What collateral does Aunt Millies Bakeries use for the distributor notes receivable?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
- §3.7 SECURITY INTEREST: To secure the payment of any indebtedness or liability of DISTRIBUTOR to AUNT MILLIE'S, now or hereafter arising, pursuant to this Agreement or otherwise, DISTRIBUTOR hereby grants and conveys to AUNT MILLIE'S a continuing and general security interest in the Distribution Rights, all other assets used in connection with the exercise and operation of the Distribution Rights, all rights hereunder and all Products and receivables of the DISTRIBUTOR, and grants to AUNT MILLIE'S the rights of a secured party. DISTRIBUTOR agrees to execute the AUNT MILLIE'S Security Agreement and financing statement(s) to evidence such security interest. Any default under the AUNT MILLIE'S Security Agreement by DISTRIBUTOR shall be a default under this Agreement.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries's 2025 Franchise Disclosure Document, to secure any debts or liabilities a distributor owes to Aunt Millie's, the distributor grants Aunt Millie's a continuing security interest in several assets. These assets include the distribution rights themselves, all other assets used in connection with operating the distribution rights, all rights under the Distribution Agreement, and all products and receivables of the distributor.
This means that if a distributor takes out a loan or incurs debt to Aunt Millie's, Aunt Millie's has a legal claim on these assets. If the distributor defaults on their obligations, Aunt Millie's can seize these assets to recover the debt. This is a significant consideration for potential franchisees, as it puts a substantial portion of their business assets at risk.
Furthermore, the distributor must sign Aunt Millie's Security Agreement and financing statements to formally document this security interest. Any failure to comply with the Security Agreement constitutes a default under the Distribution Agreement, potentially leading to further repercussions. This arrangement is a standard practice in franchising to protect the franchisor's financial interests, but franchisees should fully understand the implications before signing the agreement.