.COM A PENNSYLVANIA PROFESSIONAL CORPORATION Keith J. Kanouse, Esquire February 2, 2006 Page 2 Dr. Smarsh his franchise fee of $22,500. Second, as your client insisted that my client purchase a decompression table for $50,000, I ask that your client reimburse Dr. Smarsh for the $50,000 which he paid for the table. In exchange, we will make the table available for pick-up, and, who knows, for delivery to Dr. Herd when Dr. Liberti enters into contract with him. Third, as the conduct of your client is now going to harm my client significantly in terms of income flow, and a need to start up separately, we are asking for $60,000 in compensatory damages (based on $420,000 per year in revenues) and believe that this limited window of injury is more than reasonable. Fourth, we need an express understanding that my client is free to engage in whatever business he chooses to engage in, so long as he returns to your client all books and other information concerning Spinal Aid. Once all of this remuneration and commitment is in place, we would then relinquish any objection we have to your client's execution of a franchise agreement with Dr. Herd, or any other chiropractor with whom your client has been communicating while my client was of the mistaken belief that he had an exclusive franchise arrangement in place. Please let me know within five (5) days of the date of this letter whether our proposal is acceptable. If not, and to use your words, we will govern ourselves accordingly. My proposal set forth above does not include other costs and expenses which my client incurred based upon his understanding that he had a "deal" with your client. For example, my client purchased a $1,500 computer system as part of the franchise arrangement and he purchased significant advertising materials. I would think that your client could more than make up for that which we are asking for in this agreement through a more lucrative franchise arrangement with Dr. Herd and, therefore, are optimistic that this matter can be resolved. If not, however, I only ask for a prompt response. hi closing, I do find it nothing short of reprehensible that your client would be negotiating for a franchise relationship in the same zip code where my client operates, at the same time your client is issuing demands for a curing of franchise-related defaults. Very truly yours, Jam . Ku JJK:dlb cc: Dr. Thomas Smarsh ?x?;??? ? '..0 7w KEITH J. KANOUSE, ESQ. SUSAN WALKER, ESQ. FRANCHISE 6 DISTRIBUTION CORPORATE & SECURITIES REAL ESTATE KANom & WALKER, P.A. ATTORNEYS AND COUNSELORS AT LAW ONE BOCAPLACE SUITE 324ATRIUM, PMB #1070 2255 GLADES ROAD BOCARATON. FLORIDA33431 WWW.KANOUSE.COM February 15, 2006 Certified Mail Return Receipt Requested and UPS Overnieht Delivery Dr. Thom Smars Smarsh C opractic 3514 Trindle Rd. Camp Hill, PA 17011, I h - TELEPHONE (581) 451-8080 FAX(561)451-8D89 E-MAIL KEITHOKANOUSE.COM SWALKEROKANOUSE.COM 7r: -3 'r ?In & 1 f EB b 2,006 [[yy r Re: Notice of Termination of Franchise Agreement Dear Dr. Smarsh: Since you failed to cure the defaults and have not signed the Franchise Termination and Release Agreement, my client has elected to terminate the Franchise Agreement. You are responsible for your post-termination obligations set forth in Sections 8.10 and 8.11 of the Franchise Agreement including: You must cease operations as a Spinal Aid Center. 2. You will promptly pay to my client all sums owing by you to it under the terms of the Franchise Agreement. These sums will include all damages, costs and expenses, including reasonable attomeys' fees, incurred by my client by reason of your default, regardless of whether the sums are incurred before or after the termination or expiration of this Franchise Agreement. The sums include all costs and expenses, including reasonable attorneys' fees, incurred by my client in obtaining injunctive or other relief to enforce the provisions of this Agreement or any collateral written agreements related to the franchised business. 3. You will pay my client lost profits equal to $349 for each month remaining in the Term. 4. You will immediately cease to use, by advertising or in any manner whatsoever, the name Spinal-Aid Centers and any forms, manuals, slogans, trade names, designs, marks, symbols, trade dress or devices used in connection with the operation of the franchised business or any colorable imitations thereof. You will not represent or advertise that you and my client were formerly parties to the Franchise Agreement or that you did business under the Proprietary Marks. i t Dr. Thomas Smarsh Smarsh Chiropractic February 15, 2006 Page 2 5. You will take such action, as is necessary to cancel any fictitious name, assumed name or equivalent registration that contains the name Spinal-Aid Centers or any other Proprietary Mark. You will, at our option, either cancel or assign to my client or one of its other Franchisees any telephone listing containing the name Spinal-Aid Centers or any other trade name used in connection with the franchised business. You will, within 30 days of any termination, famish proof of cancellations or assignments and have all telephone calls forwarded to telephone numbers assigned to my client or one of its other Franchisees. 6. You will immediately return the Confidential Operations Manuals, including any Supplements, revisions, inserts, amendments, exhibits or forms we provided, together with all advertising formats, camera-ready layouts and other proprietary forms and materials used in connection with promoting the franchised business. 7. You remain bound by your covenant to maintain the confidentiality of the Proprietary Materials under the Agreement and the Proprietary Information Agreement whose terms and conditions survive termination of the Franchise Agreement, and you remain bound by your covenant not to compete with us or our other Franchisees upon termination of this Agreement in all cases. Please govern yourself accordingly. Respectfully, Keith P. Kanouse For the Firm Cc: Dr. Frank Liberti James Kutz, Esq. Mar 13 2006 6:28PM HP LFSERJET 3200 WAaIW LqAnflei I, Thomas Smarsh, D.C., hereby verify that the foregoing is true of my knowledge, information and belief. This Verification is made provided for under 18 Pa. C.S. §4904 relating to unsworn falsification to Date: /ZO /Z::5? correct to the best to the penalties r? ? v L S n4 1 v v? n J= W rte: 0 - r, -? T Jrh 1.? .t 4 THOMAS SMARSH, D.C., Plaintiff vs. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA No.: 06-1556 Civil Term PRAECIPE TO ACCEPT AFFIDAVIT OF SERVICE BY MAIL FOR OUT-OF-STATE DEFENDANT TO THE PROTHONOTARY: Kindly file of record the attached Affidavit of Service by mail. Service of the civil Complaint in the above-referenced matter was made by Certified Mail, Return Receipt Requested, pursuant to the Pennsylvania Rules of Civil Procedure and the attached Affidavit confirms service by Certified Mail. POST & SCHELL, P.C. BY. J J. KUT , SQUIR Attorney ID #21589 ikkutzC&_posts chell. com BARBARA A. ZEMLOCK, ESQ. Attorney ID #58891 bzemlock(&7postsch_ell.com 17 North Second Street, 12`h Floor Harrisburg, PA 17101 (717) 731-1970 Attorneys for Plaintiff, Dated: Thomas Smarsh, D.C. '? ? ? THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA VS. No.: 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants AFFIDAVIT OF SERVICE I hereby verify and attest to the fact that I served a conformed copy of the civil Complaint in the above-referenced matter on the following Defendants and at the following addresses, by Certified Mail, Return Receipt Requested. Copies of the Postal Service Form 3811, confirming receipt on 3-27-06 are attached hereto as Exhibit "A". Frank Liberti, D.C. Spinal-Aid Centers of America, Inc. 44175 East Bay Drive Suite 104 Clearwater, FL 33764 Spinal-Aid Centers of America, Inc. 44175 East Bay Drive Suite 104 Clearwater, FL 337(4 Denise L. Huber Sworn to and before me a Notary Public this // C0 day o ((L 12006 i seal Dena Jo Slump, Notary Public y OF Harrisburg, Dauphin County Commission Expires Sept 9, 2009 Member, Pennsylvania Association 9 NDD T ? 3 2 0 2 r m $ o 0 y ?V V? f^ -, '.1 .? l? ?; {? IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants No. 06-1556 Civil Term PRAECIPE FOR ENTRY OF APPEARANCE TO THE PROTHONOTARY: Please enter the appearance of the undersigned and Latsha Davis Yohe & McKenna, P.C., on behalf of Defendants, Spinal-Aid Center of America, Inc., and Frank Liberti, D.C. Respectfully submitted, Dated: o LATSHA DAVIS YOHE & MCKENNA, P.C. By? `?R 19C Glenn R. Davis Attorney I. D. No. 30140 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 (717) 620-2424 Attorneys for Defendants, Spinal Aid Centers of America, Inc., and Frank Liberti, D.C. 107909 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing Praecipe for Entry of Appearance was served by first-class United States mail, postage prepaid, upon the following: James J. Kutz, Esq. Post & Schell, P.C. 17 North Second Street, 12th Floor Harrisburg, PA 17101 Dated: 22 Glenn R. Davis 107909 c> r ? t c. ? .-? ?,?.?..; _ _?m (U -1'?i ca `;??' '_ "`; ,r .?.4?L ?1 ? ~ w? N ?c _. u3 IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants No. 06-1556 Civil Term DEFENDANTS' PRELIMINARY OBJECTIONS TO PLAINTIFF'S COMPLAINT AND NOW, COMES, Defendants, Spinal Aid Centers of America, Inc., and Frank Liberti, D.C., by and through their attorneys, Latsha Davis Yohe & McKenna, P.C., and files the within Preliminary Objections to Plaintiff's Complaint, and states as follows: 1. OBJECTION UNDER RULE 1028(a)(1) 1. Plaintiff, Thomas Smarsh, D.C. ("Smarsh") commenced this action by filing a Complaint on or about March 17, 2006. 2. The Complaint in Paragraph 2 alleges that Defendant Spinal-Aid Centers of America, Inc. ("Spinal-Aid") is a Florida corporation with its principal business office at 44175 East Bay Drive, Suite 104, Clearwater, Florida. 3. The Complaint in Paragraph 3 alleges that Defendant Frank Liberti, D.C. ("Liberti") is, upon information and belief, the owner of Defendant Spinal-Aid with a business address the same as Defendant Spinal-Aid. 4. The Complaint in Paragraph 6 alleges that this Court has jurisdiction over the matter pursuant to 42 Pa. C.S. § 7531 et seq., 42 Pa. C.S. § 931 and 42 Pa. C.S. § 5322. 5. In Paragraph 12 of Plaintiff's Complaint, Smarsh admits to having begun negotiating with Defendants to enter into Defendants' franchise system (the "Franchise System'), which franchises operate independently owned Spinal-Aid Centers pursuant to the terms of a franchise agreement. 6. Dr. Smarsh contacted Defendants in Florida and negotiated with them at their principal place of business in that state. 7. At all times during this relationship with Dr. Smarsh, Defendants have been located and doing business in the State of Florida. 8. The Complaint in Paragraph 26 states that Dr. Smarsh followed Defendants' instructions and faxed to Defendants a revised franchise agreement which was signed by Dr. Smarsh and dated October 14, 2005; Smarsh fails to state that he faxed the contract to Defendants' office in Florida. 9. After the signing of the franchise agreement, Dr. Smarsh traveled to Defendants' headquarters and training facility in Florida and underwent franchise training. 10. The Complaint in Paragraph 30 acknowledges that on December 30, 2005, Dr. Smarsh received an e-mail from counsel for Defendant Spinal-Aid advising that Dr. Smarsh was in default of the franchise agreement. 107782 2 11. The Complaint further alleges in Paragraph 35 that by letter dated January 25, 2006, Dr. Smarsh was advised by counsel for Defendant Spinal-Aid that he was in default under the franchise agreement for the eight reasons stated thereafter. 12. The franchise agreement which is the basis of the three causes of action brought by Dr. Smarsh in his Complaint states in its Paragraph 10.04 (see attached Exhibit "A") as follows: 10.04 Jurisdiction, Venue and Mediation The parties agree that this Agreement will be interpreted according to and governed by the laws of the State of Florida which laws prevail upon any conflict of law (without regard to, and without giving effect to, the application of Florida choice of law or conflict of law rules) except to the extent governed by the U.S. Trademark Act of 1945,15 U.S.C. §§ 1051, et seq. (the "Lanham Act") as amended. The parties agree that any action brought by either party against the other party in any court whether federal or state, must be brought with the state and in the judicial district in which we have our principal place of business. You consent to personal jurisdiction and venue in any court of competent jurisdiction in the judicial district in which we then have our principal place of business and you submit to the exclusive jurisdiction of such courts for interpretation of your rights and obligations under this Agreement. Nothing in this Section is intended by the parties to subject this Agreement to any franchise or similar law, rule, or regulation of the State of Florida to which this Agreement would not otherwise be subject. The parties agree that before filing any action at law or claim for equitable relief arising from any disputed matters which cannot bee uitably resolved excluding only those matters involving unauthorized use of the Proprietary Marks and the Proprietary Materials, the parties will submit unresolved disputes to mediation in the city where we are located and before a mediator to be mutually agreed upon by the parties. The parties agree that they will not 107782 3 unreasonably withhold their consent to either the forum or the mediator and that they will share equally and pay promptly all fees and costs incurred during any mediation. (Emphasis added.) 13. The franchise agreement which is the basis of the three causes of action brought by Dr. Smarsh in his Complaint states in its Paragraph 10.06 as follows: 10.06 Acceptance of Franchise Agreement This Agreement is binding upon you at the time it is signed by you and delivered to us at our principal place of business. This Agreement is not binding upon us until it is accepted in writing by one of our principal officers. If we do not accept this Agreement within 7 days after receipt, this Agreement is not binding upon you. (Emphasis added.) 14. The franchise agreement which is the basis of the three causes of action brought by Dr. Smarsh in this Complaint contains an integration clause in its Paragraph 10.07 which states as follows: 10.07 Entire Agreement This Agreement, including the attached Schedules and the agreements incorporated in this Agreement by reference, will be construed together to constitute the entire understanding between the parties and supersedes all other previous and contemporaneous agreements, whether oral or written, pertaining to the subject matter of this Agreement. This Agreement may not be modified or amended except by written agreement signed by the parties. Representations by either party, whether oral, in writing, electronic or otherwise, that are not set forth in this Agreement are not binding upon the party alleged to have made such representations and be of no force or effect. 107782 4 15. A review of the franchise agreement reveals that Dr. Smarsh has agreed that the franchise agreement is binding upon him upon delivery to Defendant Spinal- Aid; moreover, he admits to its delivery to Defendants in the State of Florida. 16. A review of the franchise agreement reveals that Dr. Smarsh has agreed that any action brought by either party against the other in any court must be brought within the state and in the judicial district in which Defendant Spinal-Aid has its principal place of business. 17. In Paragraph 2 of the Complaint, Dr. Smarsh admitted that Defendant Spinal-Aid's principal place of business is 44175 East Bay Drive, Suite 104, Clearwater, Florida, and therefore pursuant to his consent and agreement to jurisdiction and choice of law, Florida rather than Pennsylvania is the appropriate forum. 18. Based upon the agreement between the parties, the Court of Common Pleas of Pennsylvania has no jurisdiction in this matter. 19. According to the express language of the franchise agreement attached to the Complaint as Exhibit "A," there is no jurisdiction with this Honorable Court. 20. According to the express language of the agreement attached to the Complaint as Exhibit "A, " the causes of action brought before this Court cannot be sustained (see also Exhibit "A" attached hereto). 21. Under Pennsylvania law, in considering preliminary objections, when the allegations of a complaint contradict the attached exhibits, the language of the attached exhibits govern. 107782 22. The parties agreed to not only bring all legal actions within the State of Florida but also to mediate such actions. 23. There has been no mediation of Dr. Smarsh's dispute with Defendants. WHEREFORE, Defendants respectfully request Plaintiff's Complaint be dismissed in its entirety with prejudice and attorney's fees and costs be awarded to Defendants and against Plaintiff. II. OBJECTION UNDER RULE 1028(a)(1) 24. Paragraph Nos. 1 through 23 above are incorporated herein by reference as though fully set forth. 25. In the event that this Honorable Court rules in favor of Defendants and finds a contractual relationship between the parties, then their agreement dictates the State of Florida to be not only the choice of law but also the situs of jurisdiction. 26. Principles of forum non conveniens dictate that Florida has jurisdiction in this matter as Pennsylvania is without jurisdiction. WHEREFORE, Defendants respectfully request Plaintiff's Complaint be dismissed in its entirety with prejudice and attorney's fees and costs be awarded to Defendants and against Plaintiff. III. DEMURRER UNDER RULE 1028(a)(4) 27. Paragraph Nos. i through 26 above are incorporated herein by reference as though fully set forth. 107782 6 28. Dr. Smarsh's Complaint is devoid of any allegations of Defendants having conducted business within Cumberland County or the Commonwealth of Pennsylvania. 29. Dr. Smarsh's Complaint is devoid of any allegations that services were provided by Defendants to him in Cumberland County or the Commonwealth of Pennsylvania. 30. Dr. Smarsh's Complaint is devoid of any allegations suggesting that the formation of the contract or business relationship took place in Cumberland County or the Commonwealth of Pennsylvania. 31. Dr. Smarsh does admit to having reached an agreement with Defendants and faxing a signed franchise agreement dated October 14, 2005. (See Compl. ¶ 26). 32. Dr. Smarsh admits to having received Defendants' e-mail dated October 10, 2005 which in addition to addressing and accepting language changes, set the franchise price at $24,995.00 (see Compl. ¶ 24; Ex. "B") 33. Dr. Smarsh admits that "at some point," he was advised that the purchase price discount was $24,995.00 (see Compl. ¶ 16). 34. The point at which he received this information was on October 10, 2005, not only prior to Dr. Smarsh's October 13, 2005, execution of the franchise agreement, but also in the very e-mail on which he bases his claim that the terms of the franchise agreement were amended (see Compl. ¶ 24; Ex. "B"). 35. Dr. Smarsh's executed franchise agreement did not state or reference a franchise fee of $22,500.00 as he now alleges (see Compl. Ex "A"). IM782 7 36. Dr. Smarsh has failed to allege any facts upon when to state a claim of "mutual mistake." WHEREFORE, Defendants respectfully request Plaintiffs Complaint be dismissed in its entirety with prejudice and attorney's fees and costs be awarded to Defendants and against Plaintiff. Dated: Lc Respectfully submitted, LATSHA DAVIS YOHE & MCKENNA, P.C. By G?Qx?o Glenn R. Davis Attorney I. D. No. 30140 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 (717) 620-2424 Attorneys for Defendants, Spinal Aid Centers of America, Inc., and Frank Liberti, D.C. 107782 The undersigned hereby verifies that the statements of fact in the foregoing are true and correct to the best of my knowledge, information and belief. 1 understax,d that any false statements therein are subject to the penalties contained in 18 Pa. C. S. 9 4904, relating to unworn falsification to authorities. Dated: f D ?J i ? rr? h1n?? n.- ! r J 0 O. ! w s ca r r ! NOW r err r r 4!• r r THIS AGREEMENT is signed on !2005 (the "Effective hate") between spinal-Aid Centers of America, Inc., a Florida corporation, having, its Q?cipel business offices at 44175 East Bay Drive, Suite 104, Clyprwater, Florida 33764 and T11v1a?15 Srnz , an individual residing in the state of Vff. having his or principal business address at; _74-1117'.Rrnd k iu Cnerrl &1% 1 ?O/.1 This Agreement is written in an informal style to make it easy to read and to help you become thoroughly familiar with all of the important rights and obligations that this Agreement covers before you sign it. In this Agreement, Spinal-Aid Centers of America, Inc. is referred to as the "Prawhisor," "we," "te or "our" You are referred to as the "Franchisee,, "You" or"yoff." A. We have developed and own a proprietary business system under the trade name "Spinal Aid Centers' that enables qualified professionals including chiropractors, medical doctors and oateopefs to provide to patients, diagnostic, prescriptive deooauptrosion - rehab neck and back programer, general medical services for prevalent ailments and offers, therapeutic resolution. of neuro-muscular . skeletal problem using our proprietary intellectual properties including its trade secrets, confidential manuals, copyrighted materials, administrative systems, patient evaluation forms, management and billing control systems, marketing methods, advertising and promotional materials, training and supervision programs, layout and design apeci$c WOW (c(Illecdvely the "Proprietafy Materials). . B. We continue to expend our time, money and other valuable resources to further develop the Proprietary Materials, all of which may be changed and improved from time to time by us, to meet the developing needs of an Franchisees who operate their indepeadently-owned Spinal Aid Center (ft "Franchise Sys ,% and to mteg its into tie Franchise System such new or substitute Proprietary Materiels, programs, protocols, jimcediaes, systems, whose, activities and products as we, in our sole discretion, damn essential and in the best interests of the Franchise System. . C. We continue to develop, use and control the proprietary Materials for our benefit and exclusive use and our Franchisees in order to identify for the public the source, multi mity and high quality standards of decompression - rehab neck and back services provided to patients throughout fie Franchise System and to maintain the high standard of quality associated with such services and products throughout the Franchise Syarom. D.. We are die ownar of the exclusive franchising rights and the Spinal Aid Canter service nark and such other service marks, tmdemuuks, trade names, distinctive trade dress and logotypes as are now designated or may howtiter be designated by the Franchisor for use in comectlom with the Franchise System (the "proprietary Marks'). E. You desire to become associated with the Franchise System and to purchase the rights to operate one franchised Spinal Aid Corte within the Operating Territory described below for the sole purpose of using the Proprietary Mateials to provide decompression - rehab neck and back patient services and products under the Proprietary Minks. F. You understand and. acmowledge the importance of maintainisg our high and uniform standards of quality and service, the necessity of maintaid3ng the Proprietary Materials in strict confidence and the obligation to operate the Spinal Aid Canter in conformity with of standards and specifications in order to protect and preserve the goodwill of the Proprietary Marks mid the Franchise System G. You ac knowledge having road this Agreement togther with our Franchise Offering Circular and accept the tams, core tons and coveminfs contained in this Agreement as being reasonably necessary to maintain the integrity and reputation of the Franchise System and to protect and preserve the goodwill of the Proprietary Marks and Proprietary Materials. W The parties agree as follows: 1.00 RIGHTS GRANTED BY FRANCHISE AGREEMENT 1.01 INITIAL FRANCHISE FEE In consideration of your payment to us of S (the "Initial Franchise Fee"), receipt of which is acknowledged, we grant to you the right to own and operate a franchised Spinal Aid Center using the Proprietary Materials and Proprietary Marks in compliance with the terms and conditions of this Agreement within the Operating Territory. 1.01 LICENSE OF PROPRIETARY PROPERTY We grant to you a license to use the Proprietary Marks and Proprietary Materials in compliance with the terms and conditions of this Agreement and the Proprietary Information Agreement, attached as Exhibit c to the Franchise Offering Circular and incorporated herein by this reference, both of which agreements have been signed wucrurerdly by you upon payment of the Initial Franchise Fee. 2.00 TERRITORIAL GRANT AND GEOGRAPHICAL 2.01 OPERATING TERRITORY You are granted a eonditioneW exclusive franchise and license to use the Proprietary Marks and the Proprietary Materials within the geographic area (the "Operating Toorkory") encompassed by a radius from the premises having a.popula m of at least 100,000 persons and whose center is the approved location of the Spinal Aid Center (the "Franchise Premises"). The approved location of the Spinal Aid Carter and the Operating Territory will be described end dalienhad upon a high resolution map section attached as Schedule A. The Operating Territory wilt m certain situations, may be so densely populated that more then one Spinal Aid Caner will be rap fired to adequately service the patients whbm the population base. If the Operating Territory proves to be one that requires more than one Spinal Aid Caner to service the pattern population, we will not grant anyone else a liom w or franchise to operate any other Spinal Aid Center within the Operating Territory without first oiTerfig you the right of first reflhsal for 30 days to own and operate the proposed additional Sproul Aid Comer. If you Esii to timely. exercise you right of fast refusal, the conditionally exclusive rights granted will not bar the gxming and operation of additional Spinal Aid. Centers. by gaal1fied individuals or entities. Before opening any new or additional Spinal Aid Centers, the closest franchise to any new proposed area has the right of fast refusal for 30 days to puachase that territory. 2.01 FRANCHISE PREMISES If you have sufficient a= available at you existing office location to commence operation of your Spinal Aid.Center in compliance with our standards and specifications, the address of that location will be inchuM on Schedule A as the Franchise Premises upon signing this Agreement. If you have not faced a suitable location for the Spirad Aid Canter before signing this Agree eat, the shat address for the Franchise Premises will be left blank on Sche&ile A until such time that you locate and secure a Franchise Promises acceptable us. You will, widths 60 days from the Effective Date (the "Location Period'% age in waiting on Schedule A to a suitable Franchise Promises from wbkb you will operate your Spinal Aid Center continuously and Without interruption during the Term. We reserve the right, do our sole discrabon upon your showing of good terse, reasonable diligence and good faith to. grant you an extension to the Location Period of not more than 60 days in which to locate and secure the Franchise Premises. Any extension of the Location Period or allowances of more time by.us will not in anyway affect your obligation to begin operation of the Spinal Aid Center within the mmdmum time limit of 180 days from the Effective Dan. aa? s 40 ss? r r. NNW at7 y ?I MJ 1 aa? am No 0 r s Ow AV Islik +/ era. r s M? AV ia• i a• s a• W A The street address of the Franchise Premises is an integral pmt of this Agreement since it serves to define the Operateng Territory and therefore must be included in Schedule A before you begin any business using the Proprietary Marks or Proprietary Materials in the Operating Territory. The address of the Franchise Premises will be updated as necessary by amendments to Schedule A which the parties will sign and date in witness of their mutual acceptance. You agree that you will not relocate the Franchise Premises within the Operating Territory without our prior wrht n approval, which approval will not unreasonably withheld. 2.03 RMUCTIONS UPON FRANCHISEE You expressly acknowledge that the giant of the Operating Territory doer not confer upon you any exclusive marketing a advertising rights in the Operating Tmrltmy. To the contrary, you acknowledge that we will; on a regional and national basis, engage in maketrog and advertising programs.that will, directly or indheody, service the operating Territory and enhance public recognition of the Proprietary Marlin and the services provided by Franchisees throughout the Franchise System. We do not require our Franchisees to provide goods or services solely to individuals residing within flair nospaXive Operating.Torritories. However, you will not, within the operating territory of any otber Spinal Aid Center (whether congrany-owned, f whised or otherwise established), provide OW Spunk Aid Cater services or prodwts, or publish any materials, which solicit arstamers to or otherwhe advertise the services offered from orth ough its Franchise Premises. In addition, you will not advertise outside of the Operating Territory without our prior written consent , which may be wWdwld in our sole discretion. 3.00 TERM AND RENEWAL 3.01 INITIAL TERM The initial tam of this Agreement is 5 yeas (the "Term"), unless otherwise tsnninated sooner in aceerdance with the provisiems of this Agrcciment. 3.02 . RENEWAL TERM If am not in default wider the tame of this Agreement, you may renew the Franchise for additional periods of 5 yeas each. ifekcting to renew, you must morcise your renewal option by giving us wtittatnotim by certified mail or personal delivery at lest 190 days before the end of the Tan: You will not be required to pay the then current Initial Franchise Fee u11pm renewal of the Franchise but will pay a renewal fee of $1,000. Notwithstanding any provision to the contrary in this Agreement or in the renewal Franchise Agreement, ifyou.renew this Agreemick you will not be required to pay a Management Fee in excess of the prevelft Management Fee assessed to new frarnchiaeea. Y owledve, that we may, as a condition 1rrraewai, require you to dutim tend ebl pursuing to the then existing farm of Agmemmst, Which may differ Soya =require set in this Agtamgag. You 11aither wim that we may also, as a condition of a rahewal require to spend apm 550,000 an jamebold and otherwise to upgrade or row the Franchise 1?rtmixs. We may, ?e eflen,170111190 to renew or may Wmirae.this Franchise Agreement for Good Caux. Good Cause includes your failure to oanply with the lawfd material provisions of this Agreement or any other milateral agreenhag betwem the parties after being given written notice of default If the default cemnot be cured within 30 days, your failure to tnttate substantial and cogimiog axiom to cane the default widem 30 days is deemed a willful and material bench of any such apmnmt. I1; during any 12-month period, you commit 3 wihlSil and material breathes of the sane tam or provision for which you have bees gismo reasonable notice and a opportunity m sae, we may oermhhate this Agreauent upon any subsequent wMU or material breach of the sent tam within that 12-trench period wboit providing notice or an opportunity to cure. 70 4.00 CONFIDENTIAL OPERATIONS MANUALS, STANDARDS AND SPECIFICATIONS 4.01 CONFIDMULOPERATIONS MANUALS Upon your signing this Agrcement and a Proprietary ]nfotmation Agreement, we will loan to you one compl tie, sarfalized set of the "Confidential Operations Manuals in the form appropriate for and at the time of your lnihW Training progrant The Mammals contain our valuable intellectual Mopertm including our trade secrets, operating procedures, database management systems, advertising and marketing matmrfals, specifications, stmmdaNs, approved supplies and products, accounting forms and bookkeeping methods. Those Manuals will, together with any subsequent modifications or ame ndm ems, remain our confidential mad exclusive property. All shareholders of a corporate Prenchim and all partners of a partaeasltip Franchisee will, before receiving any access to the Confidential Operations Manuals or any other proprietary Materials, sign the R rietary Information Agreement for Franchisees. All of your dhactors, officers and emrpioyees rust, as a Condition of their emnploymem sign proprietary lat'onnetion Agreement for Employees of Franchisees. Neither the Franchisee nor rb agents, independent contractors or.emupldyees will copy, duplicate or otheexiae reproduce my pat of the Manuals ft any reason whatsoever, you will not disclose the Manuals, in whole or in pat, to anyone who is net legally bound by rte: FropriCtay loformmtum Agremunt.. You will, upon expiation or tarinh ad nn. of this Agreement for any maws, immediately return to us the Confidential Operations Mammas at your cost. You will card* such return by delivering, persoomlly or by cernfled mall, the Manuals and duly executed Termination Certificates (attached as Schedule A to all proprietary Information Agreements) for each proprietary Information Agreement entered by yourovmes, shareholders, dhectoM officers and en iployees. Notwithstanding any provision of this Agreement to the contrary, Proprietary Materials does not include hArmaemh (?) which is or becomes generally available to tine public other than as a result of a disclosure by you or your agents, (ii) which was available to you on a, non-confidential basis before disclosure of tie imfonnaton to you, or (fit) which becomes available you on a nai-confidential basis from it person or entity other than us, who is not otherwise bound by a written confidentiality agreement prohibiting that person or entity from disclosing the inforoatiom. Notwithstanding any provision in this Agreement or Manuel to the contrary, we witi not interfere with or 7nfiuence your or your practicing Physician's Professional Judgment and health care decisions IN providing services to your patients or exercise control over your or your practicing physician's practice of madkine. 4.02 MODIFICATION OF STANDARDS AND SPECIMCATIONS We retain the right to prescribe additions to, deletions from and revision of the Mammals (&a "Supplements"), which become binding on you upon being mailed or otherwise delivered to you, as if originally ad forth in this Agreement We will notify you in writing, as far in advance as possible, of the non of any revision, amendment or subsequent modification of the manuals and its dfwdve elate. In the case of the modification of standards or specifications for goods, services or supplies, you will have 60 days from the effective dare of the modification in which to bring operations into full compliance. Where such modifications involve t in operating procedures, adawdstrebon of patent services, accounting or booldmapimg mettadi, advertising roaliena , inventory control systems or other procedural matins, you will have 30 days from the effective date of modification to flally.hitagiate the necessary charges in the day today operation. of the Spinal Aid Center. No modification or addition will matmially adversely affect your am* or rights under this AgreeuumL You agree to maintain your Spinal Aid Center in compliance with the Manuals and all Supplements which we may provide. We will provide the printed Supplements and the specific lostrricdous which you will need in order to update ft Mammals. You will at all times ensure tact your set of the Manuals and the Supplements are mod and UP40 efete. Upon any dispute as to your compliance withVie provisions of the Manuals or any Supplements, the tarns of the roaster copy oftne Manuals and Supplements maintained by us at our principal office is controlling. We agree that all expenses tat you mean as a result of the adoption of any Supplement will be reasonable, within your means and in the best interests ofthe Franchise System. J ?A J Now r 11010 s lama s Ish? woo .lo a? PIT woo) FMV a?q Wall 4.03 A"RovED SUPPLIERs We will designate an approved supplier based upon the supplier's demonstration that it is able to consistently supply our Franchisees with goods or services meeting our standards and specifications. The list of names, addresses and l telephone numbers of all approved suppliers will be maintained and updated by us in the Confidential Operations Q Mamrols. We reserve the right to green or revoke the approval of a supplier at any time. if approval of a supplier is revoked at Franchisee- will be promptly notified of yip revocation and its effective purchase i Ixopnd equipment, patient formsas endue from ety or from ourg?etes, subs or designeejo&o are licensed to man have proprietary items exclusively ?yprY014 ndase or pl6errr>se your en ens to use se all merchandise And supplies acquired ?am an approved supplier after we revoke approval of that supplier, unless we ressdi ibty determine that continued use would be detrimental to the Franchise System as a whole, or &Anviae constitute a broach of this Agreement or any other agreanem of the parties. We will sell,.and ahsure that approved suppliers, sell, all proprietary merchandise to you at a reasonable price. You have the right in purchase non-proprietary merchandise, from any supplier, regardless of whether approved by-us. 4.04 EQUIPMENT, FIXTURES AND TRADE DRESS The fixtures, equipment, interior design specifications and graphics for the Franchise Promises constitute our proprietary trade dress and aerate the unique appearance upon which the cantmoed public recogoilion, valuable goodwill and national business reputation of the Franchise System depend. All Franchisees are required to conform their Franchise Premises to these specifications and comply with all such standards, as modified from time to time, in the Confidential Operations Manuals. We any fimme fmmo.. ,rr' «, smerd able amounts to implement changes presaibod In the Manuals and to otherwise conform the Frandhise Premises to our standards and specifications as modified Any new or different requirements will not unreasonably Increase your obligations or piece an excessive burden on your operation of the Spinal Aid Center. Yon agree to adberis to any modification and to condudthe Spinal Ant Caster in strict compliance with our standards and specifications as modified. 4.05 PROPRIETARY MARKS AND PROPRIETARY MATERIALS You aclmowledge that we have full , responsibility for and will maintain absolute control over the use of the Proprietary Marks on all promotional materials including printed and broadcast advertiser=14 direct mail materials, stationary , business cads, press releases, posters, Point-of-sele displays, and all signs used at the Franchise Fremises. The Confidential Operations Mar mah and Supplements will ad forth the restrictions and limitation on your use of throes Proprietary Marks, and you agree to comply fully with all standards and specifiesum, as amended from time to Vie, moditymg or hhDidmg use ofthe Proprietary Marks in publications mid otherwise. 4.06 ADVERTISING MATERIAU ?a,IZ nD taw ten izaaaonpol? xdfn[! ing, You will use only thosee marketing and pronwtaml mantis, which we *cifically eve for use throughout the Franchise Mammals and the Supplements onmeh all approved mdaiab and provide you with the VAMhhes fix and Ikmitadons wort authorized usage. You are net permitted to use the name "Spinal Aid Center" or any combination thereof; as part of you legal or business name except to Comply with state fictitohs or asshmhed name statutes. True and correct copies.of any adverb g. maitetag or promotional materials which you may develop independently of the Mamals and propose for use within the Operating Teintory must be submitted us for our written approval before any publication of dissamimaton by us: our Ware to respond whim to Business Days following the.doamtahtod receipt ofproposal material ; is deuced to Constitute our approval - -70 -may agage in due lx>gpha5s of pro or sell quantities of advertising, hisees at such prices as w publish, ements. If you a?oeds to engage in taoials or ad a therein: then von will I O buying or placement saviors and promotional maeiels from time to time, is the activities of media time flyers and related fibrins to d Operations Manuals and or print space and plachig easonable service fee no to exceed IS% of these documented costs. We aclmowledge that you are not obligated, in any way whatsoever, to pmehase these matalals, forms of services $om us •s i 7 r r i r. r.w d a? s Oak s 4w s r do# r 4w r 5.00 FRANCHISER TRAINING PROGRAMS 5.01 INITIAL TRAINING PROGRAM AND INDIVIDUAL TRAINING PROGRAMS We do not charge you any fee for the Initial Training Program for you and up to 2 other people. You scimowledge that you are required to attend and successfully complete an appropriate Initial Training Program and that you may also, in your sole discretion, have up to 2 additional people drat you propose to serve in the management of the Spinal Aid Center (the Manager,') attend the some Initial Training Program without payment of any additional training fee. Franchisees will receive Initial Training for a period of not lose than 3 days and 1-dey in-ofHoo visit (tenting 4 days). We will conduct the Initial Training Program at our corporate training facilities in Clearwater, Florida or at such other certified training center we may designate. You acknowledge that you are solely responsible for the cost of transportation to the training facilities, the cast of hotel accommodations during the Initial Training Program, the cost of daily ttaospartabon between the hotel and the training facilities and the cost of all meals and personal expenses incurred by you and yomlr Manager awing the Initial Training Program. We will charge $100 for each additional person who attends Initial Tminhng above the initial 3 People. Your Ttessf'aees or Assigmea will be responsible for all transportation costs to tie training facilities, lodging cosy personal expenses, and all meals during their mandatory Initial Training Program Your Transferees or Assignees as well as all subsequent Transferees or Assignees, will be required to pay an Iaitel Training Fee in the amount of $2,000 for their Initial Training Program, All Transferem and Assignees are required to mend and succeufimlly, complete the Initial Than Program and may, in their sole discretion, have the person that they propose to have serve as the Manager attend the same Initial Training Program without payment of any additional initial Training Fees. You aclmowledges that your Transferees and Assignees will be required to mend such hftl Training Programs and will be requited to pay this Initial- Training Fee in addition to being solely responsible for their transportation, lodging and meal expenses meals during their Initial Training Program, in addition to the initial Training Program, certain Franchisees, Managers, Transferees and An*wm may, in our sole discretion, be requested or regmrad to mend Individual Training Programs which we prescriptive in nature and designed to help time individuals improve the opmVlmn of their respective franchised businesses or to strengthen their business management skills. All such individuals may be required to pay it unifam fee in an amount which will am exceed 5250 for each day of their Individual Training Prog am Each person in Wendamce will be responsible for all their transportation, lodgiag, meals and personal expames during any such Individual Training Programs. You admowledge that those persons attending such Individual Training Progams'wdl be required to pay this fee and will be solely responsible for their usaspeataion, lodging and meal expenses during aq• such prescriptive training programs. 5.02 COMMWMG TRAINING PROGRAMS AND CONFF•RENIICS We retain the absolute right, in our sole discxeton, to presahbe optional and mandatory Continuing Training Programs for our Franchisees without charge from time to time. We may provide Continuing Thdaing Programs for all Franchisees who need specialiaed.inshucdom and hands-on training with Implementing newly dvdoped operating procedures as they are being incorporated Into the Franchise System. The Franchisor may provide Contusing Training Programs. for those Franchisees who, as an idemihable group, have experienced the sane a similar diffiw)tes in managing their Spinal Aid Center and businesses affairs. These Continuing Training Program may be bold at the corporate framing fIcilftkes or sues oflan locations as wo may designate for the convenience of the Franchisees in attandance and our training staff All Comtmdng Training Programs will be structured to build businammanagement r7Ss will be responsible for their own travel ladgirng meals and7iving expenses. We will sponsor, according to the needs of the Franchise System, Regiotatl.and Nadonal Conferances at which the Franchisees will receive infnnnation on mow trends in the aress of chiropractic, medical and Decompression - Rehab Neck and Bade patient services, be advised of now developments in the Franchise System, review the advertising budget and programs for the National Advertising Fund, attend specialized workshops and training sessions for new patient services and products, and share information and ideas on ways to increase profits front operations. You acknowledge that attendance at time Conferences is mandatory and agree to be responsible for your ita own transportation, lodging, meals and personal expenses. In addition, you acnowledge that you may be required to pay a reasonable fee to us on a pro rata basis with all other Franchisees to help defray our cost of sponsoring Regional and National Conferences. We reserve the absolute right to postpone or to not conduct Regional and National Confa ences. 6.00 YOUR OBLIGATIONS BEFORE OPERATING THE FRANCHISED BUSINESS. 6.01 ACQUISMON OF THE BUSIMM PREMISES We will provide, as an integral part of the Confidential Operations Manuals, the necessary guidelines and the criteria with which you must comply when making a location decision. The base negotiation and selection of the Franchise Premises are your sole responsibility, however, we provide reasonable assistance to an Franchisees on a needs basis and may, in our sole discretion, provide on-site help with evaluating certain specific locations. You further adamledge 69 you nay, depending upon your experience in such ntaam6 and the complexity of the real property bass involved with either acquiring anew Franchise Promises or expanding the size of you present office location m accommodate a Spinal Aid Came, be. required to retain legal counsel or seek other professional assistance with negotiating terms and othawias reviewing Our lease before signing any written agreement: We will provide reasonable assistance both to you.and your professioml representatives, on matters directly related to securing a Franchise Promises that conforms to our standards and specifications. We reserve the right to wilise granting a Franchise for any Franchise Premises that is not in cornpliwico with our wiiform standards and specifications. 6.02 EQUIPMENT, FIXTURES AND UVROVEMENTS Yon acknowledge that the expenditures required for equipment, fixtmea and improvements to real property are solely within your discretion and will be determined principally by the type of your e>uadng practice, the size of your wr eting patient base, tie size and type of the proposed Franchise Promises and the written agreemnts with me owner of the real estate. You agree to k mft& according to the standards and spedfcations ad forth in tiro CouSdeuOel Operations Manuals, the approved equipment and/tx ffi mss before. beginning operations ofthe Spinal Aid Center at the Franchise Premises. We will create an equipment layout plan for your decompression and rehab equipment and provide you with any derails regarding the necessary build-out, the mstallauon of equilno and fixtures, and the interior design of your existing office space or.your newly acquired Spinal Aid Carter. 6.03 WOBRDiG CAMAL AND MIALPLAN OF AMON You acknowledge that the amounts we estimate as being required for working capital, deposits and prepaid expenses gained in rMM 7 of the Franchise Offering C rcalar are predicated upon the assmapdon that die Spinal Aid Center will not produce a positive cash flow during the first 90 days of operations: You flutter ac nowledges that if; for any reason, new patient development is slow after the hddal development of use f sachised bushtess, additional funds may be required to pay operating expanses unroll such time as the franchised business genes sufficient cash from operations to cover expenses. You agree that YOU Will use your best efforts to secure adequate wmiing capital for maintaining operation of the franchised business and flat you will, pursuant to your fmancial teporthtg obligations wider this Agreement, keep us advised of my actual or antioipated cash flaw problems Y Men may interfere with continued operation of the Spinal Aid Cantor. After you lave signed this Agreement and have successt'idlly completed the Initial Training Program, we will provide you with reasonable assistance in developing an Initial Plan of Action to beginning operation of the franchised business. This Plan will include new patent development strategies and goals, a budget for available and anticipated resources, marketing strategies, advatising content and placement within the Ope aOmg Territory, grand opening procedures, and an estimate of operating expenses during the kmitial 3 months of franchised business operations. You 7? 002 "al aa'2 at ask. ar+ erase will not, in any way whatsoever, interpret or construe as to be our obligation or commitment to implement or administer the Plan on your behalf. 6.04 INSURANCE You agree to maintain, at your sole expense and at all times during the Term, Comprehensive Public Liability Insurance in the amounts stated below and to name us as an additional insured under all policies. The insura= policy or policies must be written either by an approved m nmenot company hated In the Confidential Operations Manuals or by any other insurance company capable of satisfying our written standards, specifications and minimum policy ants. The Certificate of Insurance trust Include a statement by the insurer that to policy or policies will not be canceled or materially altered without at least 30 days' prior written notice to us sou oardfiied mail ratut receipt requested. You age to fomfsb us with a Certificate of Insurance before beginning operation of the ftwhised business and amorally thereafter. You agree that you will carry and maintain, at your sole expense and at all thnes during the Term, workers compensation and employer's liability Wawa= for all of your employees mppd in &a operation of am Sanitised business and provide statutory workers' compensation benefits as required by the laws of all states in which yon employees are located or perform services. The minimum. policy amount for Comprehensive Public Liability Insurance must be $1,000,000 on an -occurrence" basis, covering all of your operations ps named insured with a S1,000,000 combined single linait coverage, unless a lesser amount is specified, for the following types of claims: (1) Promises and Operations; (2) Products and Completed operations; (3) Personal Injury, (4) Advertising Liability; (5) Broad Form Property Damp; (6) Contractual liability; (7) Employees as Additional Isms ands; (8) Hxwnded Bodily Injuy Coverage; (9) incidental Medical Malpractice Liability; (10) Fire Legal Liability on heal Pcopfarr,,'(11) Pramisea Medical Payments; and (12) Owned, Non-Owned and Hired Automobile Inwmance. We reserve the right to increase or decrease the mmimman policy hours and to require differan or addhional kinds of insurance tan time to time. You agree to report all claims, or potential ciahM to both the insurer and to us as soon as you have actual notice of the claim or knowledge of the incident fran which a potential claim may arise. If you fail to purchase or maintain the insurance, we may (but is not obligated to) obtain, through agents and hmaurance companies of our choosing, the insurance on your behalf and at your sole expense. You expressly agree to pay the required premiums or to reimburse us for such payments made on your behalf Nothing contained in this Agreement will be construed or deemed to impose any, duty or obligation upon us to obtain or maintain any specific forms, kinds or anon is of insurance for or your behalf 6.05 I LENSES Arm PERMITS Before beginaft operations at your Spiral Aid Center, you will obtain all local and state pemtts, licenses and certifications necessary to conduct business. You will also comply with all safety. lndldbmg or other focal, state and federal statutes, ordinances, regulations,. mks, licensing requirements or standards applicable to the Franchise Promises or the operation of Ora Spinet Aid Curter. We are responsible for aivisimgyou of any regulatory mattes or doemlmiag your compliance therewith, and you agree to hold us less from any claims, losses or liabilities tan rpgulatorymatters. .?1 a 44ja cte 1,0PI fJl ' e 7.00 OPERATION OF THE FRANCHISED BUSINESS 7.01 COMMENCEMENT OF FULL AND CONTINUOUS OPERATION You will begin full and contusions operation of your Spinal Aid Center from a mmmmally agtaed upon Franchise Promises within 120 days beginning with the Effative Date unless we, ia4winle-ciao tlm, upon your showing of good M& affect to perform reasonable. diligence and chAmnslances beyond your control as cane for non- pa6anarkce, gnu you a reasonable wdension not to exceed 60 days. If you fail to begin fall operation of the Spinal Aid Center within die 120-day period or, if an Mansion period is granted, the maximum allowable 180-day period, we may terminate this Agreement affective immediately. Upon termination, we will refund to you 8046 of the initial Fro ddw Fee less 20% to cover our reasonable eupenses. These mg macs include the costs of preparing the Franchise / - 'Agreement and related documents, oondmtiag a routine fmrestigation of you, training the Franchisee, selecting the Operating Territory and assisting with location of the Franchise. 7.02 MANAGEMENT OF THE FRANCHISED BUSINESS You will maintain direct control'and supervision of the Spinal aid Center and the Franchise Premises. You may employ a full-time (referenced in Section 5.01) to supervise the day-to-pay operation of the franchised business, provided duet the Manager first signs the Proprietary laformation Agreement and than successfully completes the lukal Thining Prograrn• 7.03 COMPLIANCE WrIV STANDARDS AND QUALITY ASSURANCE We have established certain defined standards specifications and procedures for Tanning the Spinal Aid Centets, which an uniform and mandatory for all Ruchisaea wd* deer Freachise.System. We will offeryou belp and assistance with achieving and maintaining these standards throughout the Tam as these standards me, and will continue to be, Medy enforced by us. We ageoo to comply fully with all standards, specifications and procedures We designate as required or mandatory in the Confidential Operations Manuela, in its Supplements err in writings We provi& to YOU. Subject to MpA Guidelines and' with a patient's permission if necessary, you feather agree that we or our duly designated representatives are permitted, at any tune during the Term ad forams reason, to periodically (with or wlOnart prior notice to yon) enter the Franchise Praxises during normal hours of operation for One purpose of observlag studying and raking is written report of your operation and your compliance with the mandatory standards, specifications and proxqurres (the "Quality Assurance Report'). You fur9eer agree to provide you or your representative with any requested infctmnation, records or data on your business operations reasonably related to conducting a study or preparing a Quality Assurance Report. We will provide you with a copy of time completed Quality Assurance Report setting forth the material deficiencies, if any, and describing, as necessary, a reasonable course of action to remedy anry deficiency {the "Plan for Correction"). You will, within the time limits'set forth in the Plan for Correction, comply with and fldly implement any remedial action designated in the Plan for Correction as mandatory or required, and consider in good faM any other recomahendaOorms or suggestions for improving The efficieaey of patient services and business opemdws, and for tacreasing revenues. You acknowledge tbat failure to implement any Plan for Correction may constitute a material breach of this Agreement and be grounds for termination. 7.04 LATTZrDEVELOPINEN4S AND CONTINUING TRAINING PROGRAM We will endeavor to. keep slimed of the most recent and advanced knowledge 'concerning systems and txdmiques, which enhance or facilitate operation ofthe franchised Mummers. This knowledge will, when and as we doom appropriate, be ad forth in writing and included is Supplaamts orache wit distributed throughout One Franchise System. The Franchisor will, pursuant m. its obligations to provide Continuing Training Programs and Coaf'dences, conduct seminars and structure leaning tneterl vA tichinake the knowledge and operating t chmilues readily avallable to all F7atxldsees. We may designate these Progmma, Cenfdances or senthu rs 85 elfh r mmdaory or optional for the Franchise system, and all Franchisees will be retried to atiad and aaisFacturily complete Dry programs. Conferences or seminars designated as mandatory. You acknowledge and agree tint we have absolute discretion with the content, schedmhig said classification of all Programs and Coddeaxs, and will, as we deem appropriate to the needs the Franchise System, have the right W conduct postpone or not conduct my National or Wonal Conferences. 7.05 RETENTION OF RECORDS You will, at all tines during the Term, maintain a complete and accurate sot of all business and fmmcial records related to operating the Spinal Aid Center These records' include patient histories, insurance payment records, database critics, order sheets, mportst tax ratans, financial staemmb and invoices. You will provide us amnally, within 60 days of the end of your Franchisee's tax yea, a profit and loss statement and a compilation balance sheet prepared by a Certified Public Accountant You will retain all records for your SphW Aid Center far a madman period 10 ? .67 ? Lai of 5 yeas as provided is the Confidential Operations Manuals and make all records available us for ioapectloq audit or 27.06s uring normal business hours et the Franchise FRANCHISOR'S RIGHT TO AUDIT le notice to eserve the at any any rea50 pwV inspect or audit during mop ho y business you are uired topimmun pursuant to this Agreement Operations Man Audits conductd at 7.07 PROTEcrwN OF PROFRIETARY MARKS AND MATERIALS 40 002 We will make reasonable effats to protect your right to use the Proprietary Marks. Upon any iu*kWment of 02 or challenp to your use of the Proprietary Make, you will immediately not* us. We have sole discretion to take such sedan, as we deem appropriate and have the exclusive right to control any litigation or administrative proceeding, which in any way relates to the Proprietary Marks or your use of the Proprietary Marina. Any damages or other bmofit srisiag n.r out of such action accrues to us. It in our sole discretion, it becomes advisable at any time for us to modify or discontinue use of any of the Proprietary Marks or to use one or more additional or substitute names or maim, you agree to do so. We are not obligated to reimburse you for any costs incurred pursuant to complying with this obligatiau. You acknowledge that you 40 do not bdve any right to recover damages, costs or other forma ofrelid5om us upon any modification, discontinuation a". or substitution. No goodwill or other trade value associated with any name or mark inure to your bernaft y You agree to secure the Conilde ntial Operations Manuals, the Supplements and all other Proprietary Materials am under hwk and key at the Franchise Premises and to limit access only to those individuals who have executed the ! Proprietary Information Agreement. r nr 7.09 GRAND OPEN NG ADVERTI M O w You must spend at roast 53,500 for opening advertising aetiviti . You will implement a opening a. antis and promotional program for sometime during 60 days after opening our +?' activities and pub' , and advice and guidance staffing, decomadou, and of the err the Wind opening ,r r 7.10 LOCAL. G RFQUIREa>Fdl'I` ZONAL OWNEMS FOR r Elk You agree between $700 and $1,8 each 3-week period for I initiated and placed +a inch by Franchisees will Media and placing • ing wi0dd their respective Opxradng ea pnmsumeud to risk Local ltequrhernmt in the month that you begin operations. M You will as outside of the Territory without or prior 'ttenconsent, which maybe withhold in our sole tion. i ' i 7.11 MANAGEmrNTFEE or ? You will pay to us a mom?mly assessment in the amount of $349 per month, (the 2danageruuent Fee-) througlaut the Term. You agree to begin payment Of this Management Fee on the 15th day of the 3rd meth followbtg OF the month in which you commenced operation. Payment of this Management Fee most postmarked no later than the • 15th day of each mordlm. 0 / r r ?+ 7.12 P r M (a) All payments by you to us will be effectuaW by a Payment System by the use of pre sutiuodaed r transfers from yam operating account through One re of special'dmb or electronic fund transfers, that we will process r 11 at the time any payment is due or through the use of any other payment system we designate. You will cooperate with us to implement die Payment System within 15 days before opening date. You agree to cooperate with us in maintaining the efficient operation of the Payment System, including depositing all Gross Revenues you receive in your operating account accessed by the Payment System within one Business Day of receipt (b) You will give your financial institution instructions in a form we provide or approve and will obtain the financial institutions agreement to lbllow these instructions. You will provide us with copies of these instructions and agreement The financial institution's agreement may not be withdrawn or modified without our written approval and approval is within our sole discretion. You will also sign all odor forums for Raids transfer as the financial institution or we may request (c) We mq? require your financial Vk9oll to send a monthly statement of all ?OKity in the designated to us at the smat lima as t reads these to you, and any other reports of activity in the operating ;rtoifuyso ly determine and 0 maintai n other bank accounts for the franchise bVidess you must identify these eccourrs to to monthly statements for all these a6mirts and the details of all deposits and ,Vats to them. -? (e) You will pay all charges unposed by your financial Institution. We will pay the charges imposed by our firanciel institution for the Payment System. (f) You agree that your obligations to matte payments under this Agreement and any other agreement entered into with us or our Affiliates for the fiumbise business, and our rigins and the rights of our Affiliates, if any, to receive these payments, are absolute and uneonditonal, and are not subject to any abatemerht, reduction, setoff: defense, cormterclaim or recoupment due or alleged to be due to, or by reason of any past, present or frture claw that you have or may have, ageiust us, any of our Affiliates or against any other person for any reason. 7.14 I ATE PAYMENT CHARGEs You will pay us a We Payment'Chetge in the ammmt of 835 if any payment remains overdue where there were insufficient fiends in the FranchieWs acct subject to the Payment System. 8.00 ASSIGNMENTS, TRANSFERS AND TERMINATIONS 8.01 CORPORATE ASSIGNMENT AGREEMENT We grant 5aachises only to named individuals as Ftandnisem If you presently own or subsequently form a corporation or odher business entity meeting our ownership and control standards, we will permit this Agreement to be sniped to the business entity, provided that the business eiri ty is only ai dionzed to conduct the franchised business as granted under this Agreement and, should you purchase additional 5ssichises, other such agreements with us. You most, at all times, own the majority of issued and outstanding equity lmaests of tba assignee bushhesa entity and control the majority voting lower of the sbareholders and the board of directors. We will only approve an assiginaft when sat fomh in writing on our standard form of Corporate Assignment Agreement in which you and bushress entity (the •Asslgr W) agree to be bound jointly and severally by all the terms and provisions of this Agreement An asshgrrmem does not relieve.you of any of your personal oblipifltms, responsibilities or duties to us. Further, all issued and outsianding's}are cats of the Assignee trust bear a legend staling dad the shores may not be transferred, assigned or sold without our prior written approval . 8.02 RIGHTS OF FRANCHISEE'S HEIRS Upon the death or manpacity of an Individual who is the Franchisee, a shareholder of a corporate Franchisee or a peutaer of a pmliership Franchisee, we have the right to asaW you or you heirs in fading a satisfactory substrate to . assume control of the Spinal Aid Center if the Individual was a person upon whose professional reputation, ability, 12 r r Jr sow jr r > r am > r s r > r r > am r a/ Nab .? aril > r r am .M a., .t/ r > r > r wP r r .0 r r Wr r > r r Bob %V r utr r %0 r Pb %dr r MW r r r r s r r W IM experience or credit we relied in granting the Franchise. From the data of death o disabilky until a folly trained and qualified substitute assumes Sill-tfine operational control of the franchised business, we may, in our sole docredon, enter the Franchise Premm and operate the Spinal aid Center . The legal interest of the deceased or incapacitated Franchisee may be assigned to your qu &IIW spouse or adult children without payment of a Transfer Fee, provided that the spouse or adult child attend, at their own expense, and successfully complete the Franchisers earliest available Initial 'raining Program The parties will routually agree in writing upen selection of the individual to assume control of the fienchised business. The failure on the part of your heirs or personal representatives either to provide an agreeable substitute or to offer the franchised business for sale to a third party is considered a breach of this Agreement and Good Cause for termination. The right of first refusal to ropurcbass the Franchise described in Section 8.04 does not apply unless the heirs or personal representatives propose to eel or asslgn this Agreement to a third party. Your heirs at personal representatives have the sane rights and obligations as you if they desire to sell or assign this Agree menu, and the conditions and obligations descrbed in Section 8.05 apply to any third-party sale or assignment. 8.03 TEMPORARY OPERAMN OF THE BUSINESS BY ftANCHISOR If you abandons the franchised business or fail to operate the business during normal business bolas, or if any person upon whose ability or experience we relied in grmft the Franchise no longer actively participates in management of the franchised business, we may. in our sole discretion, enter the Franchise Premises and assume fall operational control of the franchised business until satisfactory arangemeats are made for a qualified individual to sun= control. During any time that we must assume control and manage the franchised business, we are entitled to receive a reasonable management fee for these services. 8.04 REPUHCILUM BY US Before completing any saie, assignment, transfer or other, transaction involving a sale of substantially all of the assets comprising the fiandilsed business or a substantial interest hn its rights and obligations order this Agreement, you must provide us written notice of the offer stating the complete terms of the proposed transfer and the frame of the proposed irensfxee. We have the tight of first refind to acquire, within 30 days after recelpt of such notice, the same mteravt on the identical tarns proposed, provided diet the price be reduced by cry sales commission which would have otherwise been payable and that we may substitute cash for any other form of payment proposed in the offer. If we do not exercise our rigbt of first refusaL *you may complete the sate as proposed, provided dust you and traoaferee comply with the provisions of this Agrcematt concerning transfers. If a sale to a proposed transferee is not completed wf0iln 60 days after delivery of the offer to us, we once again have the right of first refusal to acquire your interest 8.05 TRANSFER BY YOU The rights, duties and obligations set forth in this Agreement are personal to you We have granted this Franchise and license to you in reliance spat your professional reputatioq business sl &, financial capabilities and personal character. Accordingly, neither you no any immediate or remote aoxxssor to any pat of your merest in the Franchise, nor any mdividaal,' powership. corporation or other legal entity which directly or mdhectly controls you, .rmay not 8014 assign, uanafer, convey, give away. pldge, mortgage or odnawise amber any interest in the franchised business or in any legal entity which directly or indirectly owns the franchised business without err prior written consent Any purpisW assignment or transfer, by operation of law-or o&wMse, whi art our prior written oaHant is null and void and constitutes a material breads of this Agreement and Good Cause, allowing us to temtnn ge upon notice to you. We will not unreasonably withhold our consent to a Uanafer of the assets comprising the fianclnise business, any interest in the Franchise or this Agreement unless you re in breach or default of your obligations under this Agreement However, if a transfer, aim or together with other laevl0118, s erous or proposed transfers, would have the efed of tranaftaiog a controlling interest in the franchised basinew we may, in our sole discretion, require any or all of the (blowing as conditions of our approval: - 13 zxI (a) You comply with all the obligations required of Franchisees upon termination of this Agreement (as set forth in Section 8.11). You remain responsible for all obligations under the tams and conditions of this Agreement until specifically released in writing by us. You will be required to execute a termination agreement and a general release in a form we prescribe of all claims that you may have against us, our subsidiaries and affiliates, and their respective officers, directors, agents and employees a of the date of the assignment (b) The transferee is qualified according to the objective standards then being used by us as the basis for granting new franchises, and that the transflsae sign our trent form of Franchise Agreement together with all the collateral agreements then being required by us when granting a new franchise. The Mursferee is not required to pay an initial Franchise Fee, but you are required to pay us a Transfer Fee in the amount of $2,000. The transferee will, pursuant to its Franchise Agreement, be responsible for payment of to then c u em Royalty Fee, National Advertising Fee and other such fees, if any, being paid by now Franchisees. The transferee will also be required to comply with our then current Local Advertising Requirement as It relates to the advertising policies of the Regional Owners Form to which transferee will be admitted in your place. (c) The lrmrsilme pays to us the then-current hiltal Training Fee (currently $2,000) (see: Section 5.01 of this Agreement) and the transferee attends and sit hilly completes the Initial Training Program pursuant to the tams of the then current form of Franchise Agreement and otherwise fulfill the performance obligations required of new Franchisees before beginning operation of the franchised business. (d) The transferee signs before any payment to you, a disclosure letter concerning the transfer and containing our waiver and release for any amount paid to and representations made by you. 8.06 CONDITIONS FOR TERmiNAmoN BY You If we commit a material breach of this Agreement, which is not cured within 60 days after you have delivered written notice to us describing the breach, you may terminate this Agreement for cause effective 10 days after delivery of written termination notice us, provided that you are in full complier a with the tams of this Ageement You have no other termination rights, and termination by you without complying with the forgoing is deamed a termination without cause. Termination by you without cause will result in different post termination consequence than a termination with cause. &07 TERMINA71ON BY US: YOUR FAILURE TO QUALIFY For. We may terminate this Agreement effective immediately upon the return to you 80'% of the Initial Franchise (a) You fail to begin busies within 180 days aft the Effective Date of this Fraodilse Agreement; or c 04 (b) You we unable, apiaion,_to.suceessftdly complete the Initial Training Program and an Individual Training Program is not capable ofremedying yom.deficiency . 8.08 TERMINATION BY FRANCHISOR: FBANCf sW3 NON-CURABLE BREACH We may terrhmate this Agreement for Good Cause without ramming the Initial Franchise Fee, without giving prior notice to the Franchisee and without giving the Franchisee an oppattmity to cure when a noncmable breach occurs. Termination is eftaxive upon delivery to you or 3 days after mailing to you a writtau declamation of termination, whicbew event occurs first. Nonchrlable breaches constituting Good Cause for termination without an opportunity to ante occur when: (a) You are adjudicated as bankrupt or insolvent, or a petition in bankruptcy is filed under the U.S. Banimtptcy Code by or against you, the franchised business, or the business-entity to which this Agreement has been assignor; 14 //6 r s r J (b) You abandon, for any reason, the flandiisW business far a period of more Om 7 days or fail to No operate the f sawhised business for a period of more than 7 days without our prior wftm approval; j (c) You make, or attempt to make, an assignment or a similar disposition of the assets of the fianchised NOW business for the benefit of creditors, or the Franchise Promises or assets of the fiannddsM business are seized, taken over OW or foreclosed by a creditor, lien holder, lessor or government official, provided that a final judgment against you remains J unsatisfied for 30 days without the filing of a supersedeas or other appeal bond; r .! (d) You are convicted of a felony or other crime that substantially impairs the goodwill associated with j the Proprietary Marks; r J (e) You fail, for a period of 10 days after notification ofnoneont 1' j or local law or regulation applicable to operation of the fianehised business; P " to comply with any federal state nr y (f) You make a Don-curable representation, which tarnishes our reputation, j reflects materially and unfavorably upon the operation and reputation of the Franchise °r you engage in conduct that am s? (g) You commit a non-curable violation of your obligation to maintain the gonfidemiality of the J Proprietary Materials; NOW r (b) You snake or attempt to make a transfer of the Franchise Agreement or the Spinal Aid center in J violation ofthis Agreement; or sr (i) You are delinquent by 10 days or more in the payment ofthe Royalty Fee or National Advertising Fee for the 4'h time in any 12-month period. NOW, J 9.09 TERMWATION BY US: YOUR FAILURE TO CURE DEFAULT r w. We may give you a Notice of Def uth that, with respect to curable breeches, provides a cure period of not less a than 10 days for monetary defaults and not less than $0. days for non-moneary, defaults beginning on die date that the ~`' J Notice is received N you tare the broach before the use longer by yam Plod expires, the Notice of Default is no b r effective. If you fail to pure the breach before the erne period expires, we may give a Notice of Termination stating our a . intent to termiruwe this Agreement on a specified date, end this NOW Agreement ardaaeacally terminates on the specified -Jr date. Events, which constitute curable breeches, occur when: r (a) You fell, refuse or neglect to pay any monies due and owing to us on the date monies are due; J a a (b) You become delinquent in your payment of monies due to suppliers, landlords, leasing agents or retailers; err J J (c) You fail to comply with the Local Advertising Requirement; a (d) You fail to pay all sales or other taxes when due and before delinquent, except when such paymenta r are being contested in good faith by appropriate proceedings; J (e) You'commit arty act, which materially impairs the goodwill associated with the proprietary Marks; r w (1) You fail, within the time prescribed, to comply with any of the requirements or standards imposed J upon you by the tams of this Agreement, the Confidential Operations Manuals, the Supplements or other such J operational memoranda we issue, or uses bad faith in carrying out the tams of any such lawful directives or obligations; j (g) You allow unlawful activities to occur or allow any unauthorized or illegal material to be utilized, r ed or sold at the Fnmchise Premises, II f1 1! ?/ I L 11 1 I J dens RC'!- ! 7 T1tatK- f s A rc ..X - 7 no 3?is C ?96bv P? 7rrr7?`1, dx3pVYC. r 6e lween ran i9nJ Any s??? f°? Q o` erf+? as r 15 J r (h) You operate the flanchised business in a mariner that presents a health or safety hezand to patient, customers, employees or the general public and such manner of operation continues for a period of 2 or more days after you receive notice to coma operations or remove the hazard; (i) You fail or refuse to permit us to inspect the Franchise Promises or conduct an audit of the framehtsed business; or (j) You fail to maintain the insurance policies required by this Agreement. No right or remedy conferred upon or reserved for us by this Agreement is exclusive of any other right or remedy in this Agreement or by law or equity provided or permitted, but each is cumulative of every other right or remedy available. 8.10 YOUR INTEREBf UPON TERMNATION Upon termination or expiration, you have no interest in the goodwill or intangibles of the franchised business or equity in the Franchise, spot from the leasdhpid, vehicles, fixtures, equipment and supplies you live purchased. We have the right (but not the duty), to be exercised by notice of braid to do so within 30 days after termination or expiration of this Agreement, to P=1101 W any improvements, equipment, advertising and prootional.matenals, products, supplies, inventory and any other it ms bearing the Proprietary Marks at =raw far market vak e. if the parties cannot agree on a fair market value within a reasonable time, we will designate an independent appraiser, and the appraiser's determination of fair market value is binding. If we elect to exercise my option to purchase provided in this Agreement, we have the right to set-off all amounts due from you under this Agreement and the cost of the appraisal, if any, against any payments therefore. 8.11 YOUR 011I1GATIONS AFTER TERMINATION - Upon termination or expiration of this Agreement, the Franchisee al It immediately cease to be a licensed Franchisee, and r' 1 peo1lfq)/cr. rs rncorcaci rt*2tn '?a. +Atrnrn?mn (a) The Framicb?a will :promptly pay to us all sums owing by you to us under the term of this Agreement. These some mclude all damages, costs and expenses, including reasonable attorneys! fees, incurred by us by reason of default our your part, regardless of whether the sums are incurred before or ether the termination or e*ation of this Franchise Agreement. The suns include all costs and expanses, inoludmg reasonable attomeysr fees, ' by the Franchisorm obtaining injunctive or other relief to enforce the provisions of this Agreement or any w?; agreements related to the franchised business. (b) 1mY us e[pml each manta tuanaiamg m th Tam; (c) You will. immediately cease to use, by advertising or in any manna whatsoever, to name Spinal-Aid coma and any forms, manuals, slogans, trade mates, designs, marks, symbols, trade dress or devices used in connection with the operation of the fiwwbised business or any colorable imitations thereof You will not represent or advertise that the patties were formerly parties to this Agreement or did you did business under the Proprietary Mein. (d) You will take such action, as is necessary to cancel any'fictitious name, assumed nmme or equivalent registration that contains the name Spinal-Aid Craters or nary other Roprkquy Mark Yam will, at our option, either cancel or assign to us or one of our other Franchisees any telephone listing containing the name spinal-Aid Centers or any other trade mime used in connection with the franchised business. You will, within 30 days of any termination, firnitih proof of cmcelledons or assigmnemts and have all telephone calls forwarded to telephone munbers assigned to us or one of our other Franchisees. {e) You will immediately return the Confidential Operations Manuals including any Supplements, revisions, inserts, amendments, exhibits or forms we provided, together with all advertising formats, tames-ready layouts and other proprietary forms and materials used In carnation with promoting the franchised business. 16 asl? s s so; a1:? so: 0 r? 7 are 05 5 005 nil so odd? (f) You remain bound by your covenant to maintain the confidentiality of ft Proprietary Materiels under this Agreanent and the Proprietary information Agreement whose terms; and conditions survivo termination of this Agreement, and you remain bound by your covenant not to compete with us on our other Franchisees upon termination of this Agreement in all caves except when termination arises firm our failure to sue our material broach of this Agreement. 8.12 TRANSFER BY US We have the might to transfer or assign its interest in this Agreement to any person, persons, partnership, association, or corporation or other euity. If our assignee assumes all of our obligations miler this Agreement and sends you written notice of the assignment so attesting, yon agree promptly to sign a general release in our favor from any claims or liabilities arising from this Agreement. 9.00 RELATIONSElIP, INDEMNIFICATION AND PAYMENT PROVISIONS 9.01 INDEPENDENT COMRACPOR REIATIONSIM The parties understand and agree that no agency, employment, partnership or joint venture is created by this Agreement and that your franchised business is separate and apart from any business which we may operate. The parties further agree that you are not our general agent, and no representation will be made by either party that would create an apparent agency. employment, parhnersinip or join venture relationship. Neither party has authority to act for the other in any manner to create obligators or debts dud would be binding on the other. exegrt as specifically provided in this Agreement. Neither party is responsible for any act or omission ofthe other on any employee of the other. In all public and private records, dooanents, relationships and dealings, you will indicate that you are an independent owner of the franchised business established by this Agreement. You will prominently indicate on all letterheads, bush= forms and writings of any kind that you are our licensed Franchisee by using language substantially slating that you are a "Frandnivee of Spinal Aid Centers of America, Inc." You will maintain employee records in such a manner as to clearly show that you and your employees are not our employees. We have no liability for any sales, use, excise,. game, property or any. other tax levied upon the franchised business, do Frenchise Premises, the Spinal Aid Cana or any of your assets used in connector with the franchised business. 9.02 FRANcHmm INDEMNIFICAnoN . You agree to defend, indemnify and hold us harmless from all finer, suits, proceedings, claims, demands, seduens, bases or damages of any kind or nature, hndtated by my third party, arising firm or otherwise connected with die franchised business, the Franchise Promism or the operation of the Spinal Aid Center. We are not liable toyon OrtO any odor persons by reason of any of your ads, omissions, neglect, or fault or any of your agents or employees, or for cry situation otherwise arising on the Franchise Premises. 9.03 FRANCEWEE INDEMMWICA71ON We agree that we will defend, indemnify and hold you harmless from all fines, suits, proceedings, claims, demands, actions, losses or damages of any kind or maters, instituted by any third party, arising fmm or otherwise connected with your use of the Proprietary Maim or the Proprietary Materials, as set forth in the Confidential Operations Manuals or otherwise authorized in writing by us, or with any of our or our employees, agents, officers or directors Wee representations, war arties, negligent on willfiil acts, or omissions. 9.04 LIMMATED DAMAGES AND ENFORCEMENT . You agree that the conditions, restrictions, covenants and ether limitations on your use of the Confidential Operations Manuals and the Supplenrents, the Proprietary Marla and the Proprietary Materials which are imposed by this Agreement and the Proprietary Information Agreement are necessary, equitable and reasonable for our benefit and the general benefit of ell Franchisees and others enjoying an aWraimd and lawful economic benefit from these 17 T?? lmellectual propeties. You acknowledge that our remedy at law for your unauthorized use or misappropriation of these properties or 1br any breach of this Agreement or the Proprietary infigttualon A reertant related to rase properties would be inadequate and that, accordingly, we are entitled to immediately seek injunctive relief. In addition to, and not in derogation of; the right to obtain an bdunction, we are antited.to damages until an Wuncdon issues. Due to the difficulty in computing the damages resulting from any broach, damages are fined as liquidated damages and not as a penalty for each day that any unauthorized use or breach . The parties ag ee that the stated sum reasonably represents the actual damages that we will suffer upon ch u orized use or breach 9.05 PAYMENT OF OBLIGATIONS DUE QI The expiration or tarmmation of this Agreement does not relieve you from your obligation to pay us and other ?y crodiorns, promptly when due, all indebtedness incurred or fees accrued as of the effective date of Wraw lei. Your obligations pursuant to Section 9.04 wld, in conjunie lam with &a Proprietary Information Agreement, remain in fall force and effect after termlosdon of this Agreement. You agree that you will not, on the grounds of any alleged nonperformance us of our obligations under this Agreement, withhold payment of any fees or snounts due. No endorsement or statement on any check or paymert of any an less than the hill sum due us will be construed as an acknowledgment of payment in full or an accord and satisfaction, and we nay accept any cash, clack or payment without prejudice to our right to recover' the balance due or pursue any odw randy provided in this Agreement or by law. 10.00 MISCELLANEOUS PROVISIONS 10.01 CONSTRUCTION All captions and headings are for reference purposes only and are not deerned to be a part of this Agreement, and all dollar amounts stated in this Agreement refer to legal currency of the United States of America All words in this Agreement are deemed to include any number or gender as the context or sense of this Agreement requires, acid the wards "will". and "meet" used In this Agreement indicate a mandatory obligation. If any pmt of this Agreement is, for any reason whatsoever, declared invalid or wnenfxe4 able by any court of cormpdant jurisdiction, the affected part will nevertheless be enforced to the fullest extent allowed by law, and such declaration will not affect the validity of the remaining provisions, which remain unaffected and in fall fora and effect. 'The parties declare, as ilea present intent, that day world have signed the remaining portion of this Agreennent without including any pardons that may, for any reason, are declared invalid in to fhmre. The tights oftte parties are emulative and no exercise or a cementby aparty of any right or remedy under this Agreement ptechtdes the exercise or enforcement by that paty of any other right or remedy contained in this Agreement or provided at law, in equity or otherwise. For purposes of this Agreement, the "Franchisee" may be an individual, partnership or, if a corporate Assigtaimt Agreement is signed, a corporation or other business entity and includes any corporation, partnership. indi xh4 combination of individuals or other legal entities, whicb own a mr jolty irrtaest ofthe Frnnddsee or in which tla Franchise owns a majority interest. This Agreement inures to the benefit of and be binding upon, the parties and their permitted successors and assigns. 10.02 NOTWn Any notice required or permitted by this Agreement must be in writing, addressed to the party at der address given above, or to such other address as one party by notice informs lhe•odher, be mailed by registered or certified mail if not hand delivered, and be effxtive on the sooner of delivery or b days aria mailing. If any applicable sal binding law or nde of any jurisdiction requires a grater notice period before the termination of this Agreement than is required in this Agreement, or the taking of some other action not required in this is 7rj_S OV saif `7 1 1? 02 02 7 J0 y t> rr? O y nr? ! s soft s PT Pot Agreement, such prior notice or other action required by law or rule will, only wider that jurisdiction, be subsUtuted for the notice requirements or actions agreed upon to this Agreement. 10.03 TIME m OF THE ESSENCE In all respects, time is of the essence In this Agreement. Notwithstanding any provision of this Agreement to the contrary, neither party is deemed to be in breach under this Agreement for failing to fulfill any tam or condition of this Agreement, if and to the extent that the parWs failure results from strikes or other labor disputes, acts of God, shortage of or inability to obtain labor or materials, damage to works in progress by any casualty, lawsuits, restrictions imposed or mandated by governmental or quasi-governmental entities, enemy action, civil commotion, fire, flood, earthquake or ary other nmforeseeable event beyond your reasonable control except to the extent caused by the negligence of that party. 10.04 JURISDICTION, VENUE AND MEDIATION The parties agree that this Agreement will be interpreted according to and governed by the laws of the State of Florida which laws prevail upon any conflict of law (without regard to, and without giving effect to, the application of Florida choice of law or conflict of law rules)' except to the extern governed by the U.S. Trademark Act of 1946, 15 U.S.C. §§ 1051, et seq. (the "Lanham Act") as amended. The parks .agree that any action brought by either party against due other party in any court, whether federal or state, must be brought whhm tie state and in the judicial district in which we have our principal place of business. You consent to personal jurisdiction and vane in any court of competent jurisdiction in the judicial district in which we then have our principal place of business, and you submit to the exclusive jurisdiction of such courts for interpretation of your rights and obligations nudist this Agreement. Nothing in this Section is intended by the patties to subject this Agreement to any fimchise or similar law, role, or regulation of the State of Florida to which this Agreement would not otherwise be subject. The. parties agree that before filing any action at law or clabn for equitable relief arising from any disputed mates which cannot be amicably resolved, exchtding only those mattes involving unauthorized use of the Proprietary Marks and the Proprietary Materrial% the'pattfes will submit unresolved disputes to mediation in the city where we are located and before a mediator to be mutually agreed upon by the parties. The parties agree dot they will not tenably withhold their consent to either the fonun or the mediator and that they will shore equally and pay promptly all fees and costs incurred wing any mediation. 10.05 ATTORNEYS' FEES if either party Institutes a suit or action to enforce any tam or provisiol of this Agreement, the most prevailing party in the suit or action, or on appeal, is emi0ed to recover from the losing party the reasonable elorneye fees set by *B trial or appellate coot in addition to the emu and ether disbursements provided by law. 10.06 ACCMANCE OF FRANCHISE AGREEMENT This Agreement is binding upon you at the time it is signed by you and delivered to us at our principal place of business. This Agreement is not binding upon us until it is accepted in writing by one of our principal officers. If we do not accept this Agreement within 7 days after receipt, this Agreement is not binding upon you. 10.07 ENTIRE AGREEMENT This Agreement, mcluding the attached Schedules and the agreements incorporated in this Agreement by reference, will be construed together to oonstidrte the entire .understanding between tine pates and supersedes all otter previous and contemporaneous agreements, whether oral or written, pertaining to the subject matter of this Agreement. This Agreement may net be modified or amended exceptby written agravlmt signed by the parties. 1Lopoese ntations by either party, whether oral, in writing, electronic or otherwise, that are not set forth in this Agreement are not binding upon the party alleged to have made such representations and be of no forte or effect VS 19 10.08 WAIVER We reserve the right and pdvibge, in our sole discretion as we deem necessary and In the best interests of the Franchise System, to vary standards for any Pretchisee based upon pecalierides of a particular Franchise Promises, conditions imposed by local law or custom, demographics or any Other circumstAnm which we deem Important to the successful operation of the franchised business. No Franchisee has any recourse against us for any variations permitted, end no other Franchisees is entitled to require us to grant or permit hum a like or similar variation. No waive or delay in either party's edorcement of ery breach of arty term, covenant or condition of this Agreement will be construed as a waiver by such party of any preceding or succeeding broach of that specific or any other tam, covenant or condition of this AgraanenL 10.09 RECEIPT OF FRANCHISE OFFERING CIRCULAR AND ACKNOWLEDGMENTS The Franchisee hereby acknowledges that he or she has: (a) received a copy of the' complete Franchise Offering Circular required by the Federal Trade Commieskm, the franchise laws of the slate in which the Franchisee is resident and the fiancbise laws of the state in which di6 Framobise Promises are to be located at bast 10 Business ]Days bete the date on which this Agreement was signed or any consideration was paid; (b) been accorded ample time and opportunity to consult with advisors of its own choosing concerning the Franchise Offering Circular before signing this Agreement; (c) read and understands.this Agreement together with the collateral agreements ref eased in this Agreement before signing any such agreement; (d) received a copy of this Agreement together with the collateral agreements in this Agreement in a final form for execution at least 5 Business Days before sigoing it; (e) received no reptesenumions, promises, guarantees, pmjookom or warranties of any kind from us, our. directors, officers, employees or agents to mdthce the sigaft this Agreement or in connection with ids Agreement except as specifically set fotth in writing in this Agreement; and (f) received•no guaraatee from us, our directors, uffi«as, employees or agents as to your potential or guaranteed success in the franchised business contemplated by this Agreenem. IN WITNESS WHEREOF, the prates to this Agreement, intending to be legally Bound, hereby have duly signed, sealed and delivered this Agreement •i in duplicate originals on the day and year first written above. FRANCHISOR: Spinal Aid Centers ofAmerica, hhc. B (signature of sntaniaed officer) (name and title of authorized officer) 20 TJS t? r SCHEDULE A 'C ()PRRATiNC TRRRTTYIRV AN11 i.nCATinN AR RRANI'AiRF. PBRMitiRC The approved location of the Spinal Aid Center (the "Franchise Premises") will be at the following street address: I WV- C _ The Operating Territory is an area cictmncrrbed by a circle whose radius comprises at toast a population of Ol 100,000 persons and whose center is the Franchise Premises and comprised of the following zip codes: Mme" r G (? 2005 IN W1 ?4M WHEREOF, the parties have agreed to this Schedule on r. sr FRANCHISOR: FRANCHISEE: 1o Spinal-Aid Centers of America, Inc. n 83' (signature of authorized officer) (ate) (name of autborized officer) (name) r rw- J r r 3 ' rr r r r 9 r 3 r J r J r ? .J r J r. EXHIBIT C - PROPRIETARY INFORMATION AGREEMENT Spin#* ?I ceNrewo uF PROPRIETARY INFORMATION AGREEMENT In consideration and as a condition of being granted a franchise by pI al Aid Centers of America, Inc. (fine "Franchisor") pursuant to a certain Fnanduse Amument teed Into on 0 2005 and incorporated herein by this reference (die "Franchise Agreement,%L oat (the "Francbisee"I as an owner ofthe ftenchised business (the "Spinal Aid Comer"), acknowledge the following and agree to the terms and conditions of 02 this Proprietary Iformadon Agreement 02 1. Framehtsor'a ProprtOM Informatom The Franchises admawledges tint it is to receive O2 inibrmadon which the Franddsor has developed over time at great expense, Including the Ftauchi Ws trade secra% operating'procedmas, new patient end fnsm nce repotting forms, accenting and booldteepmg metbods, patient control O*z systems, advertising and marketing materiels, specifications, standards and proprietary methods of doing business (collectively the "Confidential Operations Manual" and As "Supplements" defined in the Franchise Agreement). The Franchisee also admowledges that tide information is not generally known in the industry and is beyond its own present slabs and oxperiaoce, and that to develop it independently.would be expensive, time conarmnlhg and dlr9'rcult The 00 Franchisee fiather admowledges that the Confidential Operations Manual provides a competitive advantage and will be valmble in the development of its Spinal Aid Center, andthat gaining access to it Is thereinto a primary reason why the Franchisee entered Into this Agreement. 2. Confidentiality. At ail times, both during the term of the Franchise Agmemeatt, including any renewal term, and after its otpirstion or termination for any reason, the Franchisee agrees to keep strictly confidential and in trust (except as the Franchisor may otherwise consent to in writing) and not to disclose, or make any use of, the Confidential Operations Mammal, in whole or m part, or any amendments, inserts or forms, including any revisions themo& or any other business plans, marketing plans and.strataghn, customer lists or other subject matter pertaining to any business of the Franchisor or any of its Franchisees, afllwxs, clients, customers or consuhants which the Franchisor provides pursuant-to its obligations to the Franchisee, except as provided in the Franchise Agreement, the Confidential era' Operations Manuel and this Agreement. The Franchisee also agrees rat to deliver, reproduce or in any way allow any such trade soc ats, confidential information, knowledge, data or other Information, or any docnmrentedon relating therm, to be delivered or used by airy third parties without the specific written consentofa duly authorited representative ofthe Franchisor. 3. Employees of Franchisee. The Franchisee agree to require all of its emplayms, as a condition of their employment, to execute the appropriate farm of the Franchisor's proprietary information agreement provided for that purpose. The Ftanchisse further agrees to limit the ameas of such. employees to the Frandusoes Co edendal Operations Manual ad any other trade secrets, a didemial Infoawtion, knowledge, data or other proprietary materials 600, on a need-taimcw basis for performing 'the Franchiaeeh obligations puranmt to the Franchise Agreement The 10 Franchisee agrees to keep &a ConfideOW Operations Manuel and all other such confidential materials under lock aid i key when not being utilized in connection with the day-to-day operation ofthe Spinal Aid Center. i 4. Trade Secrets of Others. The Franchisee represents that its perfommnce of all the terns of this Kim Agreement and its performance of all the duties and obligations of the Franchise Agreement do not and will not breach any agreement or duty to keep in confidence any ixopridary information, knowledge or data acquired by it In confidence or in trust prior to entering into the Frandmise Agreement The Franchisee agrees that it will not disclose to the Frenddsor; or induce the franchisor to use, any confidential or proprietary information or material belonginng to any third 1W party or enter any agreement, either written or oral, in conflict herewith. anew 5. Covenant Not to Compete. The Franchisee agrees amt during the period commencing on the daze hereof and continuing for a period of 2 years following the expiration or termination of the Franchise Agreement for Oak r"f? l I - I /,, ?r /rye ?RRnrArFRR- 7cKMnnMnos / w rN?S2,cr. s-jiplci . ne'J "A(G40 ran Arty rl s ?n?rl ?+-? ? b,a ?- c?vRePKq?h£- p, 04w?t,j rs P I `4' p^2 ¢aayfh?-w?-??F ?K(anca )t,r?l? rohJrnot? ?urR?s?q d?uA-?mr?l- ¢tG. any reameoccept tmmm@M ' by the 3 P for cause (idmltadora is Section 6), the Franchisee will nrot, v O or Fhadhisee'a Franchise premises the e er diraxly or , individually or as a ehesdwida, director, , , an er, c representative, 8 • agent or employee of or for any person, firm, partnership or corporation: .ti (a) Engage her or advise any business whose products or methods of operation are similar to time of the Franchisor, its subsidiaries or affiliates or my of its Franchisees; (b) Own, manage, operate, sell, control or participate in the ownership, nuanement' operation, sales or control or be connected in any manner with any business in which the Franchisor is now or may hereafter became (c) Canvass, solicit such business in competition with the business of the Franchisor, its affilistes or any of its Franchisees ftm any of their present, former or prospective customers or advise such customers to curtail or cancel their business with them; (d) Recruit' hire, assist others m recruiting or hiring, discuss employment with, or refer to others concerning employment, any person who is, or within the preceding 12 months was, an employee of the Fnachisor, its subsidiaries or affiliates or any of its Franchisees or attemptto inthuoe say such employee to terminate its employmaut; (e) Divert or auempt to divert any business or pattern of the Multi-discipline Ceuta licensed under the Franchise Agreement to any competitor by direct or indirect indu es hems or otherwise, or to do or perform directly or h ufreedy, any otba ad mjunws or prejudicial to the goodwill associated with the Franchisor's Proprietary Marks and the Franchise System; or (f) Disclose to any person, firm or corporation the rime of soy present, forma, future or prospective suppliers, patioms or customers of the Fnncbbw, its subsidiaries or affiliates or any of its Franchisees. b. . Special Limltstioas on Covenant Not to Compete. If the Fre nd»se Agreement its terminated by the Franchisee for cause, as defined tanein, the Franchisee may sort ire to operate a business at its Franchise Premises under another mane and business identity provided that ten Franchisee is is frill compliance with the post-ftminatiah obligations set forth In its Franchise Agreement. In ten event ofsuch temtiuation for cause: (a) The prohibitions set fnatb do Subsections 5(a) and 5(b) will not apply to arty business dut the Franchise conducts fret its Franchise Finaises and within its Operating Territory; (b) The prohibitions in Subsection 5(c) will not apply to any such business accepted Fran any such autoanera who have dealt oftosively with die Frsachisee at the Franchise Premises within ft Operating Territory; (c) The prohibitions in Subsection 5(d) will not apply to employees of the Franchisee; and (d) The prohibitions in Subsectiohss 5(e) and (f) will riot apply to the names ofpstie nts and customers who have dealt extensively with the Franchisee at theihratchise Promises within the Operating Territory. Nothing m this Agreement shall prevent the Franchisee from owning for investment purposes up to an aggregate of 5% of the capital stock for airy oeropedtive business, provided that such business Is a publicly held corporatim whose stock is listed and traded on a national or regional stock exchange, or through the National Associatiat of Securities Dealers Automated Quotation system (NASDAQ), and provided that the Franchisee does not control any such eompary. 7. Return of Confidential Material. Upon termination of the Franchise Ageemem for any reason, the Franchisee agrees to promptly surrender and deliver to the Franchisor the Confidential Operations Manual and all amendments, inserts and forms, including any mvisiom thereof;. and all other confidential besiaess plans, marketing plans and strategies, customer lists and all otter proprietary materials pertaimog to the business ofthe Franchisor or any of its Franchisees, affiliates, clients, costomess or consultants whwhibe Franchisor has provided purausot to its general 7 ) 110 Ilion 012 W2 r? ss"a W;0 ri W2 00P r;0 W!D s`2 Wcr ae/ r!v W2 OT onz OZ 02 a/+ aw a0z WZ Mz N'T SIZ W. 05 got obligation to Franchisees together with any copies thereof The Franchisee art" to sign and deliver the Termination Catficadon attached as Schedule A together with the abovadescribed proprietary and confidential materials. & Remedles. The Franchisee acknowledges that upon a broach of this Agreement, the Franchisor will be iirepmably injured and without an adequate remedy at law. In this event, the Franchisor will therefore be entitled to a temporary, preliminary an&cr petmment kDjuncton without the need to show actual or threatened harm or to post a bond or other security. This remedy shall be in addition to any other remedies the Franchisor may have under the Ftmchise Agreement, at law or in equity. The Franchisee further agrees that if arty litigation arises under this Agreement, the prevailing party will recover, and the losing party will pay, the coats and attorneys' fees inmared by do prevailing path' In trial sad upon appeal, as determined by the respective courts. 9. Modification. Ibis Agreement may not be changed, modified, released, diacherged, abandoned or otherwise amended, in whole or in pmt, except pry a written instrument signed by the Franchisee and the Franchisor, 10. Severability. If shy pmt of this Agreemed, for any reason whatsoever, is declared invalid er unerlm able by any court of competef jurisdiction, the affected pet will nevettuless be enforced to the tblleat VIM allowed by law, and this declmadon will not affect the validity of the remaining provisions which will remain uoaffecied and m full Some and effect The parties declare, as their present intent, that they would have signed the remaining portion ofthis Agreement without including any portions that may, for my reason, be declared invalid in the time. 11. SuuxaaorsandAssigas This Agreement is .binding upon the Fmnchisee's hats, peraooal representatives and other legal representatives and is fbr the benefit ofdme Franchisor, its successors and sasigns. 12. Governing Law. This Agreement is governed by and construed in accordance with the laws of the state in which the Franahisoes,principal of oe is located (cu rerdly Florida). IN WITNESS WIMRMF, this Agreement is made and entered into on (VIII .2005. Individually and as an otCser or partner of (Inudness creme) a ( corporation) (State) ACCEPTED BY FRANCHISOR: SphW Aid Centers ofArnerica, Inc. (sigoatare of authorized officer) (name and title of authorised officer) SCHEDULE A TERK NATION CERTIFICATION Ibis is to certify that nehher I personally nor the Franchisee of which I am an owner has failed to rams the Confidential Operations Manuel, or any part thereof including the supplements, inserts and forts, together with revisions thereof, and other confidential business plans, rarketmg plans and strategies, proprietary castarrner lists and other proprietary materials pa talnmg to any business of the Ranchisor or any of its Franchisees, atFiliake, cliwds, customers or consultants and belonging to Spinal Aid Centers of Amerioe, hhc. which were provided pursma to its obligations under our Franchise Agreement or any copies thweo£ I ftdm certify that I Have complied wI& and will continue to comply with all the tams of the Proprietary httbtmation AgrearomA signed by me with the Franchisor. I f nt her agree that, in compliance with the Proprietary Information Agreement, I will preserve as confidential all trade secrets, confidential i dban.stion, kaowlediA data or other innformstion relating ro products, processes, lmow-how, designs, formtdas, test dam, customer lists or other subject matter pertaining to any business of the Franchisor or any of its Franchisees, subsidiaries, affiliates, clients, customers or consultants. Dated on 2005 (sip;rhatrre) () individually and as an officer or partner of (business name) A( corporation). ACCEPTED BY FRANCHMIU .. Spinal Aid Centers of America, Inc. (signauve of authorised officer) (name and title of authorized officer 4 r rr! rr? W* MZ a? a/ Paz I Wz WZ a? I Wz Wz doz Wz UZ OZ NZ RZ OZ 5 i 0+5 "3 at oe me se oe RXHDIPP D - LISP OF FRANC MBES 1. The following are the names, addresses and telephone numbers of all Franchisers as of June 1, 2005 who are operational: Name Name Re Nymba Summit Chiropractic Dr. Jeff Keller 1741 Briargate Blvd. Colorado 719-593-1227 l/ Summit Chiropractic Dr. Jeff Keller 6130 Barnes Rd STE 116 S&Wwk,%rWVkM W9221 719-593-1227 Dr. Ron Spallone 3500 South Wadsworth Blvd. L&kCWDod, CC) 30235 303-980-5699 Lakeland Spine Center' Dr. Dam Parker 3242 South Florida Avenue Ukeland, FL 863-644-0880 Chiropractic Pain Treatment Ce nteil IX Peter a 4.n" Gordon Gate Park 14116 239-304-2214 Hiler Chiropractic Dr. Richard Hiler 1234 Airport Rd. North hWe&n3Al04.. 239-659-2669 y er Dr. David Hutlhran 501 South MacDOI Ave. Is" FL 33609 813-879-8929 le Team Chiropractic Dr. John Dftw 7840 East US Highway 36 Avon- IN 3 317-272-4100 Castlawn Chirop wtic Dr. Ronald Shamwd 8208 Allisonville Road di 46 so 317-577-5444 Rebman Chiropractic M Me* Childress 8249 West 95a SL Overland ParL KS, 66212 913-648-8600 Chiropractic Art Dr. Stmbm !Chisrallo 2815 South Jones Blvd. Las Vag&L NV, 89146 702-362-6303 Osborn Chiropractic Dr. Ken Osborn 4900 Reed ltd. 45220 14 614.459-3770 Dr. John Heary 433 West Many St. hfidfim OH 44256 330-721-4616 Brooklet Chiropractic. Dr. Sam Gaiall 5592 Broadview Rd. Parms, OH 44134 216-635-0653 Dr. Ardamen Singh 6600 North High SL 43095 614-436-9355' Portland Injdry and Rehabilitation Dr. Dodan Quina 623.0 North East Halsey Portland, OR 3 503-236-8697 Dr. Greg Gamache 8301 Dayton Pike Soddy 9. . 423-542-2828 2. Fr„nrhism F.reblted But Not Yet 011MIJUMIL IU* following are the names, addresses and telephone numbers of all Franchisees as of June 1, 2005 who are not yet operational but have signed a Franchise AgroemeW. NONE 3. Former Franebbe s. The }'ollowhtg are the names, last known home addresses and hone telephone numbers of all franchisees that have been terminated, canceled, not renewed, or otherwise voluntarily or involuntarily ceased to do business under a Finachise Agn? during the most nmx tly. completed fiscal year or who have not communicated with us within 10 wrodcs of the efCtive date offt Franchise OfiWft Circular. 7j,75 EXAIM E -LIST OF STATE ADMINISTRATORS AND AGENTS FOR SERVICE OF PROCESS STATE STAIE ADMINISTRATOR AGENT FOR SERVICE OF PROCESS CALIFORNIA Corporations Commissioner California Commissioner of Department of Corporations corporations 320 West 4a Street, Suite 750 Deparnnent of Corporations Los Angeles, CA 90013 320 West 4" Street (213) 576-7500 Suite 750 Los Andes, CA 90013 HAWAII Business Regulation Division Director of Hawaii Department of Securities Compliance Commerce and Consumer Affairs Department of Commerce and 1010 Richards Street Consumer Affairs Honolulu, Hawaii 96913 1010 Richards Street HDDolalu, HI 96913 13. MOIS. Illinois Attorney General Illinois Attorney General 500 S. Second Street 506 South Second Street Springfield, IL 62706 Springfield, IL 62706 T INDIANA Indiana Secretary of State Indiana Secretary of State Securities Division 201 State House Room B-17 Indianapolis, IN 46204 302 West Washington Street Indianapolis, IN 46204 (3 L7)232-6681 MARYLAND Securities Commissioner Maryland Securities Commissioner Office of the Attorney General 200 St. Paid Place, 2e Floor Division of Securities Baltimore, MD 21202.2020 200 St Paul Place, 20th Floor Baltimore, MD .21202 MICIIGAN Frandalm Administrator Michigan Department of Commerce, Commoner protection Division Corporations and Securities Bureau Antitrust and Franchise Unit 6546 Mercantile Way Michigan Department of Attorney P:0. Box 30222 General Laming, NO 48910 670 Law Building Laming, MI 49913 5 373-7117 775 aw? s ass; 40 so aam? 40 atw ! 40 at a at MINNESOTA Franchise Examiner The Commissioner of Commerce of Minnesota Department of,Commerce Minnesota 133 East 7th Street Department of Commerce St. Paul, MN 55101 (M?2%-028- -- - 133 East Seventh Street St. Paul. MN 55101 NEW YORK Bureau of Investor Protection and Secretary of State of the State of Securities New York New York State Department of Law 162 Washington Avenue 23'6 Floor Albany, NY 10271 120 Broadway New York, NY 10271 NORTH DAKOTA Franchise Examiner North Dakota Securities Office of Socurites Commissioner Commissioner 600 East Blvd., 5th Floor State Capitol Bismarck,ND 58505 Bismarck, ND 58505 (701) 328-4712 OREGON Department of Consumer and Department of Consumer and Business Services Business Services Labor and Industries Building Labor and Industries Building Salem, Oregon 97310 Salem, Oregon 97310 .151111.37t-44140 RHODE ISLAND Chief Securities Examiner Director of Rhode Island Division of Securities Department of Business Regulation 233 Richmond St., Ste. 232 Suits 232 Providence, RI 02903-4232 233 Richmond Street 7-3049 Providence. RI 20903-4232 SOUTH DAKOTA Franchise Administrator Director of South Dakota Division of Division of Securities Securities 118 West capital 118 West Capitol Street Pierre, SD 57501-5070 Pierre, SD 57501-2017 1 VIRGINIA ChiefExemieer Clerk of the State Corporation State Corporate commission commission 1300 B. Mein St., 91h Floor 1300 East Mein Street Richmond, VA 23219 Richmond, VA 23219 371-9051 1 ?i WASEONGTON Administrator Director of Washington Financial Department of Financial Institutions Institutions Securities Division General Administration Building P.O. Box 9033 Securities Division - 3°r Floor West Olympia, WA 98507-9033 (360) 9024760 210-11" Street SW QbTVja, WA 98504 WISCONSIN Franchise Administrator Commissioner of Securities of Division Of Securities Wisconsin Department of Financial Institutions 101 Bast Wilson Street P.O. Box 1768 Madison, WI 53702 Madison, WI 53701 (601266-8559 ALL UMR STATES N/A Keith D. Kww%m, Faq. Kanouse & Walker, P.A. Suite 524 Mime, One Boca Place 2255 Glades Road Boca Raton, FL 33431 ?S vo 10 40 ozo .-to 490 W* 10 40 000, r. ar 410 30 r EXHIBIT F • TABLE OF CONTENTSFOR OPERATIONS MANUAL /-3 Table of contents I Chapter 1. Inbuluctory r11? page I 1.1 Summary 1 it 1.2 Letter from the President 2 r? 1.3 Philosophy of the Franchise System 3 so 1.4 Structure of the Franchiser 4 1.5 Franchisee Responsibilities 5 NO Chapter 2. Franchise Background 2.1 Summary 1 .? 2.2 History of the Franchiser 2 + 0 2.3 Services and Products Offered hi /F hi F hi 2-3 4 1 2.4 ranc see ranc ser Relations p: • Chapter & BeFore You Open . 1 3.1 Summary 1 , 3.2 Before You Open 2-7 3.3 Lease Negotiations 8 y? 3.4 Recommended Equipment& Supplies 9-10 1 3.5 Approved. Vendors and Brands 11 5 3.6 Initial Inventory Requirements 11-12 3.7 Layout and Design of Office 13 10 3.8 Final Approval of Plans (site) 13 W* 3.9 Leasehold Improvements 14 r?1 3.10 Signage 14 ii 3.11 1 . Licenses; Required Permits a I C 14 15 3. 2 ge nsurance over "Zo Clap er 4. Staffing Owl" 4.1 Summary 1 s 4.2 Affirmative Action, 2 1 4.3 Equal Opportunity Issues 3 OO 4.4 Employment Guidelines 4 ow- 4.5 Position Descriptions 5-6 4.6 Manager Qualifications 7 4.7 Personal Policies 7 4.8 New Employees Orientation 8 .4.9 Evaluation 8-9 4.10 Benefits 9 -73-3- page 4:11 Firing Practices 10 4.12 Miscellaneous Tax Forms 10-13 4.13 Employee Handbook 13-20 Chapter S. Operating Procedures 5.1 Summary 1 5.2 Office Hours 2 5.3 Opening & Closing Procedures - Checklist 2-3 5.4 Receiving Payments 3-4 5.5 Deposit,. Closeout Procedures 4 5.6 Weekly Statistics/Potential Patients/New Patient Value Form 4-5 5.7 Check Acceptance Procedures 5-6 5.8 Credit Card Procedures 6-7 5.9 Insurance Billing Procedures 7 5.10 Scheduling Staff 8 . 5.11 Scheduling, Appointments. 8-9 5.12 Inventory 10-11 5.13 Ordering.Supplies/Stock 12 5.14 Receiving 13 5.15 Site Visits by Franchiser - 13 5.16 _ Inspections / Accreditation Procedures 14-16 5.17 Problem Solving 16-18 Chapter & Icily Office ftuhnes 6.1 Summary 1 6.2 Pre-Opening 2-3 6.3 Phone Scripts 3-4 6.4_ After Closing 4-6 6.5 Security & Safety 7-8 Chapter 7. Assuring Quality 7.1 Summary 1 7.2 Housekeeping 1 7.3 Product Quality 2 7.4 Record Keeping. 2-3 7:5 Merchandising In Center 3 7.6 Compliance with Policies 3-4 7.7 Center Appearance 4 /-J6 .J 1 1 ?a 0Q .!; 8z OZ OZ 0* OZ 0* OZ 'r' Chapter & Merdmclising and Sales page 8.1 Summary 1-2 8.9 Sample Inventory 2 8.10 Approved Vendor List 2-3 8.11 Merchandise & Sales; Customer Orders 3 Chapter 9. Advertising +& Promotion 9.1 Summary 1 9.2 Marketing Philosophy 2 9.3 Marketing Tips & Terms- Glossary 3-5 9.4 Logos & Trademarks 6 9.5 Requirements for Ad Materials I Placement 6-7 9.6 Approval Procedures for Ad Materials / Placement 7-8 9.7 Peripherals: Brochures, Cards, Mailers 8 9 9.8 Ordering Materials 9 9.9 Advertising Methods 9-10 9.10 Community Awareness 9.11 Grand Opening Procedures Chapter 10. Bookkeeping 10.1 Summary 1 10.2 Record Keeping Requirements 2-3 10.3 Internal Controls 3-4 Chapter 11 11.1 Summary 11.2 Small Business Management_ 11.3 Training Managers 11.4 Ongoing Training for Franchisees Chapter 12 12.1 Summary 2-3 4 EXHIBIT G -REGISTRATION STATE*ADDEMA TO FOC AND FRANCHISE AGREEMENT The states of California, Hawaii, Illinois, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia and Washington require that the FOC and Franchise Agreement be amended to conform to their state's franchise laws as part of the state's registration and approval of the fianchise offering. This must be done before we offer or sell any franchises in those states or to reaidents of them states. If we taut registered in any of time states, attached are the applicable Addenda to FOC and Franchise Agreement that apply only to residents of that state andlor where *a Spiral Aid Center Franchise will be located in such state. EXHIBIT H - ACKNOWLEDGMENT OF RECEIPT This Franchise Offering Circular summarl ars•certain provisions of the franchise agreement and other information in plain language. Read this Franchise Offering Circular and all agreements carefully. If we offer you a franchise, we must provide this Franchise Offering Circular to you at the earliest on (1) The first personal meeting to discuss our franchise; or (Z) Ten business days before the signing of a binding agreement; or (3) Ten business days before a payment to us You mast also receive a franchise agreement containing an material terms at least S business days before you sign a franchise agreement. If we do not deliver this Franchise Offering Circular on time or if It contains a false or misleading statement, or a material omisalon, a violation of federal and state law may have occurred and should be reported to the Federal Trade Commission, Washington, D.C. 70580 and to the applicable state agency listed is Exhibit A. Thine are no sublianchisors or fianchise brokers offa* this fianchise for Spinal Aid Centers of America, Inc. The data of issuance of this Franchise Olfm* Circular is Jane 1, 2005 The undersigned, personally and/or as a duly authorized officer or a partner of the prospective Franchisee, does admowledge receipt from Spinal Aid Canters Of America, Inc of the Franchise OHariag Cbcular, for prospective fanchisees (to which this Receipt is attached), including the hollowing Exhibits: A - Financial Statements B - Franchise Agreement C - Proprietary hdonnetion Agroemert D - List of Franchisees Dated: 21105 individual E - List of State Administrators and Agents for Service of Process F= Table of Comm for Operations Manual G - State-Specific Addenda H - Aclmowledgmew of Rocco as an officer or partner of new of and ty a a= capormlon or partnership (circle one) (copy #1 to be retained for your records) ZT CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing Defendants' Preliminary Objections to Plaintiff's Complaint was served by first-class United States mail, postage prepaid, upon the following: James J. Kutz, Esq. Post & Schell, P.C. 17 North Second Street, 12th Floor Harrisburg, PA 17101 Dated: 2Z ZCO(e Qa?-Zl? Glenn R. Davis N C`) `r ? C ?l _ ?. '„.'L t: ^ N t7 ??? -? y tl Cl ? - r N '? .• ? '"'=i 'Yr L. ?. ? .? ?j THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA vs. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants No.: 06-1556 Civil Term NOTICE TO PLEAD TO: Spinal-Aid Centers of America, Inc. and Frank Liberti, D.C. Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 You are hereby notified to file a written response to the enclosed Answer and New Matter to Defendants' Preliminary Objections to Plaintiffs Complaint within twenty (20) days from service hereof or a judgment may be entered against you. POST & SCHELL, P.C. Jam' s?, Esquire Attorney ID #P21589 Barbara A. Zemlock, Esquir Attorney ID #58891 17 North Second Street, 12th Floor Harrisburg, P 17101 (717) 731-1970 CPH 374685v1 THOMAS SMARSH, D.C., Plaintiff vs. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA No.: 06-1556 Civil Term PLAINTIFF'S COMPLAINT Plaintiff, Thomas Smarsh, D.C. ("Dr. Smarsh"), by and through his attorneys, Post & Schell, P.C., files this Verified Answer and New Matter to Defendants' Preliminary Objections to Plaintiffs Complaint as follows: 1. ANSWER TO OBJECTION UNDER RULE 1028(a)(1) 1. Admitted. 2. Admitted. 3. Admitted. 4. Admitted. 5, Denied as stated. Paragraph 12 attempts to characterize and interpret the allegations set forth in the Complaint, which is a writing that speaks for itself, and any inconsistencies with the actual averments of the Complaint are 6. Denied as stated. Dr. Smarsh contacted Defendants in Florida in response to advertisements that he saw in mailers from the Defendants and/or advertisements in chiropractic journals. Indeed, Defendants advertised their Franchise System and promised significant economic benefits to franchisees. By way of example, see Exhibit "A" attached hereto. In response to Defendants' solicitations, Dr. Smarsh did contact Defendants in Florida and began to negotiate concerning acquiring a Spinal-Aid Center franchise to be operated in Pennsylvania. The Defendants participated in those negotiations with Dr. Smarsh, who was situate in Pennsylvania. 7. Denied as stated. The Defendants do business in the State of Florida and have a principal place of business, as averred upon information and belief, at the address set forth in paragraph 2 of the Complaint. It is believed, and therefore averred, however, that Defendants franchise, or attempt to franchise, Spinal-Aid Centers in states other than Florida and, hence, have business relationships in other such states. Moreover, through mailers and advertisements in trade journals, Defendants solicit individuals to become a Spinal-Aid Center franchisee in jurisdictions other than Florida. By way of further answer, at all times during Defendants' relationship with Dr. Smarsh, Dr. Smarsh resided and did business in the Commonwealth of Pennsylvania. 8. Denied as stated. Paragraph 8 attempts to interpret and characterize paragraph 26 of the Complaint, which is a writing that speaks for itself. By way of further answer, paragraph 26 of the Complaint is one paragraph of a series of paragraphs that must be read together so that the import of the averments is in context. 9. Denied as stated. After Dr. Smarsh signed the Franchise Agreement with those changes that he made to the standard agreement, Dr. Smarsh traveled to Defendants' headquarters for training. 10. Denied as stated. Paragraph 10 attempts to interpket and characterize paragraph 30 of the Complaint, which is a writing that speaks for itself 1, By way of further answer, -2- paragraph 30 of the Complaint is one paragraph of a series of paragraphs that must be read together so that the import of the averments is in context. 11. Denied. Paragraph 35 of the Complaint states: "Defendants, however, never provided to Dr. Smarsh a copy of the Franchise Agreement signed by Defendant, Spinal-Aid." 12. Denied. The Franchise Agreement is not the basis of the three causes of action brought by Dr. Smarsh in his Complaint. Instead, Dr. Smarsh's Flaims arise out of the fact that no agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh seeks a declaration as to the same and seeks related damages. With respect to the Defendants' recitation of paragraph 10.04 of the Franchise Agreement attached to the Preliminary Objections as Exhibit "A," the Franchise Agreement is a writing that speaks for itself. Dr. Smarsh denies that he is in any way governed by the terms and provisions set forth in the Franchise Agreement attached to the Preliminary Objections as Exhibit "A," as no agreement was reached between the parties. By way of further answer, Defendants never accepted the revisions trade by Dr. Smarsh and never signed the Franchise Agreement, as Exhibit "A" to the Preliminary Objections so reflects. 13. Denied. The Franchise Agreement is not the basis of the three causes of action brought by Dr. Smarsh in his Complaint. Instead, Dr. Smarsh's claims arise out of the fact that no agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh seeks declaration as to the same and seeks related damages. With respect to the Defendants' recitation of paragraph 10.06 of the Franchise Agreement attached to the Preliminary Objections as Exhibit "A," the Franchise Agreement is a writing that speaks for itself. Dr. Smarsh denies that he is in any way governed by the terms and provisions set forth in the Franchise Agreements attached to the Preliminary Objections as Exhibit "A," as no agreement was reached between the parties. -3- 14. Denied. The Franchise Agreement is not the basis of the three causes of action brought by Dr. Smarsh in his Complaint. Instead, Dr. Smarsh's claims arise out of the fact that no agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh seeks declaration as to the same and seeks related damages. With respect to the Defendants' recitation of paragraph 10.07 of the Franchise Agreement attached to the Preliminary Objections as Exhibit "A," the Franchise Agreement is a writing that speaks for itself. ',Dr. Smarsh denies that he is in any way governed by the terms and provisions set forth in the Franchise Agreement attached to the Preliminary Objections as Exhibit "A," as no agreement was reached between the parties. 15. Admitted in part and denied in part. It is admitted that Dr. Smarsh forwarded an executed copy of a franchise agreement, which he signed, to the Defendants in the State of Florida. The remaining allegations set forth in paragraph 15 Are denied. As the Complaint reflects, and as evidenced by the delineations and modifications',depicted in Exhibit "A" to the Preliminary Objections, Dr. Smarsh did not accept the franchise agreement provided to him by Defendants but, instead, rejected the same and effectively tendered a counter-offer to Defendants. Defendants never accepted that counter-offer and, hence, no agreement was reached between the parties. Indeed, Exhibit "A" to Defendants' Preliminary Objections reflects that Defendants never signed the franchise agreement with Dr. Smiarsh's revisions and, hence, effectively rejected Dr. Smarsh's counter-offer. 16. Denied. No agreement was reached between Dr. Smarsh and the Defendants. By way of further answer, Dr. Smarsh incorporates herein by referencle his response to paragraph 15. 17. Admitted in part and denied in part. It is admitted that, in paragraph 2 of the Complaint, Dr. Smarsh states that Defendant Spinal-Aid's principal place of business is 44175 East Bay Drive, Suite 104, Clearwater, Florida. Dr. Smarsh denies, however, that he consented -4- to jurisdiction and choice of law principles based on Florida law, rather than Pennsylvania law, and he denies that Florida, as opposed to Pennsylvania, is the appropriate forum, as no agreement was reached between Dr. Smarsh and the Defendants. By way of further answer, Dr. Smarsh incorporates herein by reference his response to paragraph 15. 18. Paragraph 18 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh incorporates herein by reference his response to the allegations set forth in paragraph 15. This Court has jurisdiction over this matter. 19. Paragraph 19 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh incorporates herein by reference his response to the allegations set forth in paragraph 15. This Court has jurisdiction over this matter. 20. Paragraph 20 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh incorporates herein by reference his response to the allegations set forth in paragraph 15. This Court has jurisdiction over this matter. 21. Paragraph 21 is a conclusion of law to which no response is required. 22. Denied. No agreement was reached between the parties, and no other separate agreement was reached through which Dr. Smarsh agreed to litigate legal actions with the Defendants in the State of Florida and to mediate the same. By way of further answer, Dr. Smarsh incorporates herein by reference his response to paragraph 15. 23. Admitted in part and denied in part. It is admitted that Dr. Smarsh and Defendants have not mediated their dispute. The parties are not obligated to engage in -5- mediation, as no agreement was reached between the parties which obligates them to do the same. Dr. Smarsh denies any implication that he has not attempted to amicably resolve this dispute; he has. WHEREFORE, Plaintiff Thomas Smarsh, D.C. respectfully requests that this Honorable Court overrule Defendants' Preliminary Objections. If. ANSWER TO OBJECTION UNDER 1028(a)(1) 24. Dr. Smarsh incorporates herein by reference his responses to paragraphs 1 through 23 of the Preliminary Objections as though set forth in full. 25. Paragraph 25 is a conclusion of law to which no response is required. By way of further answer, no agreement was reached between the parties and, hence, the choice of law and the choice of forum clauses upon which Defendants rely are not applicable to the instant proceeding. 26. Paragraph 26 is a conclusion of law to which no response is required. To the extent that a response is required, this allegation is denied. First, no agreement was reached between the parties and the forum selection clause upon which the Defendants rely is not applicable and is not enforceable. Based on general principles of law, Pennsylvania has jurisdiction over this matter. By way of further answer, Defendants "transacted business" in the Commonwealth of Pennsylvania. Defendants negotiated with Dr. Smarsh to open a Spinal-Aid Center in Pennsylvania. Defendants would have realized a. pecuniary benefit had such negotiations been successful. Moreover, Defendants' franchise would have been marketed and advertised in the Commonwealth, with the value of the same inuring to the benefit of Defendants, as well as Dr. Smarsh. Dr. Smarsh was in Pennsylvania during these negotiations. Defendants sent a-mails and had telephone conversations with Dr.', Smarsh while Dr. Smarsh was in Pennsylvania. Moreover, Defendants have negotiated with at least one other individual, who -6- is located in the Commonwealth of Pennsylvania, to open one of Defendants' franchises in the Commonwealth. The Defendants have subjected themselves to the jurisdiction of the Commonwealth of Pennsylvania. WHEREFORE, Plaintiff Thomas Smarsh, D.C. respectfully requests that this Honorable Court overrule Defendants' Preliminary Objections. III. ANSWER TO DEMURRER UNDER RULE 1028(A)(4) 27. Dr. Smarsh incorporates herein by reference his responses to paragraphs I through 26 of the Preliminary Objections as though set forth in full. 28. Denied. The Complaint reflects that the Defendants negotiated with Dr. Smarsh for the purpose of establishing a Spinal-Aid Center franchise in Cumberland County, Commonwealth of Pennsylvania. Dr. Smarsh was provided with 'a standard franchise agreement along with its franchise offering circular. [Complaint, ¶13]'. A check was provided to Defendants by Dr. Smarsh and the Defendants cashed the same.; [Complaint, ¶¶15-20]. For a short period of time, erroneously believing that he and Defendants did reach an agreement, Dr. Smarsh operated a business using the franchise name Spinal-Aid Center, with applicable traderess. It was only thereafter that Dr. Smarsh learned that his counter-offer was not accepted by Defendants. By way of further answer, Dr. Smarsh incorporates herein by reference his response to paragraph 26. 29. Denied. Dr. Smarsh incorporates herein by reference his response to paragraphs 26 and 28. 30. Denied. The parties attempted to establish a business relationship in Cumberland County, Pennsylvania. The Complaint clearly reflects the same. It is admitted that no contract was formed between the parties. By way of further answer, Dr. Smarsh incorporates herein by reference his response to paragraphs 26 and 28. -7- 31. Denied. Nowhere in the Complaint does Dr. Smarsh admit to having reached an agreement with the Defendants. Despite Defendants' reference to paragraph 26 of the Complaint as authority for that allegation, paragraph 26 does not state the same. The fact is, no agreement was reached between Dr. Smarsh and the Defendants. Dr. Smarsh incorporates herein by reference his response to paragraphs 12-20, 22-23 and 25-26. 32. Admitted in part and denied in part. It is admitted that Dr. Smarsh admits to having received Defendants' e-mail dated October 10, 2005, which is attached to the Complaint as Exhibit "B." Dr. Smarsh specifically denies Defendants' interpretation and characterization of the e-mail. The e-mail is a writing that speaks for itself. By way of further answer, the Franchise Agreement that Dr. Smarsh faxed to the Defendants contained his proposed modifications and revisions to the Franchise Agreement. Moreover, Dr. Smarsh never agreed to pay an initial franchise fee of $24,995.00 but, instead, advised that he would pay an initial fee of $22,500.00. [Complaint, ¶18]. Indeed, Dr. Smarsh tendered a check to Defendants in the amount of $22,500.00 as the initial franchise fee and Defendants bashed the same. As evidenced by Exhibit "A" to the Preliminary Objections and by the Defendants' January 25, 2006 letter to Dr. Smarsh advising him that he was in purported default under the Franchise Agreement, Dr. Smarsh's counter-offer was never accepted by the Defendants and no agreement was reached, including any agreement as to the initial franchise fee. 33. Denied as stated. Dr. Smarsh was advised, at some point, that the initial franchise fee was $24,995.00. [Complaint, ¶16]. Dr. Smarsh never agrees[ to pay an initial franchise fee of that sum. Instead, Dr. Smarsh advised the Defendants that he would pay an initial franchise fee of $22,500.00. [Complaint, ¶18]. Dr. Smarsh incorporates herein by reference his response to paragraph 32. -8- 34. Paragraph 34 is argumentative and speculative and, hence, no response is required. Critically, Dr. Smarsh never agreed to pay an initial franchise fee of $24,995.00. Dr. Smarsh incorporates herein by reference his response to paragraph 32. 35. Denied as stated. The portion of the Franchise Agreement referencing the initial franchise fee is blank and contains no figure therein. See Preliminary Objections at "Exhibit A," §1,01. Dr. Smarsh, however, advised Defendants that he was willing to pay a franchise fee of $22,500.00. Consistent with the same, Dr. Smarsh tendered a check to the Defendants in the amount of $22,500.00 as the initial franchise fee and Defendants dashed that check. 36. Paragraph 36 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. Dr. Smarsh's Complaint alleges those facts necessary to state those claims for which he seeks relief. WHEREFORE, Plaintiff Thomas Smarsh, D.C. respectfully requests that this Honorable Court overrule Defendants' Preliminary Objections. NEW MATTER 37. Dr. Smarsh incorporates herein by reference his responses to paragraphs 1 through 36 of the Preliminary Objections as though set forth in full. 38. Defendants purport to have developed and own a propriety business system under the trade name "Spinal-Aid Centers" that: enables qualified professionals including medical doctors and osteopaths to provide to pat prescriptive deep compression-rehab neck and general medical services for prevalent ailme therapeutic resolution of neuro-muscular skeletal our proprietary intellectual properties including confidential manuals, copyrighted materials, systems, patient evaluation forms, management ar systems, marketing methods, advertising az materials, training and supervision programs, la; specifications (collectively the "Proprietary Materi chiropractors, its, diagnostic, ack programs, :s and offers roblems using trade secrets, administrative billing control promotional ut and design -9- See Franchise Agreement attached to the Complaint as Exhibit "A." 39. The Defendants permit qualified professionals to use the Proprietary Materials and certain purported proprietary marks by entering into a franchise agreement with the qualified professional. 40. The franchise agreement, together with a franchise offering circular, sets forth the rights granted to the franchisee-qualified professional by the Defendants and specifically sets forth the obligations of the franchisee-qualified professional and closely regulates the use of the Proprietary Materials and the alleged proprietary marks. 41. As part of the Defendants' franchise system (the "Franchise System"), franchisees operate independently-owned Spinal-Aid Centers pursuant to the terms of the franchise agreement. 42. Through mailers and trade journals, the Defendants advertise and solicit individuals to become franchisees of Spinal-Aid Centers. Defendants' solicitations reach into the Commonwealth of Pennsylvania. See e.g., Exhibit "A" attached hereto, which is incorporated herein by reference. 43. Dr. Smarsh saw one of the Defendants' solicitations and became interested in becoming a franchisee of the Defendants. 44. In the fall of 2005, Dr. Smarsh began negotiating with the Defendants for a franchise agreement through which Dr. Smarsh could independently own and operate a Spinal- Aid Center in the Commonwealth of Pennsylvania. 45. Defendants were aware that Dr. Smarsh was situate in the Commonwealth of Pennsylvania. -10- 46. Defendants engaged in negotiations with Dr. Smarsh for Dr. Smarsh to open Defendants' franchise in Cumberland County, Commonwealth of Pennsylvania. 47. If an agreement was reached between the parties, the Defendants would be paid an initial franchise fee. 48. If negotiations between the parties were successful, the Defendants would be paid a monthly "management fee." 49. If the negotiations between the parties were successful, Defendants' franchise would be marketed in the applicable "operating territory," which in this case was in the Commonwealth of Pennsylvania and, more specifically, portions of Cumberland County. 50. The Defendants' negotiations were for, among other things, the purpose of the Defendants realizing a pecuniary benefit. 51. Had the parties' negotiations been successful, both Dr. Smarsh and the Defendants would have had reciprocal obligations under the franchise agreement to assist in the promotion and operation of Defendants' franchise in the Commonwealth of Pennsylvania. 52. Upon information and belief, during the period of time that Defendants were negotiating with Dr. Smarsh, the Defendants were negotiating with another doctor of chiropractic to open Defendants' franchise in the Commonwealth of Pennsylvania. 53. The Defendants "transacted business" in this Commonwealth for the purpose of realizing pecuniary benefits. 54. The Defendants "transacted business" in this Commonwealth for the purpose of accomplishing an object, i.e., the establishment of its franchise in Pennsylvania. 55. The Defendants have had sufficient "minimum contacts" with Pennsylvania so as to subject the Defendants to this Court's jurisdiction. -11- 56. This Court has jurisdiction over this matter. 57. By way of letter dated January 25, 2006, Dr. Smarsh was advised by counsel to Defendant Spinal-Aid that he is in default under the franchise agreement in that: 1. You have failed to pay the balance of the Initial Franchise Fee of $2,500. 2. You have failed to institute the Payment System as required by Section 7.12 of the Franchise Agreement. 3. You have failed to pay timely the Mana0ement Fees (currently $349) as required in Section 7.11 of the Franchise Agreement. 4. You have failed to document expenditures for the local advertising as required in Section 7.10 of the Franchise, Agreement. 5. You have failed to reimburse my client foudesign work performed in the amount of $300. 6. You have not supplied my client with the documentation of spending at least $3,500 for grand opening advertising activities. 7. You have not supplied my client a copy of'your Spinal-Aid Center fictitious name registration with the Commonwealth of Pennsylvania. 8. You have not supplied my client with a Certificate of Insurance that complies with Section 6.4 of the Franchise Agreement. See correspondence attached to the Complaint as Exhibit "E." 58. Many of the alleged defaults as set forth in the January 25, 2006 correspondence involve terms that were changed by Dr. Smarsh and to which' Dr. Smarsh believed that the Defendants had agreed. 59. Dr. Smarsh advised the Defendants that he would', pay an initial franchise fee in the amount of $22,500.00 and tendered a check to the Defendants in that amount; Defendants cashed that check. 60. Moreover, Dr. Smarsh believed that: -12- (a) Defendants agreed to eliminate from the contract Section 7.12, which pertains to the institution of a payment system; (b) Defendants agreed to eliminate from the franchise agreement Section 7. 10, which pertains to local advertising; and (c) no obligations arose for grand opening advertising because he did not have any grand opening insofar as he never received any advertisements. 61. As the foregoing reflects, Defendants did not accept Dr. Smarsh's counter-offer and modifications to the form franchise agreement. 62. Defendants did not execute the franchise agreement that was proposed by Dr. Smarsh. 63. The Defendant did not accept the franchise agreement proposed by Dr. Smarsh within seven (7) days of receipt of the franchise agreement and executed by Dr. Smarsh. 64. No agreement was reached between the parties. WHEREFORE, Plaintiff Thomas Smarsh, D.C. respectfully requests that this Honorable Court overrule Defendants' Preliminary Objections. Respectfully submitted, POST & SCHELL, P.C. J es J. Kutz squire Atto 589 Barbara A. Zgmlock, Esquire Attorney ID #58891 17 North Second Street, 12`x' Floor Harrisburg, PA 17101 (717) 731-1970 Dated: July 24, 2006 -13- I, Thomas Smarsh, AC,, do hereby swear and affirm that the fkcts and matters set forth in the foregoing document arc and correct to the best of my knowledge, information, and belief. The undersigned understands that the statements made therein are made subject to the penalties of 18 Pa. C.S. §4904 relating to unworn falsification to authorities. Dated: 7a v ,X?J kr? A fM: \,A, C- ?7rAhh Are You Considering Decompression? L If you are considering decompression, this is one option worth investigating. Featuring a staggering'90% + success rate among members, the intellectual property and proprietary material responsible can only be obtained through a proven franchise system. Registered with the Federal Trade Commission (FTC), Washington, the clinical, compliance, business management and marketing programs have passed the test in the real world as the SpinalAid model is a proven success for nearly 200 members. The Franchise Virtual Doctor, is the only electronic; fully automated report of findings with an 85% patient activation rate on cash decompression starting 4,0 Protect both you and your patients, by operating a decompression -franchised system incorporating the highest standards of the medical community. Visit us at a " Discovery Day and see our model clinic and proprietary material, responsible for the highest success rate of decompression physicians nationwide. SpinalAld-Offers The Best Value In The Industry SpinalAid delivers the most extensive training and on going support programs and provides hundreds of thousands of dollars of franchise intellectual property, including the Virtual Doctor, franchise branding and marketing material, all included for your continuing success. The franchise includes the newest Z-Grav - Zero Gravity Decompression Table, FDA Cleared. SpinalAid decompression franchise with the new Z-Grav tower table is the most comprehensive and best overall value, as franchise system with table combined, costs about the same as many tables alone. SpinalAid, the nations-"O""OO06MM highest rated decompression business system, proudly introduces the newest decompression table to provide the most comprehensive turn-key decompression package with highest success rate in the industry. Register for a FREE seat to discover if the 1' SpinalAid Franchise & Z-Grav table is the right system to assure your decompression success on a consistent, predictable, daily basis. Call 800-542-8784 to reserve your FREE seat today or to speak to Dr. Frank Llberli, founder. Only qualified physicians please apply for a seat. FTC regulations do not pan us to sell or engage in a sale of our franchise for a period of 3 weeks after you have visited, so there is no obligation and no sales. It is purely a discovery session. CIRCLE ®FREE INFORMATION '1t Ul MANMAaim U Secrets After consulting over 10,000 chiropractors in P.I. and rehab Dr. Frank Lberd opens the doors of his decompression clinic and reveals trade secrets to interested qualified peers. J Most Practitioners Agree. It's time to do something. The hostile health care environment has most practitioners seeking a new way to do business. The SpinalAid Decompression Business Development System is the answer for many chiropractors who have decided to change the way they do business. A growing number of chiropractic physicians are turning to decompression and the SpinalAid business development program developed by Dr Frank Liberti, renowned marketing expert. With the innovative SpinalAid mark°t;" Dc's are increasing their _ come by thirty to fiftv thoousant? ']. chiropractor deserves. Eliminate the effects of changes in work comp or N. laws The SpinalAid decompression program offers a proven new way to do business and by-pass the pitfalls of insurance reforms or increased competition. 50 million people suffer from chronic and severe low back pair w and there are only 467,000 practitioners (of various disciplines) to treat them. In just a few years, estimates reveal that there will be an epidemic of 77 million chronic and severe low back pain sufferers, while the number of practitioners will remain essentially the same. I The SpinalAid program opens the door to an untapped, wide open and __...__--.,_.._._._..___.. booming "targeted market" unaffected by competition. How many more new back pain patients can you accept In your practice? More importantly, how many more new patients would fulfill your practice purpose? Refer to our "Discovery Day Presentation" if you want to receive more information on successfully creating a non-surgical decompression practice that is not affected by managed care, is stress free and provides consistent, predictable results. (s« obcovery Day rreswaaum) C) Join The Revolution There is a health care revolution going on and those Chiropractors that know about the revolution are doing decompression and getting more new patients, increasing their services and earning substantially higher net income through decompression. The revolution is that chronic and severe back pain sufferers are shifting their interest and money towards conservative care without drugs and surgery, as decompression. Only onefiifth of back pain sufferers have experienced arry sort of lasting relief. The majority of the 50 million back pain sufferers continue to live with chronic and severe pain. The practitioners who are benefiting from the revolution understand that a new way to do business is required. The answer to the revolution is to add a needed new service that is not affected by insurance or competition, as decompression. Those who use the SpinalAid marketing program have successfully created waiting lists of targeted patients, as this scientific discovery has become the alternative that is revolutionizing tow back pain relief. Learn More Inside 13 3 D v_ . m 01 ?3' 3d0o?o?<°»°_ m '_`o =3 =r a M??cgm? mumi ((pp _ MID -a:+N N A r?n 3 d 0=G N m3?n3a'?'n=' 'a??,a.:miam?oa O O o amm?cav'^ C a?+ co O??m •? ?f=? 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A growing number of chiropractic physicians are turning to decompression and the SpinalAid business development program developed by Dr Frank Liberb, renowned marketing expert. With the innovative SpinalAid marketing program, per month. The SpinalAid Eliminate the effects of changes in work comp or P.I. laws The SpinalAid decompression program offers a prov new way to do business and by-pass the pitfalls of insurance reforms or increased competition. 50 million people suffer from chronic and severe low back pair and there are only 467,000 practitioners (of various disciplines) to treat them. In just a few years, estimates reveal that there will be an epidemic of 77 million chronic and severe low back pain sufferers, while the number of practitioners will remain essentially the same. The SpinalAid program opens the door to an untapped, wide open and booming "targeted market" unaffected by competition. is fhe revolution is that chronic and severe back pain sufferers are shifting their interest and money towards conservative care without drugs and surgery, as decompression. Only one-fifth of back pain sufferers have perienced any sort of lasting relief. The majority of the 50 million back pain sufferers continue to live with chronic and severe pain. The practitioners who are benefiting from the volution understand that a new way to do business is required. The answer to the revolution is to add a needed new service that is not affected by insurance or competition, as decompression. se who use the SpinalAid marketing program have cessfully created waiting lists of targeted patients, as this scientific discovery has become the alternative that is revolutionizing low back pain relief. Learn More Inside CIRCLE r r FREE INFORMATION How many more new back pain patients can you accept in your practice? More importantly, how many more new patients would fulfill your practice purpose? Refer to our "Discovery Day Presentation" it you want to receive more information on successfully creating a non-surgical decompression practice that is not affected by managed care, is stress free and provides consistent, predictable results. is" Discovery Day Prose"") ® Join The Revolution There is a health care revolution going on and those Chiropractors that know about the revolution are doing decompression and getting more new patients, increasing their services and earning substantially higher net income through decompression. /I'IACI, rs.. olObJ Most Successful Practice With a Future CNN Money, predicted that franchises like SpinalAid, will be the most successful health care ventures now and in the future. 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Call 1800542-3784 for a the teleconference password enabling you to obtain the most valuable commodity of all - DATA. Call For Tel Password - Dr. Barry Collected $25,1 More In His First l on With SpinalAid "The Spinal Aid marketing has crew more new patients and visibility in just one month than all my combined efforts over my entire career. People now know me from everywhere and drive from all over to come here for decompression. 10 My best month of collections before joining SpinalAld was 1OK, and my 1st month with SpinalAid was 35K." Or Brian Be" With Virtual Doc Collected Over More our 2nd "We thought we made a huge mistake. Dur rig the last year and a haft we went for 45 days at a time with no new patients. Our best month we had maybe 6 new and our closing ratio was 1596. Now, with the SplnalAid Virtual Doctor, we close at 75% and in the last2 months with SpinalAid we brought in over 50K more each month." Dr. Matt Goda The Spinaillid Business System Has Enabled Mliju To Double. My Income' WCutting My Workload In 'Acquired 8 new patients my fimonth and coil eo 4 thoesan dollars cash decompression patients in January. My goal was to double my practice and wort less, I did it and I'm having a blast. Its fun again. I want to thank you for this opportunity Or. Liberti' ;6.r. ?"AK a. ibatyum rtRGLECM- FREE INFORMATION 22. /2aiars;?Oivity Dr. Matt yoda CERTIFICATE OF SERVICE I, Janet T. McGarvey, an employee of Post & Schell, P.C., do hereby certify that I served a true and correct copy of the foregoing Plaintiffs Verified Answer and New Matter to Defendants' Preliminary Objections to Plaintiff's Complaint to be served on the person and in the manner as set forth below: Via First Class Mail Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 POST & SCHELL, P.C. et T. McGarve-`-T? Dated: July 24, 2006 J IN THE COURT OF COMMON PLI CUMBERLAND COUNTY, PENNSYL% THOMAS SMARSH, D.C., Plaintiff V. No. 06-1556 SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants Term AND NOW, COMES, Defendants, Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C., by and through their attorneys, Latsha P.C., and files the within Preliminary Objections to Plaintiff's to Defendants' First Preliminary Objections to Plaintiff's follows: OBJECTION UNDER RULE 1028(a) Failure of a Pleading to Conform to 1. Plaintiff, Thomas Smarsh, D.C. ("Smarsh") Yohe & McKenna, and New Matter and states as this action by filing a Complaint on or about March 17, 2006. 2. On May 23, 2006, Defendants Spinal-Aid Frank Liberti, D.C. filed Preliminary Objections to Smarsh's objections are pending. 3. On July 24, 2006, Smarsh untimely filed New Matter to Defendants' Preliminary Objections to 4. Smarsh has included allegations as New Matter Answer and New Matter to Defendants' Preliminary Complaint. 5. New matter in response to Preliminary not provided by the Pennsylvania Rules of Civil Procedure. WHEREFORE, Defendants respectfully request that Plaintiff's Verified Answer and New Matter to Defendants' Plaintiff's Complaint be struck from Plaintiff's response. Respectfully LATSHA DAVIS Dated: 0/ O PG _ By. Glenn R. Davis Attorney I. D. N Andrea E. Dean Attorney I.D. Ni 1700 Bent Creek Mechanicsburg, (717) 620-2424 Attorneys for Defenc of America, Inc., and of America, Inc. and which Verified Answer and Complaint." Plaintiff's Verified to Plaintiff's is inappropriate and Matter' in Objections to & MCKENNA, P.C. .30140 86301 ?oulevard, Suite 140 A 17050 s, Spinal-Aid Centers nk Liberti, D.C. CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a foregoing Defendants' Preliminary Objections to Plaintiff s first-class United States mail, postage prepaid, upon the James J. Kutz, Esq. Barbara A. Zen-dock, Esq. Post & Schell, P.C. 17 North Second Street, 12th Floor Harrisburg, PA 17101 Dated: 8 ! o a ?o and correct copy of the was served by Dean c ? , ' Ti 2 i +n M r ' -? f 1 f p c? C? L O F THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff VS. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. No.: 06-1556 Civil Term Defendants PLAINTIFF'S ANSWER TO DEFENDANTS' PRELIMINARY OBJECTIONS TO PLANTIFF'S VERIFIED ANSWER AND NEW MATTER TO DEFENDANTS' PRELIMINARY OBJECTIONS TO PLAINTIFF'S COMPLAINT Plaintiff, Thomas Smarsh, D.C. ("Dr. Smarsh"), by and through is attorneys, Post & Schell, P.C., files this Answer to Defendants' Preliminary Objections to Plaintiffs Verified Answer and New Matter to Defendants' Preliminary Objections to Plaintiff's Complaint as follows: 1. Obiection Under Rule 1028(a)(2) - Failure of a Pleading to Conform to Law Admitted. 2. Admitted. 3. Denied. On July 24, 2006, Dr. Smarsh filed a Verified Answer and New Matter to Defendants' Preliminary Objections to Plaintiffs Complaint. Dr. Smarsh's Answer was not untimely. Defendants' Preliminary Objections did not include a Notice to Plead and, hence, Dr. CPH 376337v1 Smarsh was not required to file an Answer, if one was filed at all, within twenty (20) days of the date that the Preliminary Objections were filed. 4. Admitted. 5. Paragraph 5 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. Plaintiff s Answer was filed in response to Defendants' Preliminary Objections. As such, it was appropriate for Dr. Smarsh to include New Matter with his Answer. See Pa. R. Civ. P. 1030. Moreover, nothing in the Rules of Civil Procedure expressly precludes New Matter in an Answer to Preliminary Objections, where appropriate. Indeed, Pa. R. Civ. P. 126 notes that the Rules are to be construed liberally to secure "... the just, speedy and inexpensive determination of every action or proceeding to which they are applicable." Pa. R. Civ. P. 126. Defendants' Preliminary Objections raised issues of fact and involved issues concerning this Court's jurisdiction. Instead of taking depositions to resolve these factual issues, the Verified Answer and New Matter was provided. Significantly, the Rules provide that "... at every stage of any such action or proceeding may disregard any error or defect of procedure which does not affect the substantial rights of the parties." Id. Certainly, the "substantial rights" of the Defendants have not been adversely impacted by the procedure employed by Plaintiff. -2- WHEREFORE, Plaintiff respectfully request that Defendants' Preliminary Objections to Plaintiff's Verified Answer and New Matter to Defendants' Preliminary Objection to Plaintiff's Complaint be overruled. Respectfully submitted, POST & SCHELL, P.C. Attorney ID-#21589 Barbara A. Zemlock, Esquire Attorney ID #58891 17 North Second Street, 120' Floor Harrisburg, PA 17101 (717) 731-1970 Dated: August 18, 2006 -3- IV CERTIFICATE OF SERVICE I, Janet T. McGarvey, an employee of Post & Schell, P.C., do hereby certify that I served a true and correct copy of the foregoing Plaintiff's Answer to Defendants' Preliminary Objections to Plaintiffs Verified Answer and New Matter to Defendants' Preliminary Objections to Plaintiffs Complaint to be served on the person and in the manner as set forth below: Via First Class Mail Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 POST & SCHELL, P.C. et T. McGarvey Dated: August 18, 2006 Ua... _ co -pL v c ?. ? ` 4 THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff VS. No.: 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants PRAECIPE FOR LISTING CASE FOR ARGUMENT TO THE PROTHONOTARY OF CUMBERLAND COUNTY: 1. State matter to be argued (i.e., plaintiff's motion for new trial, defendant's demurrer to complaint, etc.): Defendants' Preliminary Objections to Plaintiffs Complaint 2. Identify counsel who will argue cases: (a) For plaintiff: James J. Kutz, Esquire, Post & Schell, P.C., 17 North Second Street, 12`h Floor, Harrisburg, PA 17101 (Name and Address) (b) For defendant: Glen R. Davis, Esquire, Latsha Davis Yohe & McKenna, P.C., 1700 Bent Creek Boulevard, Suite 140, Mechanicsburg, PA 17050 (Name and Address) 3. I will notify all parties in writing within two days that this case has been listed for argument. 4. Argument Court Date: October 25. 2006 J x ? r)iick, Esqu? ?j T- 8891 Dated: October 2, 2006 Attorney for Plaintiff, Thomas Smarsh, D.C. CPH 377362v1 1 CERTIFICATE OF SERVICE I, Janet T. McGarvey, an employee of Post & Schell, P.C., do hereby certify that I served a true and correct copy of the foregoing Praecipe for Listing Case for Argument to be served on the person and in the manner as set forth below: Via First Class Mail Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 POST & SCHELL, P.C. Anet T. McGarvey Dated: October 2, 2006 C? ? -r7 - fV ? ;c t ` y Yj ` #30 Oct. 25, 2006 - Argument THOMAS SMARSH, D.C. V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 2006 -1556 CIVIL TERM IN RE: DEFENDANTS' PRELIMINARY OBJECTIONS BEFORE GUIDO, EBERT, JJ. ORDER OF COURT AND NOW, this 11TH day of DECEMBER, 2006, after review of the record as well as the briefs filed by the parties, and having heard argument thereon, Defendants' Preliminary Objections are DISMISSED. By the Court, Edward E. Guido, J. (,James J. Kutz, Esquire Barbara A. Zemlock, Esquire 17 North Second Street, 12TH Floor Harrisburg, Pa. 17101 .01enn R. Davis, Esquire 1700 Bent Creek Blvd, Suite 140 Mechanicsburg, Pa. 17055 Court Administrator :sld AIN" 3? 63 :6 triv Z 1 333 9oo1 zo I IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants NOTICE TO PLEAD You are hereby notified to file a written response to the enclosed New Matter within twenty (20) days from service hereof or a judgment may be entered against you. No. 06-1556 Civil Term LATSHA DAVIS YOHE & McKENNA, P.C. Dated: ?4 O zoo By ctlfl?_Z?10 Glenn R. Davis Attorney No. 31040 Andrea E. Dean Attorney No. 86301 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 (717) 620-2424 Attorneys for Defendants, Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C. IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA THOMAS SMARSH, D.C., Plaintiff V. No. 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants DEFENDANTS' ANSWER TO COMPLAINT WITH NEW MATTER, COUNTERCLAIM AND AFFIRMATIVE DEFENSES AND NOW, COMES, Defendants, Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C., by and through their attorneys, Latsha Davis Yohe & McKenna, P.C., and files this Answer and states in support thereof as follows: 1. Admitted. 2. Admitted. 3. Admitted in part and Denied in part. It is denied that Frank Liberti, D.C. (hereinafter "Liberti"), is the owner of Defendant Spinal-Aid Centers of America, Inc. (hereinafter "Spinal-Aid"). It is admitted that Defendant Liberti is a shareholder of Defendant Spinal-Aid who has its principal business office at 44175 East Bay Drive, Suite 104, Clearwater, Florida. 4. Denied. It is denied that Defendant Liberti worked in concert with and used Spinal-Aid for his individual, personal benefit. To the contrary, Defendant Liberti, as stated above, is a shareholder of Spinal-Aid and also an employee thereof. 5. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 6. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 7. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. FACTUAL BACKGROUND 8. Denied. The averments of this paragraph attempt to paraphrase the language of a written document, which document speaks for itself. 9. Denied. The averments of this paragraph attempt to paraphrase the language of a written document, which document speaks for itself. By way of further answer, it is admitted that Defendant Spinal-Aid entered into franchise agreements with qualified professionals from time to time, however, it is specifically denied that Defendant Liberti entered into such agreements in an individual capacity as alleged and/or implied by this Complaint. 10. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is deemed necessary, Defendant Spinal-Aid does enter into franchise agreements with qualified individuals, which relationship also involves the franchisee having entered into a proprietary information agreement and having received a franchisee offering circular. 11. Admitted. 116786 2 12. Admitted. It is admitted that in the fall of 2005, Smarsh began negotiating with Spinal-Aid for the purpose of entering into a franchise agreement. 13. Admitted. It is admitted that in the fall of 2005, Defendant Spinal-Aid forwarded a franchise agreement, among other documents including a franchise offering circular, to Smarsh. 14. Admitted. It is admitted that Smarsh did not sign the franchise agreement in its original form. 15. Admitted. It is admitted that Smarsh attempted to negotiate with Defendant Spinal-Aid through Defendant Liberti over certain terms and conditions of the franchise agreement. 16. Admitted. It is admitted that Smarsh was advised that the franchise fee was $29,950, discounted to $24,995, but the fee would be increasing to $37,500 in November 2005. 17. Denied. It is denied that Smarsh continued to negotiate concerning the initial franchise fee. Although there were discussions with regard to the initial franchise fee, Spinal-Aid made it clear that the discounted fee would be no lower than $24,995, which fee was accepted by Smarsh. 18. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. By way of further answer, it was clearly articulated to Smarsh that the discounted franchise fee was $24,995, which fee was accepted by Smarsh. 19. Admitted. 116786 3 20. Admitted. It is admitted that Defendant Spinal-Aid negotiated Smarsh's check for $22,500 as part payment of the franchise fee. 21. Denied. It is denied that Defendants negotiated with another "doctor of chiropractic for the same franchise rights in the same zip code area as that which Dr. Smarsh believed he had secured." 22. Admitted in part and Denied in part. It is admitted that Smarsh attempted to negotiate certain other changes to the standard terms and provisions of the franchise agreement. It is denied that Smarsh negotiated all of his changes including a rejection of the franchise fee to his alleged $22,500. To the contrary, a franchise fee of $24,995 was agreed upon. 23. Denied. Upon information and belief, the averments of this paragraph attempt to characterize a written document, which content of such written documents speaks for itself. 24. Admitted. It is admitted that Defendant Liberti on behalf of Spinal-Aid authored an October 10, 2005, email addressed to Smarsh which addressed amendment language to the franchise agreement and proprietary information agreement and franchise circular. The content of that document speaks for itself. Moreover, again, in this email, the franchise fee was represented to be $29,950, discounted to $24,995, and going up to $37,500 in November [2005]. 25. Denied. The averment of this paragraph attempts to paraphrase the content of a written document, which document speaks for itself. 116786 4 26. Admitted in part and Denied in part. It is admitted that Smarsh forwarded a revised franchise agreement to Defendant Spinal-Aid, which agreement was signed by Smarsh and dated October 14, 2005. The remaining averments of this paragraph are denied 27. Denied. Although a franchisee is required to purchase a decompression table, there are various tables and distributors from whom it could be purchased. 28. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. By way of further answer, the attached check appears to be from a firm named Chiropractic Management and not from Smarsh, as represented in this averment. 29. Denied. Spinal-Aid complied with all terms and conditions of the franchise agreement in its dealings with Smarsh. Smarsh attended the franchisee training in Spinal-Aid's facility in Florida and received materials while in attendance. 30. Admitted. It is admitted that Keith J. Kanouse of Kanouse & Walker, P.A., issued an email transmittal to Smarsh. The contents of that email speak for themselves. 31. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 32. Admitted. It is admitted that Keith J. Kanouse, an attorney for Spinal-Aid, issued a letter dated January 25, 2006, in which he advised Smarsh that he was in default of the franchise agreement. By way of further answer, the content of the January 25, 2006, letter speaks for itself; moreover, Smarsh never cured these defaults. 116786 5 33. Denied. The content of the January 25, 2006, correspondence speaks for itself. After reasonable investigation, Answering Defendants are without information or belief as to what Dr. Smarsh believed terms to be which were agreed upon. 34. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 35. Denied. Defendants provided a signed copy to Smarsh. 36. Denied. To the contrary, Smarsh traveled to Florida and received training from Spinal Aid with regard to the franchise agreement. Smarsh also is alleged to have purchased a decompression table in furtherance of franchisee obligations. Upon information and belief, Smarsh also began representing himself as a Spinal-Aid franchise. Based upon these actions of Smarsh, it is denied that he reasonably reached the conclusion that Spinal-Aid did not accept or consent to the modifications and revisions to the franchise agreement. 37. Admitted in part. It is admitted that SmarWs counsel issued a letter dated February 2, 2006, which letter speaks for itself. 38. Admitted. It is admitted that counsel for Spinal-Aid issued a notice of termination of franchise agreement to Smarsh dated February 15, 2006, which letter speaks for itself. COUNTI Declaratory Relief Thomas Smarsh, P.C. v. Spinal Aid Centers of America, Inc., and Frank Liberti, D.C. 116786 6 39. The responses to Paragraphs 1 through 38 above are incorporated herein by reference. 40. Admitted in part and Denied in part. It is admitted that Spinal-Aid offered Smarsh an opportunity to participate in the franchise system. To the extent that this paragraph implies that Defendant Liberti offered same in an individual capacity, the averments are specifically denied. 41. Admitted. It is admitted that Smarsh did not accept and enter into the franchise agreement in its originally provided form but in a form that was agreed to by the parties. 42. Admitted. 43. Denied. Smarsh clearly understood that the discounted initial franchise fee was $24,995, however, he failed to pay same. He rather made a partial payment of $22,500 in fulfillment of his franchisee obligations. 44. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 45. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 46. Admitted. To the extent that this averment implies that Smarsh made a partial payment of the initial franchisee fee, the averment is admitted. 47. Denied. To the contrary, the agreement was executed and thereafter, Smarsh underwent his franchisee training in Florida. 116786 7 48. Denied. As stated in No. 35 above, an executed copy was provided to Smarsh. 49. Admitted. By way of further answer, the franchise fee was represented and agreed by the parties to be $24,995. Smarsh has failed to provide a copy of any written document which establishes that the initial franchise fee was as he alleges, $22,500. To the contrary, the documentation he relies upon in his Complaint, specifically Exhibits "A" and "B," establishes the initial franchise fee to be $24,995. 50. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is required, the averments of this paragraph attempt to characterize language of a written document, which document speaks for itself. 51. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 52. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 53. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 54. Admitted. It is admitted that Smarsh paid Spinal-Aid the sum of $22,500 as a partial down payment of the initial franchise fee. 55. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. By way of further answer, Smarsh received 116786 8 franchisee training and materials, which, upon information and belief, he continued to use in his practice. 56. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is required, after reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 57. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 58. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. WHEREFORE, Answering Defendants respectfully request that this Honorable Court dismiss the Complaint and this Count I and award such other relief to Defendants as it deems just and reasonable. COUNT II Unjust Enrichment Thomas Smarsh, P.C. v. Spinal Aid Centers of America, Inc. 59. The responses to Paragraphs 1 through 58 above are incorporated herein by reference. 60. Denied as stated. It is admitted that Smarsh forwarded $22,500 to Defendant Spinal Aid. It is denied that Smarsh could have reasonably believed that this was a valid contract, if by this, Smarsh means for the franchisee fee of $22,500. To the contrary, Smarsh understood that fee to be $24,995. 116786 9 61. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 62. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. WHEREFORE, Answering Defendants respectfully request that this Honorable Court dismiss the Complaint and this Count II and award such other relief to Defendants as it deems just and reasonable. COUNT III Estoppel Thomas Smarsh, P.C. v. Spinal Aid Centers of America, Inc., and Frank Liberti, D.C. 63. The responses to Paragraphs 1 through 62 above are incorporated herein by reference. 64. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is required, after reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 65. Denied. Smarsh was advised that his franchise needed a decompression table which could be obtained from various distributors. 66. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 116786 10 67. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 68. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 69. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 70. Denied. After reasonable investigation, Answering Defendants are without information or belief as to the truthfulness of this statement. 71. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 72. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. 73. The averment of this paragraph constitutes a conclusion of law to which no responsive pleading is required. WHEREFORE, Answering Defendants respectfully request that this Honorable Court dismiss the Complaint and this Count III and award such other relief to Defendants as it deems just and reasonable. NEW MATTER (Affirmative Defenses/Counterclaim) Affirmative Defenses 74. The responses to Paragraphs 1 through 73 above are incorporated herein by reference. 116786 11 75. Plaintiff has failed to state a claim against Defendants upon which relief can be granted. 76. Plaintiff assumed a risk of injury and this action is therefore barred by the doctrine of assumption at risk. 77. Defendants affirmatively plead all bars, limitations and rights under the franchise agreement. 78. Plaintiff's claims are barred to the extent that he has failed to mitigated alleged damages. WHEREFORE, Defendants respectfully request that this Honorable Court enter judgment in their favor and against Plaintiff and dismiss the Complaint. Counterclaim 79. The responses to Paragraphs 1 through 78 above are incorporated herein by reference. 80. In the fall of 2005, Plaintiff/Counterclaim Defendant Thomas Smarsh contacted Defendant/ Counterclaim Plaintiff Frank Liberti in his capacity as a representative of Defendant Spinal-Aid Centers of America, Inc., Counterclaim Plaintiff, seeking information with regard to the purchase of a Spinal Aid Center franchise. 81. Soon after that contact, Smarsh and Spinal-Aid began negotiating Smarsh's purchase of a franchise wherein Smarsh would operate a Spinal-Aid Center under the terms and conditions of a franchise agreement. 82. After various discussions, Spinal-Aid through Liberti responding to Smarsh's negotiation efforts indicated certain terms with which it was in agreement to 116786 12 modify in the franchise agreement, as well as indicating that the discounted franchise fee would be $24,995. 83. The final negotiations between the parties were set forth in an email dated October 10, 2005, from Liberti to Smarsh. See Complaint, Exhibit "B," incorporated herein by reference. 84. By email dated October 7, 2005, Smarsh had questioned whether the initial franchise fee was $24,900 or $19,999. See Exhibit 1 attached and incorporated by reference. 85. Liberti s response to Smarsh's inquiry was that the response made October 10, 2005, was that the purchase price was $24,995 and due Friday [October 14, 2005]. 86. Smarsh amended the franchise agreement, dated it October 14, 2005 (the due date), executed the agreement and forwarded it to Spinal-Aid. 87. Smarsh did not complete Section 1.01 with regard to the initial franchise fee which was agreed to by the parties to be $24,995. 88. Soon after its receipt, Spinal-Aid through Liberti accepted and signed the franchise agreement and communicated its acceptance to Smarsh. 89. After the parties had entered into the franchise agreement, Smarsh traveled to Spinal-Aid's facility, then located in Clearwater, Florida, and underwent franchisee training. 116786 13 90. Upon his return from franchise training, Smarsh undertook the establishment of his Spinal-Aid Center located at 3514 Trindle Road, Camp Hill, Pennsylvania 17011. 91. Smarsh failed to install the proper trade dress as required by the franchise agreement. 92. Smarsh failed to utilize approved equipment and equipment suppliers as required by the franchise agreement. 93. In late fall 2005, Smarsh had discussions with Liberti with regard to Smarsh's failure to meet the requirements of a franchisee. 94. By email dated December 30, 2005, Keith Kanouse, franchise attorney for Spinal-Aid, advised Smarsh that he was in default under the terms and conditions of the franchise agreement. See Exhibit 2 attached and incorporated herein. 95. By letter dated January 25, 2006, Smarsh received notice of default under the terms and conditions of the franchise agreement. See Complaint, Exhibit "E," incorporated herein by reference. 96. To date, Smarsh has failed to cure the noticed defaults. 97. By letter dated February 15, 2006, Smarsh was notified by Spinal-Aid through Attorney Kanouse that he had failed to cure the franchise agreement defaults and as a result, the franchise terminated. See Complaint, Exhibit "G," incorporated herein by reference. 98. To date, Smarsh has failed to cure any of the noticed defaults. 99. To date, Smarsh has failed to pay the required initial franchise fee. 116786 14 100. To date, Smarsh has failed to pay the required franchise management fees. 101. To date, Smarsh has failed to return the manuals, virtual doctor software program and confidential and proprietary franchise information as required by the franchise agreement. COUNTI Breach of Contract Franchise Agreement 101. Paragraphs 1 through 101 above are incorporated herein by reference. 103. Smarsh and Spinal-Aid entered into a binding and enforceable franchise agreement on or after October 14, 2005. 104. Smarsh has failed to perform as a franchisee as required under the franchise agreement. 105. Smarsh failed to install the trade dress as required under the franchise agreement. 106. Smarsh failed to purchase and install the necessary treatment equipment as required under the franchise agreement. 107. Smarsh has failed to fulfill his obligations under the terms and conditions of the franchise agreement. 108. Smarsh failed to pay the initial franchise agreement fee as required under the franchise agreement. 109. Smarsh failed to make payment to Spinal-Aid as required under the franchise agreement. 116786 15 110. Smarsh's failure to meet his obligations under the franchise agreement constitutes a breach of the franchise agreement between himself and Spinal-Aid. 111. Spinal-Aid has been harmed and continues to be harmed by Smarsh's failure to pay the fees and charges under the franchise agreement. WHEREFORE, Counterclaim Plaintiff Spinal-Aid respectfully requests that this Honorable Court enter judgment in its favor and against Counterclaim Defendant Smarsh in an amount in excess of $23,435.00, and award attorney's fees, costs, penalties, damages, interest and any other relief that this Court deems to be appropriate. COUNTII Breach of Contract Proprietary Information Agreement 112. Paragraphs 1 through 111 above are incorporated herein by reference. 113. On or after February 2006, Smarsh has refused and failed to return confidential information provided to him by franchisor, Spinal-Aid, which includes but is not limited to the confidential operations manual, virtual doctor software program, business plans, marketing plans, strategies and other information having been provided to him by Spinal-Aid. 114. On or after February 2006, Smarsh continued to use the proprietary information having been provided to him by franchisor, Spinal-Aid, in the continued operation of his business. 116786 16 115. On or after February 2006, Smarsh has engaged in a business whose products and methods of operation are similar to those of franchisor, Spinal-Aid, its subsidiaries or affiliates, or any of its franchisees. 116. On or after February 2006, Smarsh has engaged in conduct to canvas and solicit business in competition with the business of franchisor, Spinal-Aid, its affiliates and/or its franchisees from their present, former or prospective customers or has advised such customers to curtail or cancel their business. 117. On or after February 2006, Smarsh has engaged in conduct which is in breach of the proprietary information agreement which is attached to the Complaint as Exhibit "A" and incorporated herein. 118. Smarsh's failure to return the confidential materials as well as his continued practice in direct competition with the business of Spinal-Aid constitutes a breach of the proprietary information agreement. 119. Spinal-Aid has been harmed and continues to be harmed by Smarsh's failure to comply with the terms and conditions of the proprietary information agreement. 120. Smarsh's actions in violation of the proprietary information agreement have caused irreparable harm to Spinal-Aid and as such, Spinal-Aid is entitled to a permanent injunction against Smarsh's future acts in violation of the agreement. WHEREFORE, Counterclaim Plaintiff Spinal-Aid respectfully requests that this Honorable Court find liability on behalf of Counterclaim Defendant Smarsh and enter judgment in its favor and against Counterclaim Defendant Smarsh and not only 116786 17 permanently enjoin Smarsh from such further conduct but also award Counterclaim Plaintiff attorney's fees, costs, penalties, damages, interest and any other relief that this Court deems to be appropriate. Respectfully submitted, LATSHA DAVIS YOHE & McKENNA, P.C. Dated: BYG?-,L2) 1 . q -? Glenn R. Davis Attorney No. 31040 Andrea E. Dean Attorney No. 86301 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 (717) 620-2424 Attorneys for Defendants, Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C. 116786 18 VERMCATION The undersigned hereby verifies that the statements of fact in the foregoing are true and correct to the best of my knowledge, information and belief. I understand that any false statements therein are subject to the penalties contained in 18 Pa. C. S. 9 4904, relating to unsworn falsification to authorities. Dated: 60 .?-- Page 3 of 3 P proprietary information agreement Section 5 spinal aid will end not chiropractic. Correct, but C,D and E remain to prevent you from hiring any Spinal Aid employees or ex-employees or take any Spinal Aid patients away from any other Spinal Aid entity. (c) will not silicate business but will take if they seek out us. I suppose? You said if this does not work you will take the table back ...is that still true. Yes and here is my qualifier. I do not wish for anyone -to suffer through any losses. I. would like to hold you to agree to reasonably follow our advice - however, I feel It is best if I simply come to the aid of anyone who is unable to make it work. I expect this to exist in only 5% of the cases. I hope it's not you, but if It is, certainly agree to "re-market" the table, which means I will sell it for you to, the next chiropractor in line to purchase a table. It would only require 2 to 6 weeks to sell. Fair enough? Hope this meets with your approval. PS: The purchase price discount is 24,995. Friday is the due date. From D0Cl0Ib7ll 3*0J&C0M To: CAWWMM.MM Subject: 0?AYa/lfaa ft a fee Date: FN, 7Oct2WS10-19.57 ®T On page 4-it.says the Initial Franchise Fee is 24,900. and 19,999..if paid within 5 days-Thaf's still good right.? Tom Tuesday, October 11, 2005 America Online: Doctorsmarsh ?xH???l i .'? Page 1 of 1 Sub): Spinal Aid Center Date: 12/30/20051:12:30 P.M. Eastern Standard Time From: kelthfkanouse.oom To: doctorsmarsh9haol.com CC: [Iibertl msn.com Dr. Smarsh - I think you don't fully understand your legal situation. You are in default under the Franchise Agreement for failing to follow the required specifications for the wall system, a integral component of the Franchise. Rather than send you a notice of default and then terminate you for your failing to conform without any payments to you, my client is willing to refund a significant portion of the Initial franchise fee. You are free to keep the table but must return the Manuals, the Virtual Doctor and other confidential and proprietary information. Alternatively, Dr. Liberti will assist you In selling the table but you must continue to pay the interest and then pay-off the finance company. This course of action will save you time and significant attorney's fees. Please get back to me with your decision. Keith J. Kanouse Kanouse & Walker, P.A. One-Boca Place Suite 324 Atrium, PMB #1070 2255 Glades Road Boca Raton, FL 33431 561-451-8090 Fax: 561-451-8089 Kelth(MKanouse.com Tuesday, January 10, 2006 America Online: Doctorsmarsh CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first-class United States mail, postage prepaid, upon the following: James J. Kutz, Esq. Post & Schell, P.C. 17 North Second Street, 12th Floor Harrisburg, PA 17101 Dated: O Da_ -'D QYjO Glenn R. Davis c'? ,?, ?'' ??'? ? t? ?p?: ? 7-' ` ? ij *..? -:. ?t"? ? ? L w. -y " V + ? 1 THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff vs. No.: 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants NOTICE TO PLEAD TO: Spinal-Aid Centers of America, Inc. and Frank Liberti, D.C. Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 You are hereby notified to file a written response to the enclosed New Matter to Counterclaim within twenty (20) days from service hereof or a judgment may be entered against you. SCHELL, P. Jkrnes J. Kutz, Attdnrey4B-#21589 Barbara A. Zemlock, Esquire Attorney ID #58891 17 North Second Street, 12'h Floor Harrisburg, PA 17101 (717) 731-1970 Dated: September 7, 2007 CPH 391237v1 THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff vs. : No.: 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants DR. SMARSH'S ANSWER TO NEW MATTER AND ANSWER AND NEW MATTER TO COUNTERCLAIM Plaintiff/Counterclaim Defendant, Thomas Smarsh, D.C. ("Dr. Smarsh"), by and through his attorneys, Post & Schell, P.C., files this Answer to Defendants' New Matter and this Answer and New Matter to Defendants' Counterclaim as follows: ANSWER TO NEW MATTER 74. Dr. Smarsh incorporates herein by reference Paragraphs 1 through 73 of his Complaint by reference as if set forth in full. 75. Paragraph 75 constitutes a conclusion of law to which no response is required. 76. Paragraph 76 constitutes a conclusion of law to which no response is required. 77. Paragraph 77 constitutes a conclusion of law to which no response is required. 78. Paragraph 78 constitutes a conclusion of law to which no response is required. WHEREFORE, Dr. Thomas Smarsh, D.C., respectfully requests that this Honorable Court enter an Order: (a) Declaring that "no meeting of the minds" occurred between Dr. Smarsh and Defendant Spinal-Aid as to the terms of the agreement; (b) Declaring that no franchise agreement exists between Dr. Smarsh and Defendant Spinal-Aid; (c) Requiring Defendant Spinal-Aid to return to Dr. Smarsh the initial franchise fee that was paid by Dr. Smarsh in the amount of $22,500.00; (d) Directing either Defendant Spinal-Aid or Liberti to take possession of the decompression table and compensate Dr. Smarsh for the same in the sum of $50,945.00; and (e) Awarding such other relief to Dr. Smarsh as this Court deems just and reasonable. ANSWER TO COUNTERCLAIM 79. Dr. Smarsh incorporates herein by reference as if set forth in full Paragraphs 1 through 73 of his Complaint and Paragraphs 75 through 78 as set forth above. 80. Denied as stated. In the fall of 2005, Dr. Smarsh received a faxed advertisement from Defendants/Counterclaim Plaintiffs touting the success of their Spinal-Aid franchise. In response, Dr. Smarsh contacted the Defendants/Counterclaim Plaintiffs and, specifically, Liberti, to obtain information concerning the purchase of a Spinal-Aid Center franchise. 81. Denied as stated. In the fall of 2005, Dr. Smarsh began negotiating with the Defendants/Counterclaim Plaintiffs, specifically in the person of Liberti, for a franchise agreement through which Dr. Smarsh could independently own and operate a Spinal-Aid Center. 82. Denied. Dr. Smarsh attempted to negotiate with the Counterclaim Plaintiffs over certain terms and provisions that were set forth in the form Franchise Agreement provided to him by the Counterclaim Plaintiffs, including the amount of the initial franchise fee. At some point, documentation was provided to Dr. Smarsh by the Defendants/Counterclaim Plaintiffs which reflected that the initial franchise fee was $19,999. At some later point, Dr. Smarsh was advised that the Defendants'/Counterclaim Plaintiffs' position was that the initial franchise fee was -2- $24,995.00. This sum was not accepted by Dr. Smarsh. Defendants/Counterclaim Plaintiffs did indicate that they agreed to certain proposed terms. 83. Denied. The e-mail attached as Exhibit "B" does not reflect the "final negotiations," and Dr. Smarsh never agreed to pay an initial franchise fee of $24,995.00. 84. Paragraph 84 attempts to interpret and characterize an e-mail, which is a writing that speaks for itself and any interpretation or characterization of the same inconsistent therewith is denied. By way of further answer, Dr. Smarsh believed that the initial franchise fee that he was to pay was $19,999.00. 85. Admitted in part and denied in part. It is admitted that Liberti advised Dr. Smarsh that the "purchase price" was $24,995.00, due Friday. Dr. Smarsh denies any implication that he agreed to the purchase price of $24,995.00; Dr. Smarsh did not agree to that price. 86. Denied as stated. Dr. Smarsh made changes to the Franchise Agreement, some of which were in addition to those referenced in a prior e-mail sent to Defendants/Counterclaim Plaintiffs, and forwarded the same to the Defendants/Counterclaim Plaintiffs for review and, if they agreed to the same, for acceptance. At that time, however, the purchase price had not yet been agreed upon. 87. Admitted in part and denied in part. It is admitted that, with respect to the proposed Franchise Agreement sent to Defendants/Counterclaim Plaintiffs by Dr. Smarsh, Dr. Smarsh did not complete Section 1.01 with regard to the initial franchise fee. Dr. Smarsh denies that he agreed to pay $24,995.00 as the initial franchise fee or "purchase price." Instead, Dr. Smarsh tendered to Defendants/Counterclaim Plaintiffs a check for $22,500.00, a sum which -3- proposed as the initial franchise fee. That check was cashed by Defendants/Counterclaim Plaintiffs. 88. After reasonable investigation, Dr. Smarsh is without sufficient information or knowledge to form a belief as to the truth of the matter asserted that the Defendants/Counterclaim Plaintiffs signed the Franchise Agreement presented to them by Dr. Smarsh with his proposed changes and, therefore, this allegation is denied; strict proof thereof is demanded. By way of further answer, Dr. Smarsh never received a signed copy of the Franchise Agreement and was not advised timely that Defendants/Counterclaim Plaintiffs did not accept Dr. Smarsh's counter offer. Dr. Smarsh denies that the Defendants/Counterclaim Plaintiffs accepted his proposed modifications to the Franchise Agreement; although Dr. Smarsh was not immediately aware that Defendants/Counterclaim Plaintiffs actually rejected his counter-offer, such later became apparent via correspondence from counsel for Defendants/Counterclaim Plaintiffs to Dr. Smarsh. 89. Denied. After Dr. Smarsh sent his counter-offer to Defendants/Counterclaim Plaintiffs, Dr. Smarsh traveled to the Defendants/Counterclaim Plaintiffs' facility in Clearwater, Florida to undergo franchisee training. It is expressly denied that the parties "entered into" the Franchise Agreement. 90. Admitted. At that time, Dr. Smarsh believed that the parties had, in fact, reached an agreement, although Dr. Smarsh was never provided with an executed copy of the Franchise Agreement. -4- 91. Denied. First, the trade dress used by Dr. Smarsh was appropriate and, had the Franchise Agreement been in effect, would have complied with the same. Nevertheless, no agreement was reached between the parties. 92. Denied. First, the equipment and suppliers used by Dr. Smarsh were appropriate and, had the Franchise Agreement been in effect, Dr. Smarsh would have been in compliance with the same. Nevertheless, no agreement was reached between the parties. 93. Denied as stated. In the fall of 2005, Liberti contacted Dr. Smarsh to complain that Dr. Smarsh did not use a particular vendor. Dr. Smarsh denies that the vendors that he used were inappropriate. Nevertheless, no agreement was reached between the parties. 94. Paragraph 94 attempts to interpret and characterize an e-mail which is a writing that speaks for itself and any interpretation and characterization of the same inconsistent with the written terms is denied. By way of further answer, Dr. Smarsh denies that he was in default of the Franchise Agreement, as Dr. Smarsh's counter-offer was not accepted by Defendants/Counterclaim Plaintiffs. 95. Admitted in part and denied in part. It is admitted that by letter dated January 25, 2006, Dr. Smarsh was advised that he was in default of the Franchise Agreement. Dr. Smarsh denies any implication, however, that he was in default of any such agreement or, frankly, that any such agreement existed. The January 25, 2006 letter reflects that Defendants/Counterclaim Plaintiffs never accepted Dr. Smarsh's counter-offer but, instead, rejected the same. 96. Paragraph 96 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. There is no default to "cure," as no agreement was reached between the parties. -5- 97. Paragraph 97 attempts to interpret and characterize a letter, which is a writing that speaks for itself and any interpretation or characterization of the same inconsistent with its terms is hereby denied. By way of further answer, there was no agreement to terminate, as no agreement existed. 98. Paragraph 98 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. There is no default to "cure," as the parties never reached an agreement. 99. Denied. Dr. Smarsh paid to the Defendants/Counterclaim Plaintiffs an initial franchise fee of $22,500.00, the sum of money which he agreed to pay. 100. Denied. No management fee is owed to Defendants/Counterclaim Plaintiffs, as no Franchise Agreement was reached by the parties. 101. Admitted in part and denied in part. Dr. Smarsh admits that he is in possession of certain materials provided to him by Defendants/Counterclaim Plaintiffs. Dr. Smarsh denies any implication that he is using the information or materials. The information and materials have been in a box waiting to be shipped. COUNTI BREACH OF CONTRACT - FRANCHISE AGREEMENT 101. [sic) Dr. Smarsh incorporates herein by reference as if set forth in full Paragraphs 1 through 73 of his Complaint and Paragraphs 75 through 101 as set forth above. 103. [sic] Paragraph 103 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. -6- 105. Paragraph 105 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. 106. Paragraph 106 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. 107. Paragraph 107 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. 108. Paragraph 108 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. By way of further answer, Dr. Smarsh paid to Defendants/Counterclaim Plaintiffs a sum of money which he offered as the initial franchising fee, to wit: $22,500.00. Defendants/Counterclaim Plaintiffs cashed that check. 109. Paragraph 109 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. 110. Paragraph 110 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. -7- 111. Paragraph 111 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No binding and enforceable agreement was reached between the parties. WHEREFORE, Counterclaim Defendant Thomas Smarsh, D.C. respectfully requests that this Honorable Court enter judgment in his favor and dismiss Counterclaim Plaintiffs' counterclaim, with prejudice, and for such other relief as this Court deems just and reasonable. COUNT II BREACH OF CONTRACT - PROPRIETARY INFORMATION AGREEMENT 112. Dr. Smarsh incorporates herein by reference as if set forth in full Paragraphs 1 through 73 of his Complaint and Paragraphs 75 through 111 as set forth above. 113. Admitted in part and denied in part. Dr. Smarsh admits that he is in possession of certain materials provided to him by Defendants/Counterclaim Plaintiffs. Dr. Smarsh denies any implication that he is using the information or materials. The information and materials have been in a box waiting to be shipped. 114. Denied. Dr. Smarsh has not used any proprietary information provided to him by the Defendants/Counterclaim Plaintiffs in the operation of his business. 115. Denied. Dr. Smarsh has not used any proprietary information provided to him by the Defendants/Counterclaim Plaintiffs in the operation of his business. 116. Denied. Dr. Smarsh is a licensed chiropractor who has been practicing chiropractic in Cumberland County, Commonwealth of Pennsylvania for, approximately, 21 years. Dr. Smarsh has not "targeted" Spinal-Aid business. Furthermore, despite Defendants'/Counterclaim Plaintiffs' efforts to negotiate with another doctor for a Spinal-Aid -8- franchise in Dr. Smarsh's area, to the best of Dr. Smarsh's knowledge, there is no Spinal-Aid Center in the area in which he practices and with whom he is competing. 117. Paragraph 117 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No proprietary agreement was reached between the parties. 118. Paragraph 118 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No proprietary agreement was reached between the parties. 119. Paragraph 119 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No proprietary agreement was reached between the parties. 120. Paragraph 120 is a conclusion of law to which no response is required. To the extent that a response is deemed required, this allegation is denied. No proprietary agreement was reached between the parties. WHEREFORE, Counterclaim Defendant Thomas Smarsh, D.C. respectfully requests that this Honorable Court enter judgment in his favor and dismiss Counterclaim Plaintiffs' counterclaim, with prejudice, and for such other relief as this Court deems just and reasonable. NEW MATTER TO COUNTERCLAIM 121. Dr. Smarsh incorporates herein by reference as if set forth in full Paragraphs 1 through 73 of his Complaint and Paragraphs 75 through 120 as set forth above. 122. No meeting of the minds occurred between Dr. Smarsh and the Counterclaim Plaintiffs concerning the terms and conditions of a franchise agreement. -9- 123. No meeting of the minds occurred between Dr. Smarsh and the Counterclaim Plaintiffs concerning the terms and conditions of a Proprietary Information Agreement. 124. No binding and enforceable Franchise Agreement exists or existed between the parties. 125. No binding and enforceable Proprietary Information Agreement exists or existed between the parties. 126. The Counterclaim fails to state a claim upon which relief can be granted. 127. Counterclaim Plaintiffs' claims are barred by the defense of performance. 128. Counterclaim Plaintiffs' claims are barred by the defense of failure of consideration. 129. Counterclaim Plaintiffs' claims are barred by the defense of fraud. WHEREFORE, Counterclaim Defendant Thomas Smarsh, D.C. respectfully requests that this Honorable Court enter judgment in his favor and dismiss Counterclaim Plaintiffs' counterclaim, with prejudice, and for such other relief as this Court deems just and reasonable. Respectfully submitted, POST & SCHELL, P.C. Jamfs J. Kutz, Barbara A. Zemlock, Es re Attorney ID #58891 17 North Second Street, I2L' Floor Harrisburg, PA 17101 (717) 731-1970 Dated: September 7, 2007 -10- Tay ?! od 5 o' oomvc? to t° 1t of tom bje to *0 90tvfor& a 0006 1woom ?•?? so aid ? tee ?can ate in th° lo? ?e? tao,adt ?+a` ? ? Ibe urid? ti) am of1gV06 C.s• 1404 muj?us 0 0 0 13 ?- Ile! -F - Q? con " ? IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants No. 06-1556 Civil Term DEFENDANTS' ANSWER TO NEW MATTER TO COUNTERCLAIM AND NOW, COMES, Spinal-Aid Centers of America, Inc. and Frank Liberti, D.C., ("Counterclaim Plaintiffs") by and through their attorneys, Latsha Davis Yohe & McKenna, P.C., and file this Answer to New Matter to Counterclaim and state in support thereof as follows: 121. Counterclaim Plaintiffs incorporate paragraphs 1 through 120 of their Answer to Complaint with New Matter, Counterclaim and Affirmative Defenses herein by reference. 122. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. 118053 123. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. 124. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is required, it is denied that no binding and enforceable franchise agreement exists between Counterclaim Defendant and Counterclaim Plaintiffs. 125. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. To the extent that a responsive pleading is required, it is denied that no binding and enforceable proprietary information agreement exists between Counterclaim Defendant and Counterclaim Plaintiffs. 126. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. 127. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. 128. The averments in this paragraph constitute a conclusion of law to which no responsive pleading is required. 118053 2 WHEREFORE, Defendants/Counterclaim Plaintiffs respectfully requests that this Honorable Court enter judgment in their favor and against Plaintiff/Counterclaim Defendant. Respectfully submitted, LATSHA DAVIS YOHE & McKENNA, P.C. Dated: Z / 0 By_ ? 7 Glenn R. Davis Attorney No. 31040 Andrea E. Dean Attorney No. 86301 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 (717) 620-2424 Attorneys for Defendants, Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C. 118053 3 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing document was served by first-class United States mail, postage prepaid, upon the following: James J. Kutz, Esq. Post & Schell, P.C. 17 North Second Street, 12th Floor Harrisburg, PA 17101 Dated: 2 0 -7 Andrea E. Dean 11W53 4 G ? Y'P'i ( "' • C3 =' - rn 4 ? - PRAECIPE FOR LISTING CASE FOR TRIAL (Must be typewritten and submitted in duplicate) TO THE PROTHONOTARY OF CUMBERLAND COUNTY Please list the following case: ? for JURY trial at the next term of civil court. ® for trial without a jury. ---- - -- - -- - --------- - -------------------------- - -------- - -------------------- - - - ------------ - ------ ------- CAPTION OF CASE (entire caption must be stated in fulo (check one) Thomas Smarsh, D.C. (Plaintiff) vs. Spinal-Aid Centers of America, Inc., and Frank Liberti, D.C. (Defendant) VS. ® Civil Action - Law ? Appeal from arbitration (other) The trial list will be called on and Trials commence on Pretrials will be held on (Briefs are due S days before pretrials No. 1556 , 2006 Term Indicate the attorney who will try case for the party who files this praecipe: James J. Kutz, Esquire, Post & Schell, P.C. Indicate trial counsel for other parties if known: Glenn R. Davis, Esquire, Latsha Davis Yohe & This case is ready for trial. Date: Print J. Kutti- Csa. Attorney for: Plaintiff r f CERTIFICATE OF SERVICE I, James J. Kutz, Esquire, do hereby certify that I have caused a true and correct copy of the foregoing Praecipe for Listing Case for Trial to be served on the person and in the manner as set forth below: U.S. First Class Mail Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 Dated: February 17, 2009 POST & SCHELL, P.C. ? ws o ? v OD CD co r? ti.. i7 S77 r _J v THOMAS SMARSH, D.C. V. SPINAL-AID CENTERS OF . AMERICA, INC., and FRANK LIBERTI, D.C. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA 2006 - 1556 CIVIL TERM ORDER OF COURT AND NOW, this 41-H day of MARCH, 2009, a pretrial conference in the above captioned matter is SCHEDULED for 3 f ??•Wd 4 •? ' in Chambers of the T undersigned judge, Cumberland County Courthouse, Carlisle, Pennsylvania. Pretrial memorandum shall be submitted by counsel in accordance with C.C.R.P. 212-4, at least five (5) days prior to the pretrial conference. ? James J. Kutz, Esquire Glenn R. Davis, Esquire t?o;?r eS' M3t! s? I Edward E. Guido, J. AD A THOMAS SMARSH, D.C. IN THE COURT OF COMMON PLEAS OF Plaintiff CUMBERLAND COUNTY, PENNSYLVANIA V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants NO. 2006-1556 CIVIL TERM IN RE: PRETRIAL CONFERENCE A pretrial conference was held on Thursday, April 2, 2009, before the Honorable Edward E. Guido, Judge. Present for the Plaintiff was Barbara A. Zemlock, Esquire, and present for the Defendants was Glenn R. Davis, Esquire. This is a relatively straightforward contract agreement in which there is a claim for a refund of a franchise fee, as well as equipment purchased in connection with the franchise. There is a counter-claim for payment of balance due under the franchise fee. The parties estimate that this will take one day to try. We have scheduled trial for June 1, 2009, to commence at 9:30 a.m. The parties are directed to pre-mark all exhibits. All exhibits shall be exchanged with opposing counsel by May 1, 2009. Any objections to the exhibits other than relevancy shall be made in the form of a motion in limine. All motions in limine, with supporting authority, shall be filed by May 15, 2009. All responses, with supporting authority, shall be filed by May 28, 2009. The parties are working towards a settlement. However, at this time, settlement does not appear likely. Page 2 - Pretrial conference 2006-1556 Civil Term Xarbara A. Zemlock, Esquire Post & Schell 17 North Second Street 12th Floor Harrisburg, PA 17101-1601 Attorney for Plaintiff X nn R. Davis, Esquire atsha, Davis, Yohe & McKenna 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 Attorney for Defendants Court Administrator ?''Gt?? srs ryf?? r"1-.: FF i { •C Wd C- M 6901 Awia,jf ii.? d 3'Hi Z10 '01:'2 -03111 THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff VS. No.: 06-1556 Civil Term SPINAL-AID CENTERS OF AMERICA, INC., and t; = i FRANK LIBERTI, D.C. Defendants c PLAINTIFF'S MOTION IN LIMINE TO EXCLUDE y DEFENDANTS' EXHIBIT "J" c Plaintiff Thomas Smarsh, D.C. ("Dr. Smarsh"), by and through his attorneys, Post & Schell, P.C., pursuant to this Court's Pre-Trial Order regarding the Pre-Trial Conference ("Pre- Trial Conference Order"), files this Motion in Limine to Exclude Defendants' Exhibit "J" and, in support hereof, states as follows: 1. In accordance with this Court's Pre-Trial Conference Order, on May 1, 2009, Dr. Smarsh was served with Defendants' proposed exhibits for use at trial, which trial is scheduled for June 1, 2009. 2. Identified as Defendants' Exhibit "J" is a letter from the undersigned counsel to counsel for Defendants dated February 2, 2006. 3. The February 2, 2006 letter from the undersigned counsel was sent to counsel for Defendants in an effort to attempt to amicably resolve the claims between the parties and Defendants' Exhibit "J" constitutes an offer to compromise. 6413355v1 4. Pennsylvania Rule of Evidence 408, which pertains to compromise and offers to compromise, provides as follows: (a) Prohibited uses. Evidence the following is not admissible on behalf of any party, when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction: (1) furnishing or offering or promising to furnish - or accepting or offering or promising to accept - a valuable consideration in compromising or attempting to compromise the claim; and (2) conduct or statements made in compromise negotiations. (b) Permitted uses. This rule does not require exclusion if the evidence is offered for purposes not prohibited by subdivision (a). Examples of permissible purposes include proving a witness's bias or prejudice; negating a contention of undue delay; and proving an effort to obstruct a criminal investigation or prosecution. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. Pa.R.E. 408. 5. Insofar as Exhibit 'T' constitutes an offer to compromise and there is no conceivable theory which would place it within those uses permitted by Rule 408(b), Exhibit' ' must be excluded at trial. 6. Pursuant to Local Rule of Court 208.3(a), the concurrence of counsel for Defendants as it relates to this Motion in Limine to Exclude Defendants' Exhibit 'T' has been sought. Counsel for Defendants is currently assessing the issue; we will update the Court upon his response regarding the same. -2- WHEREFORE, Dr. Smarsh respectfully requests this Honorable Court enter an Order granting this Motion and precluding Defendants from using or introducing Defendants' Exhibit "J" at trial. Respectfully submitted, POST & SCHELL, P.C. Jamb J. Atto ey ID 21589 Barbar a lock, Esquire Attorney ID #58891 17 North Second Street, 12th Floor Harrisburg, PA 17101 (717) 731-1970 Dated: May 15, 2009 -3- CERTIFICATE OF SERVICE I, Janet T. McGarvey, an employee of Post & Schell, P.C., do hereby certify that I served a true and correct copy of the foregoing Plaintiff s Motion in Limine to Exclude Defendants' Exhibit "J" to be served on the person and in the manner as set forth below: Via Hand Delivery: Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 POST & SCHELL, P.C. (::,? ,,? P-/ I a,4anet T. McGarvey Dated: May 15, 2009 t'.r- ? ? ?r 1 + + L. a THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA NO. 2006-1556 CIVIL TERM ORDER OF COURT AND NOW, this 3rd day of June, 2009, after hearing, we enter the following verdict: 1. Since the franchise agreement was not signed by Defendant Spinal-Aid Centers of America, Inc., within seven days of its receipt from Plaintiff, no binding agreement was ever reached. 2. By its express terms the agreement was not binding upon Spinal-Aid Centers of America, Inc., unless signed within seven days of its receipt from Plaintiff. Therefore, Plaintiff was not justified in relying upon the existence of an agreement when he incurred costs in connection with starting the franchise. 3. Since the agreement contained an integration clause, the Plaintiff was not justified in relying upon prior representations that he would be reimbursed for the "table" he purchased if the franchise did not work out. 4. We find in favor of Plaintiff and against Defendant Spinal-Aid Centers of America, Inc., in the amount of $22,500.00. 5. We find that Defendant Frank Liberti was at all times acting in his capacity as an officer of Spinal-Aid Centers of America, Inc., and not as an individual. Therefore, `t • Plaintiff is not entitled to recover against Defendant Frank Liberti. 6. While we are satisfied that the Plaintiff attempted to return all proprietary information provided to him by Defendant Spinal-Aid Centers of America, Inc., to the extent that he may still have access to a copy of the "Virtual Doctor," he is enjoined from using any portion thereof. ? James T. Kutz, Esquire Attorney for Plaintiff ,,"*G51enn R. Davis, Esquire Attorney for Defendants srs `I? j? '_ 0 :? I'J jl' f' 6007. ?r 'Hi THOMAS SMARSH, D.C., IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA Plaintiff VS. No.: 2006-1556 Civil Tenn SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C. Defendants PRAECIPE TO THE PROTHONOTARY: Please enter final judgment in favor of Plaintiff and against Defendant, Spinal-Aid Centers of America, Inc. only in the amount of $22,500.00 sur the verdict of June 3, 2009 in the above-referenced matter. A copy of the Order of Court entering the verdict at paragraph 4 thereof is attached hereto. POST & S Ja J. utz, Esquire Attorney #21589 v Barbara A. 7emlock, Esquire Attorney ID #58891 17 North Second Street, 12th Floor Harrisburg, PA 17101 (717) 731-1970 Dated: June 26, 2009 6462715v1 a THOMAS SMARSH, D.C., Plaintiff V. SPINAL-AID CENTERS OF AMERICA, INC., and FRANK LIBERTI, D.C., Defendants IN THE COURT..OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA, NO. 2006-1556 CIVIL TERM ORDER OF COURT AND NOW, this 3rd day of June, 2009, after hearing, we enter the following verdict: 1. Since the franchise agreement was not signed by Defendant Spinal-Aid Centers of America, Inc., within seven days of its receipt from Plaintiff, no binding agreement was ever reached. 2. By its express terms the agreement was not binding upon Spinal-Aid Centers of America, Inc., unless signed within seven day's of its receipt from Plaintiff. Therefore, Plaintiff was not justified in relying upon the existence of an agreement when he incurred costs ia connection with starting the franchise. 3. Since the agreement contained an integration clause, the Plaintiff was not justified in relying upon prior representations that he would be reimbursed for the "table" he purchased if the franchise did not work out. 4. We find in favor of Plaintiff and against Defendant Spinal-Aid Centers of America, Inc., in the amount of $22,500.00. 5. we find that Defendant Frank Liberti was at all times acting in his capacity as an officer of Spinal-Aid Centers of America, Inc., and not as an. individual. Therefore, CERTIFICATE OF SERVICE I, James J. Kutz, Esquire, of Post & Schell, P.C., do hereby certify that I served a true and correct copy of the foregoing Praecipe to be served on the person and in the manner as set forth below: Glenn R. Davis, Esquire Latsha Davis Yohe & McKenna, P.C. 1700 Bent Creek Boulevard, Suite 140 Mechanicsburg, PA 17050 The Honorable Edward E. Guido Cumberland County Courthouse One Courthouse Square Carlisle, PA 17013-3387 POST & SCHELL, P.C. i James U6, Dated: June 26, 2009 Plaintiff is not entitled to recover against Defendant Frank Liberti. 6. While we are satisfied that the Plaintiff attempted to return all proprietary information provided to him by Defendant Spinal-Aid Centers of America, Inc., to the extent that he may still have access to a copy of the "Virtual Doctor," he is enjoined from using any portion thereof. James T. Kutz, Esquire Attorney for Plaintiff Glenn R. Davis, Esquire Attorney fox Defendants srs OE THE F. ; . «',N v T,,Py . 2009 JUN 30 PH 1: S 1 414.00 Po ATTI CK.w` t 3593 aa741 17