How is 'Net Operating Income' defined for the purpose of the Step-In Payment from C12 Group?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event that Franchisor assumes the operation of the Franchised Business as described herein, Franchisor shall pay Franchisee fifty percent (50%) of the Net Operating Income of the Franchised Business for three (3) months (the "Step-In Payment").
The "Net Operating Income" means the Gross Revenue of the Franchised Business less (i) payment of the Royalty Fees to Franchisor that Franchisee would have paid but for the termination of this Agreement and (ii) all other expenses incurred by Franchisor while operating the Franchised Business.
Franchisor may, in its sole discretion, attempt to sell the Franchised Business, but Franchisor shall have no obligation to do so.
If Franchisor does not sell or otherwise decides to close the Franchised Business, there will be no compensation to Franchisee.
If Franchisor sells the Franchised Business within three (3) months of termination of this Agreement, Franchisor will pay Franchisee the amount that Franchisor receives for the Franchised Business less the Step-In Payment that Franchisor has already paid to Franchisee.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 C12 Group Franchise Disclosure Document, "Net Operating Income" is specifically defined in the context of a scenario where C12 Group terminates the franchise agreement for cause and then chooses to operate the franchised business temporarily. In this situation, C12 Group may provide the franchisee with a "Step-In Payment."
For the purpose of calculating the Step-In Payment, Net Operating Income is defined as the Gross Revenue of the Franchised Business less two deductions. The first deduction is the amount of Royalty Fees that the franchisee would have paid to C12 Group if the termination had not occurred. The second deduction includes all other expenses incurred by C12 Group while it is operating the Franchised Business.
In the event C12 Group decides to sell the franchised business within three months of the termination, the franchisee will be paid the amount that C12 Group receives for the business, less the Step-In Payment that C12 Group has already paid to the franchisee. However, if C12 Group chooses to close the franchised business instead of selling it, the franchisee will not receive any compensation.