How does the litigation history of Aerus (Item 3) compare to the business experience of its management (Item 2)?

Thomas L. Lozano; Carmel D.*

Lozano; and California High Speed Reproduction, Inc., (May 24, 2018) No. 2018CP-2800468, in the Court of Common Pleas for the Fifth Judicial District of South Carolina

Our affiliate Aerus Enterprise Solutions, LLC ("AES"), Joseph P. Urso and Kevin Hickey were named as defendants in a lawsuit filed by a former distributor of AES products, Enviro Professionals, LLC ("EnviroPro"). EnviroPro's claims included, among others: (1) civil conspiracy; (2) violation of the South Carolina Trademarks and Service Marks Act; (3) violation of the South Carolina Unfair Trade Practices Act; (4) breach of contract; (5) breach of contract accompanied by fraudulent act; (6) violation of the South Carolina Trade Secrets Act; (7) tortious interference with contractual relations; and (8) breach of fiduciary duty. AES disputed these claims and has sought to consolidate this South Carolina lawsuit with an arbitration proceeding related to the same set of facts pending with the American Arbitration Association in Dallas County, Texas. The damages sought by the plaintiff included injunctive relief, money damages, and attorneys' fees. The disputed issues largely center on (1) termination of the distributor relationship between AES and EnviroPro, (2) whether EnviroPro is entitled to recover any unpaid commissions and (3) the parties' respective rights to use certain trademarks. By agreement, dated June 5, 2019, the parties settled this case, as well as all arbitration proceedings. The settlement agreement provided, among other things, that (a) AES pay $350,000 to one of the owners of EnviroPro, (b) EnviroPro agreed to sell AES all rights to all intellectual property (e.g., trademarks, trade names, Internet domain names) owned or controlled by EnviroPro and relating to its business, and (c) one of EnviroPro's owners agreed to enter into a non-compete agreement that would prohibit him from, among other things, selling, marketing and distributing air purification, water purification and laundry treatment products, in exchange for a payment from AES. The case was dismissed on June 17, 2019.

Other than the action listed above, no other litigation is required to be disclosed in this Item.

Item 4

BANKRUPTCY

No bankruptcy information is required to be disclosed in this item.

Item 5

INITIAL FEES

Good Faith Deposit and Initial Franchise Fee

We may require that you pay us a good faith deposit of $100, 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 $100 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:

| Program | Initial Franchise Fee (less the amount of any good faith deposit paid) | |---|---| | Standard Program | $3,000 | | Associate Program | $1,000 | | Beyond Addendum (Standard Program) | $100 | | Beyond Addendum (Associate Program) | $100 | | Inventory (Standard Program) | $15,000 to $90,000 | | Inventory (Associate Program) | $5,000 to $20,000 | | Goodwill (Standard Program) | 0 to $200,000 | | Goodwill (Associate Program) | 0 to $25,000 | | Furniture, Fixtures, and Equipment (Standard | $2,500 to $15,000 | | Program) | | | Furniture, Fixtures, and Equipment (Associate | $2,000 to $5,000 | | Program) | | We can require you to purchase required furniture, fixtures, and equipment (including the computer system) from us, our affiliate, or designated suppliers.

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 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.

The Beyond Addendum fee is only applicable to franchisees who sign a Beyond Addendum.