Under the Aerus agreement, what constitutes an 'Event of Default'?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition, the following shall be "Events of Default" under this Agreement: (a) Consignee shall default under this Agreement or fail to perform or observe any of the agreements or covenants set forth in this Agreement or fail to pay when due any invoice or invoices covering products subject to this Agreement; (b) Consignee shall be declared to be in default under any material contract, agreement, or instrument to which Consignee is a party with Company or Aerus Franchising, or either of their affiliates or assigns, including without limitation the Franchise Agreement and documents incidental or related thereto, and such default shall continue beyond any applicable cure period; (c) Consignee shall sell, remove, or attempt to sell, remove, or assign Collateral not in the ordinary course of business; (d) any creditor of Consignee shall obtain possession of any Collateral by means including, without limitation, levy, distraint, replevin or self-help.
An "Event of Default" shall exist hereunder if any one or more of the following events shall occur and be continuing:
- (a) Maker shall fail or refuse to pay within five (5) days after the date when due any principal of, or interest upon, this Note;
- (b) any statement, representation or warranty made by Maker to Payee shall prove to be untrue or inaccurate in any material respect when made;
- (c) default shall occur in the performance of any of the covenants or agreements of Maker contained herein or in any instrument securing this Note or any other document executed or delivered to Payee in connection herewith and such default shall continue uncured to the reasonable satisfaction of Payee for a period of fifteen (15) days after written notice thereof from Payee to Maker;
- (d) Maker or any guarantor of this Note (a "Guarantor") shall (i) apply for or consent to the appointment of a receiver, trustee, custodian, intervenor or liquidator of the Maker or such Guarantor or of all or a substantial part of the assets of the Maker or such Guarantor, (ii) file a voluntary petition in bankruptcy, admit in writing that the Maker or such Guarantor is unable to pay the debts of the Maker or such Guarantor as they become due or generally not pay such debts
as they become due, (iii) make a general assignment for the benefit of creditors, (iv) file a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against the Maker or such Guarantor in any bankruptcy, reorganization or insolvency proceeding, or (vi) take corporate action for the purpose of effecting any of the foregoing;
- (e) An involuntary petition or complaint shall be filed against Maker or any Guarantor seeking bankruptcy or reorganization of the Maker or such Guarantor or the appointment of a receiver, custodian, trustee, intervenor or liquidator of the Maker or such Guarantor, or of all or substantially all of the assets of the Maker or such Guarantor, and such petition or complaint shall not have been dismissed within forty-five (45) days after the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganization of the Maker or such Guarantor or appointing a receiver, custodian, trustee, intervenor or liquidator of the Maker or such Guarantor, or of all or substantially all of the assets of the Maker or such Guarantor;
- (f) the failure of Maker or any Guarantor to have discharged within a period of ten (10) days after the commencement thereof any attachment, sequestration, execution or similar proceeding against any portion of the property covered by the Security Agreement;
- (g) Payee's liens, mortgages or security interests in any of the collateral for this Note should become unenforceable, or cease to be first priority liens, mortgages or security interests;
- (h) The occurrence of any "default" as defined in the Franchise Agreement; or
- (i) The occurrence of any "default" as defined in any promissory note (other than this Note) or any Security Agreement, Product Sales Agreement or Asset Purchase and Sale Agreement, entered into with Payee, Aerus LLC, Aerus Canada, Inc., or any other affiliate of Payee or the breach of any of the terms or conditions of any loan agreement, document, or instrument or any franchise or other agreement entered into with Payee, Aerus LLC, Aerus Canada, Inc., or any other affiliate of Payee, which default or breach continues beyond any period of grace therein provided.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, several conditions can trigger an 'Event of Default' under the agreement. These include failing to meet obligations outlined in the agreement, such as not paying invoices when due, or defaulting on any material contract with Aerus Franchising or its affiliates, including the Franchise Agreement itself. This also extends to defaults under related documents, with the default continuing beyond any applicable cure period. Selling, removing, or attempting to assign collateral outside the normal course of business also constitutes an event of default. Furthermore, if any creditor obtains possession of collateral through legal means like levy or self-help, it is considered an event of default.
Additional events of default include failing to pay principal or interest on debt within five days of the due date, or any statement made to Aerus proving untrue or inaccurate. Defaulting in the performance of any agreement, covenant, or instrument securing the note, or any document delivered to Aerus, also constitutes an event of default if not cured within fifteen days of written notice. Events related to insolvency, such as admitting inability to pay debts, applying for a trustee, or making an assignment for the benefit of creditors, can also trigger default if they continue for thirty days. Similarly, the filing of an involuntary petition against the franchisee seeking bankruptcy or reorganization, which is not dismissed within forty-five days, can lead to default.
Further, the failure to discharge any attachment, sequestration, execution, or similar proceeding against the property covered by the Security Agreement within ten days also constitutes an event of default. If Aerus's liens or security interests in the collateral become unenforceable or cease to be first priority liens, it is also considered a default. The occurrence of any default as defined in the Franchise Agreement, any promissory note, Security Agreement, Product Sales Agreement, or Asset Purchase and Sale Agreement with Aerus LLC, Aerus Canada, Inc., or any other affiliate, or the breach of any terms or conditions of any loan agreement, document, or instrument with these entities, also constitutes an event of default if the default or breach continues beyond any provided grace period.
These 'Events of Default' are significant because they can lead to termination of the agreement and potential loss of the franchise. Prospective franchisees should carefully review all agreements and related documents to fully understand their obligations and the potential consequences of failing to meet them. It is also important to understand the cure periods, if any, associated with each type of default, as these provide an opportunity to rectify the situation and avoid termination.