Does Burros Fries have an obligation to release a franchisee's financial and operational information to the franchisee's lenders?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
D. Maintain Confidentiality of Proprietary Information
Neither Franchisee nor any of its Owners if you are an Entity, officers, directors, agents, employees or independent contractors, except as required in the performance of the duties contemplated by this Agreement, may disclose or use at any time, whether during the term of this Agreement or thereafter, any confidential and proprietary information disclosed to or known by Franchisee or any such person as a result of this Agreement. Such information, includes, but shall not be limited to our confidential matters and trade secrets such as our: strategies for site acquisition, build-out, design and décor specifications; distinctive Products, Services, proprietary recipes, sauces and home-made ice cream; specific food preparation techniques, methods, procedures including standards; specifications and purchasing strategies for all products, supplies and kitchen equipment; inventory management systems, vendors and supplier relationships, cost and pricing strategies, retail center setup, merchandising strategies, procedures for cleanliness, safety, sanitation and quality control; software, service methods and techniques, operational procedures, service standards, employee hiring, training and retention programs; menus, photographs of food, sales, advertising, marketing and promotional materials; forms, contracts, record keeping, reporting procedures and accounting methods, proprietary information conceived, originated, discovered, or developed by Franchisee or by any employee of Franchisee which is not generally known in the trade or industry about our Products or Services, including information relating to discoveries, ideas, production, purchasing, accounting, engineering, website development and design, marketing, merchandising or selling of Products and Services (collectively referred to as "Confidential Information" and further defined in Section 16.A of this Agreement).
Franchisee further acknowledges that the Confidential Information was unknown to Franchisee prior to negotiation for and execution of this Agreement and that the unique and novel combination of "know how," methods, processes and techniques developed by us and licensed to Franchisee for the operation of a Burros & Fries Business are particular to the food service industry conducted by your Business. Franchisee agrees to take all steps necessary, at Franchisee's expense, to protect the Confidential Information and shall not release it to any person that does not have a need to know, including employees,
agents and independent contractors, either during the term or after the termination or expiration of this Agreement without our prior written consent.
Source: Item 22 — CONTRACTS (FDD page 53)
What This Means (2024 FDD)
Based on the 2024 Franchise Disclosure Document, Burros Fries franchisees are required to maintain the confidentiality of proprietary information, which includes the economic and financial characteristics of the Burros Fries system and its franchisees. This encompasses details such as pricing policies, training methods, profitability, earnings, losses, and capital and debt structures. Franchisees must not disclose this confidential information to anyone without prior written consent from Burros Fries, except when required for the performance of their duties under the Franchise Agreement. This obligation extends both during the term of the agreement and for a period of five years after its expiration or termination.
This confidentiality requirement means that a Burros Fries franchisee is generally restricted from sharing specific financial and operational details with lenders without the franchisor's explicit permission. The franchisee is responsible for protecting this information and ensuring it is not released to any party that does not have a legitimate need to know, including employees, agents, and independent contractors. This is a standard practice in franchising to protect the franchisor's proprietary information and maintain a level playing field among all franchisees.
However, the FDD also states that the franchisee must submit copies of draft Asset Purchase Agreements, Ownership Purchase Agreements, Promissory Notes, and Security Agreements, regardless of whether they are franchisee financed or lender financed. While Burros Fries requires these documents, the FDD does not explicitly state whether Burros Fries is obligated to release a franchisee's financial and operational information to the franchisee's lenders. A prospective franchisee should clarify with Burros Fries under what circumstances, if any, the franchisor will directly provide financial information to a franchisee's lenders.