If a Benihana franchisee has not operated the restaurant for three fiscal years before termination, how is the Termination Fee calculated?

According to Benihana's 2024 Franchise Disclosure Document, the calculation of the termination fee for a franchisee who has not operated the restaurant for three full fiscal years before termination is based on the royalties paid. Specifically, the termination fee is calculated by totaling the royalties paid for all complete fiscal years before the termination date. This total is then divided by the number of those full fiscal years. The resulting average is then multiplied by three to determine the termination fee.

For a prospective Benihana franchisee, this means that if the franchise agreement is terminated before the restaurant has been in operation for three full fiscal years, the termination fee will be a multiple of the average annual royalties paid during the operating period. This is different from the standard calculation, which is based on the aggregate royalties paid during the three fiscal years immediately before termination.

This method of calculation could be beneficial or detrimental to the franchisee depending on the restaurant's performance. If the restaurant was performing poorly and paying lower royalties, the termination fee would be lower. Conversely, if the restaurant was performing well, the termination fee could be higher than anticipated. It is important for potential franchisees to understand this calculation and factor it into their financial planning and risk assessment.