What is the dependency between establishing an Affiliate Franchised Bhc Restaurant and granting subfranchises to third parties?

According to Bhc's 2025 Franchise Disclosure Document, a Master Franchisee must first establish and operate at least one Affiliate Franchised Bhc Restaurant before they are allowed to grant subfranchises to third parties. This Affiliate Franchised Bhc Restaurant must be within the Development Area and operate under a separate Subfranchise Agreement with the Master Franchisee. An Affiliate Franchisee is defined as any entity controlled by, controlling, or under common control with the Master Franchisee.

This requirement ensures that the Master Franchisee has practical experience in operating a Bhc restaurant before licensing others. By first running an Affiliate Franchised Bhc Restaurant, the Master Franchisee can gain first-hand knowledge of the Bhc system, operations, and standards. This experience is intended to better equip them to support and train subfranchisees effectively.

The FDD also states that the Master Franchisee must open at least one Franchised Bhc Restaurant before granting rights to third-party Subfranchisees. This restaurant can be operated by the Master Franchisee's affiliate. The location of this initial restaurant will be specified in an exhibit attached to the Franchise Agreement once determined.

This prerequisite is a protective measure by Bhc to maintain brand consistency and quality control as it expands its franchise network. It ensures that those responsible for developing the brand in a given area have a proven understanding of the Bhc business model before they are authorized to bring on additional franchisees.