“Electrolux” brand vacuum and floor care products have been sold in North America since 1924 In 1998, the Electrolux business in the United States and Canada was acquired by Electrolux LLC, the current owner In 2000, Electrolux LLC, completed a transaction to sell its “Electrolux” brand name rights It developed a new brand name “Aerus” and retained certain non-exclusive rights in and to the brand names ‘ Electrolux” and “Lux” based upon license agreements with Aktiebolaget Electrolux, the purchaser In 2001, Electrolux LLC changed its name to Aerus LLC and formed a subsidiary Aerus Franchising, LLC, to offer franchising rights In 2013, it established “Beyond by Aerus” as a new name brand for Its proprietary line of products, services and treatments that create and maintain allergy friendly, clean and healthy indoor environments. We grant franchises to qualified individuals and business entities for the right to establish and operate businesses that (i) market, distribute and sell our line of air purification, water purification, water conditioning, floor care and other environmental products for homes and businesses, including access ones, attachments, parts and supplies, (ii) provide testing for indoor environmental contaminants and market, distribute and sell products, services and treatments for the control of indoor environmental contaminants, and (in) perform product repair, maintenance and related services for our products and certain products of our competitors (collectively the “Products”'! Our Products bear or are identified by the trade name, trademark or service mark ‘ Beyond”, ‘ Beyond by Aerus”, “Aerus”, “Lux”, ‘ Electrolux” or certain other mdicia owned, licensed or otherwise contracted for by us (the “Marks”') which are marketed, distributed and sold through (among other channels) a network of independent franchisees, operating from permitted fixed locations, and their permitted distributors, licensees and sales representatives, who each assume responsibility for their own marketing, promotion, sales and distribution of the Products, directly or indirectly, to the end-user, consuming public “Beyond Products” mean those Products marketed, distributed and sold under the “Beyond by Aerus” Mark We have developed a distinctive and proprietary system (the “System”) for establishing and operating businesses that offer and sell the Products The distinguishing characteristics of the System include, among other things identification by the Marks, distinctive exterior and interior design, decor, color scheme and furnishings, fixtures and other trade dress elements, proprietary products, standards, specifications, policies and procedures for construction, management and operations, quality, distinctiveness and uniformity of products and services, standards, specifications, procedures and automated, software driven administrative systems for customer, lead, inventory, sales and financial management and control, sales, recruiting and lead generation programs, training and assistance, and advertising and promotional programs all as are more particularly described and designated in the Manuals (as defined below) and all of which we may change, improve, and further develop at our sole option from time to time “Manuals” refer to our confidential operations manuals, including the Policies and Procedures, and other manuals and written materials (including electronically stored or communicated materials) developed by us for use m the operation of Aerus Businesses Our “Policies and Procedures” include those policies, procedures, practices, rules and regulations developed by us for use in the operation of Aerus Businesses We refer to businesses which operate under the Standard and Associate Programs (each defined below) as “Aerus Businesses.” and to the specific business that you will operate as the “Franchised Business ”.
Mr Urso has served as Manager and our Chief Executive Officer since our inception Mr Urso has also served as Chairman and CEO of Aerus EEC since 1998 Mr Urso holds similar titles with our affiliated entities Mr Urso maintains an office at our Dallas, Texas location. Mr Christoff has served as Manager since January 2006 He has also served as our Chief Legal Officer, Secretary and Treasurer since January 2011 He has held various titles with us since 2006, including serving as our President from July 2005 through November 2010 Mr Christoff also serves as Chief Legal Counsel of Aerus, and holds similar titles with our affiliated entities Mr Christoff maintains his office at our Dallas, Texas location. Mr Hickey has served as our Manager, Chief Operating Officer and Assistant Secretary since January 2006 He has also served the Executive Vice President of Operations, Chief Operating Officer and Assistant Secretary of Aerus since 2006 In November 2010, he was appointed President of Aerus Mr Hickey holds similar titles with our affiliated entities Mr Hickey maintains his office at our Dallas, Texas location. Mr Euisi IS the Executive Vice President of Sales of Aerus. Mr Euisi joined Aerus' predecessor in 1971 as a sales representative Since that time he has held the positions of Branch Manager, Regional Manager and Area Vice President Additionally, Mr Euisi is a principal owner of an independent Aerus Business Mr Euisi maintains an office at our Dallas, Texas location. Mr Coyle is the Executive Vice President, Business Development of Aerus and he has held this position since January 2018 Mr Coyle previously joined Aerus in 2006 as Vice President of Training and Education From March 2009 through March 2014, Mr Coyle served as the Executive Vice President of Vollara, EEC in Dallas, Texas He was promoted to President and Chief Executive Officer of Vollara, EEC in April 2014 and held that role until October 2017. Mr Johnson is the Vice President, Sales Operations of Aerus and has had that title since September 2013 Prior to that, he held the title of Director, Sales Operations of Aerus and held that title since at least 2009 Mr Johnson joined Aerus' predecessor in 1998 and has held various titles throughout that time Mr Johnson holds similar titles with certain of our affiliated entities, Mr Johnson maintains his office at our Bristol, Virginia location. Mr Abel is the Area and Regional Franchise Director of Aerus and has had that or similar titles since September 2012 Additionally, Mr Abel was the principal owner of an independent Aerus Business from 2003 to 2011 Mr Abel maintains an office at our Dallas, Texas location.
We grant to third parties the license and right to operate under 1 of 2 franchise programs, known as (i) the standard franchise program (the “Standard Program”) and (ii)the associate franchise program (the “Associate Program”), each of which offer and sell certain of the Products, are identified by certain of the Marks and use certain elements of the System, all as determined from time to time by us The type of businesses operated under each of these programs possess each of the four following characteristics (i) they are identified by the Marks, (ii) they are primarily engaged in the offer and sale of the Products, to either (a) non-commercial, residential buyers of the Products, or (b) commercial buyers who are not designated m the Manuals as “national accounts” and who are not engaged, and not anticipated to be engaged, in the sale of any clearing, purification, health improvement or other consumer products or services, who, in either case, are purchasing the Products for such customer's use or consumption and not for re-sale (“Approved Customers”), (in) they operate from one or more pre-authorized physical locations that serve as retail locations, service centers, recruiting and training centers(each, an “Approved Location”), and (iv) they operate m accordance with the System Although the type of businesses operated under each of the programs are similar, there are key and important differences in the programs Some of the key differences between the programs are summarized below and are noted throughout this Disclosure Document Unless otherwise noted in this Disclosure Document, the programs are similar. As our franchisee, you will offer and sell the Products designated by us under the franchise program under which you operate Most of the Products in your inventory will be held on consignment until sold Consequently, we or our affiliate will determine the prices at which the Products will be sold The Products that you hold on consignment and offer for sale are referred to in this Disclosure Document as the “Consigned Products ” When you sell any Consigned Products, you will be required to remit payment to us or our affiliate The amount of that payment is referred to as the “Standard Allocation” The Standard Allocation is established by us(in the Manuals or otherwise m writing) and will vary based upon the franchise program you elect and your sales volume We or our affiliate will provide to you an initial and ongoing inventory of Consigned Products In connection with these Consigned Products, you must maintain with us a security deposit (“Security Deposit'”).
We may require that you pay us a good faith deposit of$500, together with delivering to us a commitment letter, a sample of which is attached as Exhibit 7 to this Disclosure Document, before we will send an execution copy of the Franchise Agreement to you The requirement of the $500 good faith deposit is dependent upon information disclosed to us in your application, such as work history, credit worthiness, previous franchise experience, references and/or previous work history with us or other Aerus franchisees If we require the good faith deposit. It will be applied to the initial-franchise-fee-and is only refundable if we choose not to enter into the Franchise Agreement with you. You must pay us the following non-refundable initial franchise fee at the time you sign a Franchise Agreement, which will vary depending on the type of Franchised Business you wish to operate. As an incentive to recruit new franchisees into the business, we may waive or discount the initial franchise fee for franchises in certain states (including Hawaii, Maryland, Minnesota, New York, Virginia and Washington), a good faith deposit is not required, and the initial franchise fee will be deferred until your business is open and operational. Inventory You will be required to maintain an inventory of Consigned Products and aftermarket and service parts You will purchase the aftermarket and service parts from us or one of our affiliates You will pay to us or one of our affiliates a Security Deposit equal to 90% of the total Standard Allocation for all Consigned Products provided to you The Security Deposit is payable upon signing the Franchise Agreement, but generally collected prior to your receipt of the Consigned Products The amount of the Security Deposit will vary, depending upon what Consigned Products are in your inventory and the Standard Allocation for such Consigned Products The Standard Allocation is the amount you are required to remit to us or our affiliate upon your sale of Consigned Products The Standard Allocation is based upon your sales volume and whether you participate in the Standard Program or the Associate Program The estimated range for aftermarket and service parts and the Security Deposit for Consigned Products is $15,000 to $90,000 under the Standard Program and $5,000 to $20,000 under the Associate Program We or our affiliate will hold the Security Deposit as security against all monies that you owe us or our affiliates, including payment of all fees due and debts incurred under the Franchise Agreement (including your indemnification obligations) We or our affiliates may offset against the Security Deposit all monies that you owe to us or our affiliates We will provide you notice of any offsets made If such an offset is made, you must immediately replenish the Security Deposit We have no obligation to maintain the Security Deposit in a separate account, and we may co-mingle the Security Deposit with any of our accounts or funds You are not entitled to any interest on the Security Deposit You may need to increase the Security Deposit from time to time depending on your inventory requirements for Consigned Products If the Standard Allocation for any Consigned Product in your possession increases, you may be required to increase the amount of your Security Deposit Purchase of an Existing Aerus Business. If you are purchasing an existing Aerus Business from our affiliate, you will also enter into an asset purchase agreement on mutually acceptable terms You will pay to our affiliate the negotiated purchase price for the assets of the business you will be acquiring The purchase price for business assets generally ranges from $2,000 to $215,000 which includes (1) goodwill, including any phone numbers and pre-paid advertisements ($0 to $200,000) and (2) fair market value of furniture, fixtures and equipment ($2,000 to $15,000) The value of goodwill depends on such factors as the geographic location of the Aerus Business, the amount of time the Aerus Business has existed m its general location and the number of customers serviced by the Aerus Business If you are purchasing an existing Aerus Business from our affiliate, you may also enter into a sublease or assignment of lease for the premises of the Franchised Business Rent and other charges will vary among locations under the Premises Sublease, and will depend primarily on the terms of the underlying real estate lease Sponsors We may pay fees to existing franchisees (sometimes referred to as ‘ Sponsor”) for referring or recommending potential franchisee or distributor candidates to us Such fees to Sponsor may include recurring monthly fees and product credits based on your performance (ranging from $5 to $100 per product sold by you) These fees will only be earned and paid to Sponsor If the candidate is actually awarded a franchise to operate an Aerus Business or right to distribute Aerus products Sponsor is not authorized to act as our agent or franchise broker and is not instructed to provide any information to prospects Similarly, neither Sponsor nor any other franchisee is authorized to (1) award franchises of Aerus Business, (2) make any claims or representations regarding the operation of the Aerus Business, or (3) alter, amend, modify, interpret or change any aspect of the Franchise Agreement or our Franchising Programs You should not rely on any statements, claims, or representations which may have been made to you by Sponsor or other franchisees In certain circumstances, we may reduce initial fees and finance initial fees for our exiting franchisees, people working for our existing franchisees and franchisees opening or operating multiple locations Last year, the initial fees ranged from approximately $5,000 to $16,000 Except as described above, initial fees are uniformly imposed and nonrefundable and we do not offer financing for the initial franchise fees.
We are not obligated to offer financing to any franchisee However, we or our affiliates may offer financing for(i) initial fees, (ii) Security Deposit, (iii) accessories, parts and supplies purchased from us or our affiliate, and (iv) the purchase of the assets of any existing Aerus Business that you may be acquiring fi-om us or one of our affiliates The amount financed and the terms of the financing will vary, based upon, among other things, the performance of the Aerus Business as measured by the number of Products sold, the goodwill associated with the location and your creditworthiness We anticipate that you will make an initial down payment ranging from approximately $2,500 to $50,000 The balance will be paid m equal monthly installments until paid in full or as we or our affiliates may otherwise determine The debt may be pre-paid without penalty If you default under your payment obligations, we may terminate the Franchise Agreement If you finance any amount, you must sign a secured promissory note (“the Note”) in the form attached to this Disclosure Document as part of Exhibit 3 The Note will be guaranteed by any principals of the Franchised Business in the following cases (i) fraud or misrepresentation in connection with the execution or performance of the Franchise Agreement, the Note or any other financing agreements, (ii) theft or conversion of the assets of us or any of the our affiliates including any consigned goods or proceeds from the sale of any consigned good (which may include selling such consigned goods at prices below the required prices), misuse or infringement of any trademark or other item of intellectual property or right owned or licensed by us or any of our affiliates, or (iv) breach or violation of any license granted under the Franchise Agreement concerning such trademarks and intellectual property Additionally, you will be required to execute a Security Agreement and Guarantee (in the forms attached to this Disclosure Document as part of Exhibit 3), financing statement end any other related documents as necessary or reasonable to protect and perfect the interest of us or our affiliate, as lender The Note will bear interest from 0% to 7% per annum (or the maximum rate permitted by applicable law, whichever is less) and will have a term ranging from one to five years. Except in very limited circumstances, the inventory security deposit and initial franchise fee must be paid in cash and neither we nor an affiliate will finance the Security Deposit or the Initial Franchise Fee The Note is governed by Texas law See Exhibit 3 Events of default under the Note include (i) failure to pay amounts within 5 days of the due date, (ii) fraud or misrepresentation m connection with the execution of or performance under the Franchise Agreement, the Note or any other financing agreements, (in) theft or conversion of our assets or any of the assets of our affiliates, including any Consigned Products or proceeds from the sale of any Consigned Products (which may include selling Consigned Products at prices below the required prices), (iv) misuse or infringement of any trademark or other item of intellectual property or right owned or licensed by us or any of our affiliates, (v) bankruptcy or insolvency of you or your guarantors, (vi) default under any Franchise Agreement with us, and (vii) default under any agreement, document, or instrument or any franchise or other agreement entered into with us or our affiliates, which default or breach continues beyond any period of grace therein provided We and our affiliates do not sell, assign, or discount to a third party all or part of any financing offered We do not receive any consideration for any financing you place with a third party lender.
The FTC's Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included m the Disclosure Document Financial performance information that differs from that included m Item 1_9 may be given only if (1) a franchisor provides actual records of an existing outlet you are considering buying, or (2) a franchiser supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances This Item 19 contains 3 sets of charts, each of which describe the historical performance of certain Aerus locations during the 52-week period ended December 31, 2018 The first set of charts describes “Net Sales,” which IS defined as gross sales minus all discounts The second set of charts describes “Cost of Goods Sold,” which IS defined as amounts paid to us for machines and parts, plus royalties paid on labor revenue and certain parts revenue In these charts. Cost of Goods Sold is represented as a % of Net Sales, sorted by Net Sales quartile rankings The third chart describes the Fixed Operating Expenses of certain franchised locations owned by our affiliate “Fixed Operating Expenses” is defined as the general overhead incurred in the operation of a location Included in Fixed Operating Expenses are expenses for rent, telephone, utilities, credit card fees, office supplies, insurance, shipping costs, and administrative fees paid to us Excluded from Fixed Operating Expenses are, among other things, sales commissions, salaries and payroll taxes for employees such as a general manager, service coordinator or sales coordinator, advertising fees and expenses, interest, royalty fees, legal fees, security deposits, restocking fees, and contest participation fees Affiliate-owned franchised locations are excluded from the first two sets of charts (i e , those describing Net Sales and Cost of Goods Sold) because their revenue is not representative of a typical franchised location Affiliate-owned franchised locations were typically repurchased from a franchisee that exited the business and are held until a new buyer is found The affiliate-owned franchised locations may not have active sales representatives and typically are not managed for growth m the way that an independently-owned location would be Net Sales and Cost of Goods Sold figures were obtained from our FOAS system, a proprietary sales and inventory tracking program that all franchise owners are required to use In the Combined Charts (Chart 1 A and 2 A), all amounts are stated in U S dollars (for Canadian locations within the Combined Charts, Canadian dollars were converted to U S dollars at the ratio of 76 U S dollar to one Canadian dollar This was approximately the average exchange rate for the 52-week period ended December 31, 2018 In the Canada only charts (Charts 1 C and 2 C), all amounts are stated in Canadian dollars Figures for individual quartiles represent the average performance of all locations within the quartile The first of the locations described in this Item 19 to begin operations opened for business in 2003 The locations consist primarily of strip malls and shopping centers, and are located in urban, suburban and rural locations All locations described m this Item 19 offers for sale substantially the same products and services as you will offer and sell under the Standard Program.